State of the industry: Mills see path to growth via style, fashion

September 08, 2016

September 5, 2016; Volume 31, Number 6

By Ken Ryan

screen-shot-2016-09-08-at-9-16-32-amDespite generally favorable economic trends, the U.S. residential carpet market has failed to gain any appreciable traction in the first eight months of 2016. The deciding factors are not always evident: While the growth of hard surfaces has certainly played a role in shrinking broadloom’s share, there is vibrancy in the upper end of the market as mills push the fashion and style spectrum that consumers seek.

Some executives say the improvement in housing and the economy has not translated into an increase in demand for the overall carpet category, certainly not to the degree seen in some hard surface categories. To that end, the pent-up demand so many executives talk about remains bottled up with the mid range of the market most impacted.

The consensus among carpet mill executives is business through calendar year 2016 has been inconsistent and spotty, better at the higher and lower ends of the product spectrum. “So far in 2016 the overall residential carpet segment is flat to slightly down,” said Brad Christensen, director of category and product management for Shaw Floors.

Other industry experts, including Doug Jackson, vice president of sales and marketing for Tuftex, the high-end division of Shaw Floors, are seeing a mix of experiences. “Depending on who you talk to, some customers are doing well, and for others business is flat.”

Mark Clayton, president of Phenix Flooring, said the year started off well with the first two quarters showing overall growth when compared to the previous year. “However, the summer months of the third quarter have proven to be softer than expected and have not compared as favorably.”

Despite an improving housing market, the U.S. carpet industry ended 2015 with a negligible 0.7% increase to $8.870 billion last year compared to $8.809 billion in 2014 (FCNews, June 27). Meanwhile, total volume—which includes carpet and area rugs—fell 1% to 11.09 billion square feet from 11.21 billion square feet in 2014. Residential carpet sales fell an estimated 2% in 2015, while units inched up 1.5%. Conversely, commercial sales increased about 2% while units were down 1% year over year.

The first eight months of 2016 are not demonstrably different than the same period in 2015. Depending on how you view it, some cite lukewarm economic growth. For example, U.S. gross domestic product (GDP), a broad measure of output, averaged a paltry 1% seasonally adjusted annual growth through the year’s first half, well below historical norms. That has raised fears the economy is slowing.

And yet, there are other important measures—jobs, consumer spending and housing—that suggest a degree of resilience to this economy, which is still slowly coming out of the deep recession. According to the Federal Reserve Bank of New York, between 2013 and 2015 employers added nearly 2.3 million workers earning from $30,000 to $60,000 a year, primarily in fields such as education, construction, transportation and social services. That was roughly 50% more than in either the high-wage or low-wage categories during the same period.

Tom Lape, president of Mohawk’s residential division, finds a lot more positive attributes in the economy than negative and therefore can spin a very robust story based on these figures. “Growth in the economy has been positive.” To support his point, Lape listed a series of positive metrics, including inflation, stock market rise and the fact that underwater homes [when the balance of the mortgage loan is higher than the fair market value of the property] is at a 10-year low.

Given all the improving conditions, some executives feel there should be more demand than exists in today’s carpet market. Clayton and others anticipate a stronger fall selling season but acknowledge there are uncertainties, most prominent being the upcoming Presidential election.

Despite the challenging conditions, companies continue to bring fresh styling, quality and service to their retail customers. Within the soft flooring sector, there is continued growth in the mid- to upper-end categories where consumers are more style and design conscious. The low end tops out at about $6-$7 a yard. That trend, watchers say, has been driven by the growth in polyester products. Polyester is the dominant face fiber in the industry, having surpassed nylon 6,6, nylon 6 and polypropylene. That market has been led by the meteoric rise of Engineered Floors, which is now the No. 3 carpet company, behind only Shaw and Mohawk.

screen-shot-2016-09-08-at-9-17-40-amThe shift to more commoditized product has taken tens of millions of dollars out of the industry, executives report. Some blame an overcapacity of polyester filament with too much polyester entering the market, particularly in the multi-family builder segment—a market that has been moving away from nylon base grades. In 2015, builder and multi-family segments outperformed remodel, and that is still trending in 2016. As a result, revenues were down more than volume. While polyester has become the dominant face fiber in residential carpet, there are signs the industry may be nearing a saturation point with polyester even as it continues to take share from nylon.

However, there are flooring dealers who believe the polyester movement has been a positive for the industry. Tim Schoolfield, owner/president of Countryside Flooring America in O’Fallon, Mo., said Engineered Floors “has revitalized the carpet industry with a big ol’ vitamin B shot to the arm by introducing carpet created using the latest technology, made in state-of-the-art mills at a more competitive price point than previously realized. Bob Shaw [founder] has helped the dealer by forcing other carpet mills to up the quality and lower the price.”

The upper end of the carpet price spectrum—generally $15 and higher—is also faring well. Some retailers said higher-end carpet sales have been surprisingly strong in 2016, and it is at these price points where dealers are profiting the most.

screen-shot-2016-09-08-at-9-18-21-amIt is the middle market, particularly the $8 to $11 a yard price point, that has been hurt. While the carpet category is indeed tough these days, executives said it is a lot tougher for those companies that aren’t willing to invest and take risks. However, many mills are making that extra effort to innovate, just as manufacturers are doing so on the hard surface side. “I feel consumers are looking for the same style and fashionable choices for the comfort areas of their home [with carpet] that they demand when shipping for wood and tile,” said Rodney Mauter, executive vice president, Lexmark Residential.

Christensen said fashion looks are one of the main drivers influencing the market today. “As we all know, many homes now have hard surfaces in the high traffic areas, so the main driver with carpet is no longer all about being bulletproof. It goes without saying the product needs to meet the consumer’s performance expectations of course, but carpet is increasingly being associated with offering a tranquil reprieve from chaotic lives. There will never be a product category more suited for this environment than carpet.”

Product initiatives

Shaw’s LifeGuard waterproof backing system is the company’s biggest initiative in 2016, according to Christensen. The product features Shaw’s premier R2X stain and soil resistance coupled with a waterproof backing that keeps spills and liquids of any kind from penetrating the carpet’s backing. “This is a game changer for the consumer—especially pet owners and busy families—because stains and odors can now be 100% removed for the first time ever.”

Mohawk has enjoyed a big year with SmartStrand Forever Clean carpet, which now features All Pet Protection, marketed as the only pet-friendly carpet protection system that covers all pets, all accidents, all the time. It includes a Nanoloc spill and soil shield for quick, easy clean-up.

Lape said the best is yet to come in terms of product introductions. He said he is very bullish on 2017. “I’m feeling very good about our pipeline. We have some great innovations coming out.”

Engineered Floors started 2016 off in a big way with the introduction of VariColor, a technology that allows the company to further blend colors and offer deep, rich balanced accents to enhance the tweeds and tonal colorations in residential carpet. That was followed with FlexBac, a backing system that offers more flexible and lighter attributes. Pentz, a commercial brand, was the most recent introduction.

“Over the next months, we will continue to expand and broaden this collection of commercial carpet to include the most innovative and technologically advanced commercial flooring available at the retail level,” said Mike Sanderson, vice president of product marketing.

Lexmark’s major introduction in 2016 was Adorn, its first nylon offering with 10 solution-dyed styles and fashionable colors. “The feedback from retailers is incredible,” Mauter said. “We are offering them patterns retailers can sell every day and make more money.”

Phenix is working on multiple platforms, including new technology that Clayton said would be introduced at Surfaces 2017. At this point, the company said it is premature to reveal these innovations but he allowed, “We expect an overwhelmingly positive response from our retail partners as well as the end-use consumer.”

Tuftex introduced several “newly defined” brand extensions in 2016. Included in that is Cordova, a random geometric cut and loop pattern that creates visual depth. It is constructed of Stainmaster Luxerell nylon fiber and is part of the Active Family brand. “We have brought more clarity to the Tuftex product offering and given both the retail sales associate and the consumer a clearer, more direct path to purchase,” Jackson said.

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