Multi-family, residential remodel cited as top segments; WPC becomes important player
June 20/27, 2016; Volume 30, Number 26
By Jenna Lippin
The crest of the resilient category’s wave will seemingly not fall. The segment continues to post significant gains, with 2015’s performance perhaps the most impressive yet. Innovation combined with an upswing in some commercial markets and steady residential activity have delivered increases for both sheet and luxury vinyl tile.
The resilient upswing remains impressive with a percentage gain of 13.9% in dollars from 2014, rising from $2.392 billion to $2.724 billion. Last year’s sales also represent a 23.5% increase from 2013’s $2.206 billion and a 33.9% rise from 2012. To put things in the proper perspective, the category is up a striking $1 billion in the last five years (total resilient sales in 2010 came in at $1.722 billion).
In contrast to the change from 2013 to 2014, square footage for resilient was up a monumental 15.5% from 2.688 billion square feet two years ago to 3.145 billion in 2015. Considerable gains in the category can be attributed to several factors, particularly the growth of the sub-category often referred to as WPC/composites/rigid-core products. In total, LVT overall took up 35.6% of residential volume last year with sheet commanding 55.1%. Tile, which is basically the peel-and-stick product sold through the home center channel along with product that is less robust than LVT, captured 9.3%.
Residential LVT raked in $874.1 million in 2015, which accounts for 56.9% of overall residential resilient sales. According to industry executives, multi-family and residential remodel were the markets that drove the category’s unprecedented growth. In comparison to 2014, when residential LVT sales checked in at $630.5 million, a dollar increase of 38.6% was posted.
“For 2015 we felt there was much steadier business at retail,” said Kurt Denman, vice president, sales and marketing, Congoleum. “This seemed to be consumer confidence driven along with the recovering housing market. The combination of those two things made people willing to cut loose a few dollars. The other part of that is the shift from soft to hard surface; LVT is really benefitting most from that movement.”
Russ Rogg, president and CEO of Metroflor, agreed. “The driving force for 2015 was multi-family,” he said. “We do a lot of business there with some of our more entry-level dry back/glue down LVT specifications and with a fair amount of our Konecto [click] products. We did more in 2015 with just standard retail, residential remodel and replacement business. These are products sold through [specialty retail].”
The shift from soft to hard surface in the multi-family channel was also cited as a growth factor by Dan Natkin, senior director of residential products, Mannington. “This growth has definitely been a large contributor both in rental and owned properties. Multi-family overall has been a tremendous area of growth. LVT has played very well there.”
Jamey Block, vice president of product management for resilient at Armstrong Flooring, said the growth in multi-family and manufactured homes was “disproportionate. The strength in the multi-family new construction segment was partially offset by a weak general remodel market. As the market becomes more dynamic, we expect to see higher design in the residential market with builders and property management more focused on aesthetics.”
Other LVT manufacturers that specialize in the product have observed growing acceptance and sale surges in the subcategory across the board. Jonathan Train, president and CEO of EarthWerks, which has been making LVT for four decades, said LVT is taking market share from other flooring categories in both residential and commercial segments. “With the tremendous detail in design and performance attributes we are able to incorporate into LVT, it has become a strong competitor for all hard surface options. The ease of installation, durability and overall styling has catapulted this category to find a home in all sectors.”
Michael Raskin, president and CEO of Raskin Gorilla Floors, said LVT no longer has to be “sold.” Customers and end users are seeking out the product instead of having it presented to them by salespeople as an option. “The market for LVT is growing. More people are using it and asking for it off the bat. You don’t have to educate people about it anymore. When I first started I never imagined people would ask for LVT. It has taken on a life of its own. I think we’re in for a nice, long ride.”
Installation
On the installation side of LVT, dry back or glue down remains the method of choice, capturing 55.3% of the market, albeit down from 66.3% two years ago in terms of dollars. It is a less expensive product than click, evidenced by glue down’s 62.4% share in terms of volume. Click, however, is moving positively as it grew from about 26% in 2014 to 40.8% last year. WPC, which some estimate to have approached $200 million in 2015, is a big driver of that shift. Loose lay accounted for 3.9% of residential LVT sales in 2015.
“[Entry level] products particularly for multi-family and builder segments tend to focus primarily on glue-down LVT because that market is [value-driven],” Congoleum’s Denman explained. “We’ve seen growth in click, which tends to be more in residential, especially residential remodel. We are seeing some real growth in the multi-family use of click because they are better products not just at the opening price level but also at the next step up with options like 12 mil offerings. At the value end it’s always glue down because there is a worry about shrinking there and [glue down] is considered a more stable product. You can’t put a click installation system on an entry-level product because it is so thin the stability and integrity would be compromised.”
Metroflor’s Rogg said 2015 was the year the company finally “saw the needle shift a little more from the usual 50/50 split in dry back/glue down vs. our Grip Strip or Clic. It moved toward floating at 55% and dry back at 45%. I think that’s because our click business grew and we also began to see later in the year benefits of the launch of our Engage Genesis [rigid core] product. This is the first year we saw floating LVT overtake dry back.”
According to Raskin, many customers are simply more comfortable with traditional glue down, especially when they have qualified installers familiar with the method available for the job. “I would say with the more conservative customers, if they have good installers, they’ll always push to glue it down. It is, in my opinion, the most proven product out there that has stood the test of time. [However], click is still growing on the residential side.”
Domestic vs. imports
Similar to 2014, executives reported U.S. production has yet to affect the market shift in domestic vs. imported products. In addition, the level of comfort with Asian expertise in creating resilient products remains for those companies that still produce overseas. The overall consensus seems to support a surge in domestic popularity with shorter lead times and more trusted goods, but that has yet to occur.
“Hardly any of the domestic production last year was up and running,” said Paul Murfin, CEO, IVC US. “You really saw no impact of domestic production on the U.S. market in 2015. I think in 2016 as domestic production starts to come on stream the market will continue to grow substantially to the point where it will absorb U.S. capacity.”
Murfin’s sentiments were supported by FCNews research, which revealed 78.7% of the $1.451 billion LVT market is imported, a number that stood at 78.1% in 2014.
Raskin surmised much of LVT is still imported from Asia. Several manufacturers are currently operating like Raskin with product coming from both overseas and sites at home. This mix gives an edge in meeting customer needs in terms of quality, lead times and brand trust thanks to the Made in the USA label. “The majority [of LVT] is still from overseas and will be until multiple factories are up and running here—then you’ll see more of a shift,” he noted. “Dry-back value products from China are still a major market. The days of offering higher-priced products out of China are dwindling. Over time it’s going to be more difficult. Our plan is to be diversified. We’ve stuck to a formula: value from China, technology from Korea, now service and pride from the USA.”
EarthWerks’ Train noted the element of trust that lies in Asian factories’ expertise. “So much of the knowledge and experience in LVT was created in Asia, and Asia still has the bulk of the capacity and understanding of these products. U.S. production will continue to gain strength, but [some expect] it to be less than half of the capacity needed to service the market. For all of the different performance and styling options available in LVT there lies a variety of corresponding production needs. There is no ‘one-stop shop’ for fulfilling all of these attributes in one place.”
Sheet report
Sheet vinyl, with both residential and commercial markets combined, was up 7.6% in dollars in 2015 thanks to gains on the residential side from $537 million in both 2013 and 2014 to $597.5 million last year. Commercial sheet was down 1.4% in dollars, dropping from $219 million two years ago to $216 million last year. At least the decline is not as significant when compared to the previous year, where commercial sheet fell from $254.24 million to $219 million.
In terms of volume, residential accounts for a substantial majority of sheet’s total share at 73.4%. This is due to a greater variance of product mix in the commercial market with VCT and LVT holding significant parts of the overall pie—52.4% and 29.4%, respectively. Overall, commercial sheet checked in at 132.2 million square feet.
“For residential products, sheet vinyl is still a viable product because it has unmatched value and properties that other products can’t mimic,” Armstrong’s Block said. “It still has a strong position in kitchens, bathrooms and utilitarian applications in the home—basements, mudrooms, workout rooms, etc.”
IVC’s Murfin said sheet was also strong in multi- and single-family builder markets. “That is where a lot of the growth was. There are still viable segments in the retail part of the business as [sheet] is still the best value floor covering in the industry. I think it’s just the upper end of sheet that faces some challenges relative to the lower end of LVT.”
Sheet is also affected by the shortage of experienced, knowledgeable installers as the process for rolling out and laying down the product takes a certain level of expertise. “Many skilled installers who are immigrants left the U.S. during the economic downturn due to lack of work here,” Congoleum’s Denman explained. “The implications of this were very real for more complicated installations and can work against sheet product. But with the shortage there can be a benefit at the other end of the business with LVT. It doesn’t require the same level of skill.”
In terms of sheet construction, by most accounts fiberglass continues to grow. According to industry figures, residential fiberglass sheet took home $362.5 million last year, which is 60.7% of residential sheet overall. Compare this to five years ago, when fiberglass represented only $205 million in sales. In terms of volume, fiberglass commanded 725 million square feet, or 61.4% of residential sheet volume.
“Glass is continuing to take share and grow in relative terms to the total market,” Mannington’s Natkin said. “But there are still pockets of the country that prefer felt, particularly in markets where we’ve seen more availability of experienced installers. It is getting harder and harder to find installers who know how to seam a floor for sheet vinyl. Price is definitely a factor in addition to performance; glass performs extremely well in a thicker product. But when you start getting thinner in an effort to get a value product, glass doesn’t perform as well as a felt counterpart [with a similar thickness].”
Commercial
The commercial side of the business brought in $1.1884 billion last year, with LVT continuing to take share in the contract market as well. However, while LVT commanded a 48.5% share of commercial resilient dollars, it only captured 29.4% in volume, illustrating its position as the highest priced commercial vinyl product. At the other end of the spectrum, VCT commanded more than half of commercial resilient volume at 52.4%, or 529 million square feet of the total commercial volume of 1.01 billion square feet, but that translated to $313 million, or only 26.3% of dollars.
Metroflor’s Rogg cited education as one specific sector that is starting to specify LVT where it would have traditionally chosen VCT. “A lot of folks are looking at the value of LVT over VCT. The up-front cost of LVT products are more expensive but life-cycle costs like care and maintenance are causing a lot of school districts to look at greater up-front investments knowing the life is more effective in the long run. I think [VCT is] beginning to feel the pinch and it is going to get even worse.”
He noted an advantage in LVT over VCT lies in design options as well. “You can do so much more with LVT from a design perspective. You can make the environment feel richer and more aesthetically pleasing with LVT than you ever could with VCT.”
As previously noted, with commercial sheet down 1.4% in dollars last year its volume dropped from 15% of the commercial market in 2014 to 13.1% last year. LVT rose from 25.3% to 29.4%.
“LVT continues to take share from all categories,” said David Sheehan, vice president, commercial hard surface, Mannington Commercial. “Not much commercial sheet is sold outside of healthcare but LVT benefited in all segments—retail, healthcare, hospitality and education.”
In terms of general activity in the 2015 commercial market overall, Sheehan cited healthcare and retail as the two main driving sectors with hospitality and education contributing to activity as well. Rogg also mentioned retail as well as hospitality, noting Metroflor “did not see great gains in corporate or on the education front. Hospitality and retail was where we saw strong business.”
The WPC shakeup
Several executives on the resilient side of the industry described WPC—or composites, rigid core, etc.—as “disruptive.” While most companies are taking a “wait-and-see” approach to determine just how influential the new subcategory is, composite products are certainly making noise no matter how you look at it. Many consider it a trade-up LVT option (think “best” in a good/better/best system) or a viable alternative to laminate where water is a concern.
“Up through last year, before everyone jumped into the pool, [WPC] was playing more as a trade-up to traditional LVT or a trade over from laminate,” Congoleum’s Denman explained. “With everyone in the pool now, you’re going to see companies competing at all price points so it won’t just be a trade up; it will be ‘trade across’ at price points from traditional LVT.”
Natkin said Mannington considers composites an additional LVT option. “In a complete LVT program there will be a range that includes a thin glue down, a slightly thicker glue down and then a move up into click LVT and click rigid core. [WPC] is a natural extension of the LVT product category in and of itself. People are trying to make it its own category but it really isn’t. Residentially it is absolutely taking share as a high growth category within the upper end of LVT. Commercially I think it has less play today mostly because the locking systems and construction aren’t designed to handle heavy rolling loads.”
Raskin believes WPC—led by USFloors’ COREtec—has affected the residential glue down market specifically in addition to “traditional” vinyl click product formats. “But this has taken off faster than vinyl click for sure,” he noted. “[USFloors] did a good job marketing [COREtec] and they definitely did a nice job differentiating it. You’re going to have this kind of product as a subcategory of LVT but it will fall in the class of engineered LVT, which in my eyes is anything that’s different than dry back. And that’s where the market is going.”
While several players are still catching on in the WPC arena, Rogg said the category “represented significant growth” in 2015. “I think it has been one of the most revolutionary products to hit the LVT industry in a long time—maybe ever. Clearly it has legs. We’re bullish on the category; it’s going to be very big. We look at it as an extension of our LVT portfolio. It was 3% of our overall business last year because we are just getting started. I would guess by the end of 2016 it will be 10% of our business, maybe even more.”