Resilient—Domestic vs. import: Suppliers weigh the pros and cons

November 28, 2016

November 21/28, 2016: Volume 31, Number 12

By Reginald Tucker

screen-shot-2016-11-28-at-11-22-10-amThe continued influx of imported resilient flooring products combined with incremental increases in domestic production is changing the dynamics of this highly competitive market sector. In some cases the market is seeing fluctuations in pricing; in others, a change in product mix and channel marketing strategy is evident.

One thing that virtually all resilient flooring manufacturers have observed is an increase in activity across market sectors and channels. “Certainly we’re seeing a lot of movement in the builder/multi-family sector and the big box piece of the market that’s primarily served through imported LVT,” said Kurt Denman, chief marketing officer and executive vice president of sales, Congoleum. “Domestic residential is—and has been for quite a while—a bit of a stronghold for us in domestically produced LVT.”

Denman cited Congoleum’s DuraCeramic line in particular. “It continues to be a strong performer for us and it has been domestically produced since the beginning.”

Other executives also see higher activity on the domestic side. “Right now the need to import resilient flooring from overseas is based on volume and the capacity to produce is in line with strong customer demand,” said Eric Erickson, vice president of marketing, Beauflor USA. “As the U.S. demand for resilient flooring grows, it is becoming important for domestic producers to keep up not only in volume but also with new product innovations. At Beauflor, we are now able to do that with our new U.S. manufacturing capabilities. As more competitive capacity comes to the states, along with increased investments in domestic innovation, it will challenge the companies importing from overseas to remain competitive.”

Some domestic producers are already ramping up in that regard. Clark Hodgkins, resilient category manager, Shaw, has witnessed a significant amount of investment in resilient manufacturing in the U.S. with a number of new facilities being completed over the past year. “This includes our own LVT manufacturing facility in Ringgold, Ga.,” he stated. “Domestic manufacturing provides significant opportunity for improved service in terms of time to market as well as innovation with it being located in close proximity to design teams and other flooring manufacturing resources.”

Other major domestic suppliers are increasing stateside production—particularly in LVT—to satisfy growing end-user demand. For some, this offers a clear advantage. “Our state-of-the-art U.S. LVT facility has improved our competitive edge on quality and service by taking out freight and duty costs while increasing speed in delivering innovation and leading designs to customers,” said Jamey Block, vice president, product management-resilient at Armstrong. “With labor, energy and transportation costs accelerating, importing carries the risk of rising prices and/or margin compression for Armstrong Flooring and our channel partners. We have invested millions of dollars in the domestic onshoring of LVT to produce resilient flooring in a cost-effective manner, improve styling and be more responsive in servicing key market segments.”

Industry executives like Jamann Stepp, director of marketing and management for USFloors, is seeing an increase in domestic production capacity in the sheet vinyl and luxury vinyl plank and tile categories with several U.S. manufacturers ramping up production in newly constructed or re-tooled facilities. Relative to WPC-type products, which is USFloors’ forte, “All our WPC products [COREtec] are currently imported from Asia.”

While anecdotal evidence points to a rise in domestic production, some industry observers are not convinced the additional capacity is showing up in the statistics.

screen-shot-2016-11-28-at-11-22-17-am“There’s no doubt that domestic production is starting to gain more momentum,” said Michael Raskin, founder and CEO of Raskin Industries, maker of the U.S.-made FloorNation brand. “From our view what we’re seeing is a lot of companies may have announced that they’re going to have domestic production, but they haven’t been able to just yet. At the same time, some companies have but they’ve had trouble. We’ve been able to do what we said we were going to do (produce product and ship it) within a year from the time we announced it.”

Other experts agree that, to a large extent, any impact from domestically produced LVT has not been fully realized. “There is a tremendous amount of competitive activity, with more and more brands entering the marketplace, both domestically produced as well as imported,” said Russ Rogg, president and CEO, Metroflor. “But it’s not as if we are seeing some type of tidal shift to domestic goods vs. imported products. The added domestic capacity is not fully operable at this time, so the majority of North America’s demand is still being met through imported products.”

Still, the volume being produced stateside can’t be ignored. “When you look at import vs. domestic, most of the domestic capacity is just now coming online,” said Dennis Mohn, director of U.S. sales, Satin Flooring, which imports its resilient products from Asia.

Pricing trends
Logic dictates that when increased domestic capacity meets a surge in imports, the result is greater competition and pricing pressures. But that’s not always the case. “I haven’t seen a change in pricing,” Denman said. “In terms of imported product I know there has been some pressure, raw materials-wise. Surprisingly enough, from our suppliers we’ve seen either steady pricing or some modest price reductions. I’m not sure how much of that is driven by the idea that more production is coming back stateside. Pricing is just one element of it from a wholesale standpoint, but it will end up changing the cost structure overall as we move forward. It will shift over time, but as far as the wholesale price goes I really don’t see much movement.”

John Wu, president and CEO of Novalis Innovative Flooring, is in agreement—sort of. “So far we have not seen pressure on pricing as a result of increased domestic capacity. On the contrary, any pricing pressure is due to the increase in capacity in Asia by newer, smaller and inexperienced factories trying to enter the market via low price only.”

screen-shot-2016-11-28-at-11-22-32-amWhile imported shipments of luxury vinyl along with WPC have increased rapidly in the last several years, suppliers say 2016 has seen a tremendous increase in the import of WPC products. “With the current capacities in Asia along with additional capacity coming online monthly,” Stepp said, “we are beginning to see pressure on pricing particularly in the opening price point categories.”

Satin Flooring’s Mohn believes imports are going to remain competitive given the relative lower cost to manufacture in general compared to the U.S. companies. “The U.S. companies follow a ‘buy America’ strategy, which allows them to charge a little more. But at the point of sale people (the consumers) tend to forget that. Most consumers buy according to what makes more sense in terms of their pocketbooks.”

Pros vs. cons
Depending on where you stand, a strong case can be made for supporting imported products or stateside production—or both. “I think there are some advantages that we’ll see from domestic production, which means you have to keep a pretty deep inventory. With the import products the lead time is so long—90 days lead time to be produced and shipped,” Denman said. “Domestically you’ve got a quicker turnaround to service those jobs.”

Armstrong’s Block is in agreement. “We believe that there will be a surge in domestic popularity thanks to shorter lead times and more innovative goods as U.S. production in the industry fully ramps up. Significant benefits such as shorter lead times and reduced working capital allow us to realize a more competitive cost structure. At the same time, onshoring does not tie up money for inventory and warehousing.”

That is not to say that importing doesn’t have its benefits. So says Sean Stewart, managing partner of Divine Flooring, which sources its LVT products from China. “What makes our approach different is we actually have our own employees in China,” he explained. “We inspect everything before it ships. Granted, that doesn’t mean we’re perfect; many of our competitors are not inspecting anything. We look at China as trying to provide the greatest amount of value as opposed to looking at it as simply the lowest price.”

According to Armstrong—which brought back domestic production in recent years, main advantages of producing LVT domestically are many—faster turnaround time, better quality and better service to customers. “Plus, our state-of-the-art plant in Lancaster will give us a cost position second to none and allows us to bring innovative products of the highest order to the market, creating differentiated products and staying ahead of innovation in imported products,” Block said.

Evolving product mix
screen-shot-2016-11-28-at-11-22-38-amWhile the product range manufacturers offer is not always defined by region, the changing mix of different product constructions has been impacted by global resilient production trends as it pertains to technological capabilities. “In order to remain competitive with worldwide producers, our U.S. manufacturing focus is not only about competitiveness in cost and speed to market, but also innovation,” Beauflor’s Erickson said. “The technology we have developed in our Pure LVT line, for example, brings features and benefits that other products simply do not have. Our Blacktex Collection, which we will begin producing soon in the U.S., is in a category all its own: Luxury Vinyl Roll (LVR). Our LVR has all of the best qualities of LVT and cushion vinyl combined into one great product.”

The majority of LVT sold in the U.S. today is still sourced out of Asia, despite inroads made by domestic manufacturers building plants stateside. Since the turn of this century, imports, mostly from Asia, have taken market share, industry observers say. “However, LVT growth has led to a wave of investment in domestic production, and this is starting to make inroads,” Block explained. “More recently, WPC products have gained a lot of traction, although at this time almost none of it is produced domestically.”

When it comes to resilient flooring, domestic production has historically been strong, Block added. “We’ve been producing resilient flooring in the U.S. since 1909, starting, of course, with linoleum. Today we produce heterogeneous and homogeneous vinyl in the U.S. for residential and commercial applications. We manufacture CushionStep fiberglass-backed vinyl in the same Lancaster factory where we also produce our new sensation, Vivero with Diamond 10 Technology.”

Observers agree that sheet, tile, plank and glass backed products still represent the lion’s share of the resilient category. “With that said, the popularity of WPC is growing at an extremely fast pace,” Stepp noted. “Our predictions are a continuation of this trend, as the WPC category solves and/or eliminates many challenges and/or installation barriers that other resilient category products cannot.”

In terms of construction, Novalis’ Wu believes domestically produced LVT is still primarily focused on glue down LVT with a few manufacturers capable of producing click LVT. The ability to make enhanced designs such as embossed-in-register, he notes, is still very limited domestically. “Imported LVT continues to be innovative and able to manufacture in large volumes, with enhanced visuals. For LVT, the mix has definitely shifted more from traditional glue down LVT to floating LVT of various formats such as click LVT, loose lay LVT or WPC-type LVT. Within floating LVT, loose lay and WPC-type currently have the greatest momentum.”

At Raskin Industries, the focus continues to be on offering both dry back and loose lay fiberglass sheet reinforced product. “We’re focusing on better quality,” Raskin said.

Like Wu, Shaw’s Hodgkins is continuing to see a shift toward WPC and LVT products. “Sheet products continue to decline in the larger, comprehensive mix. The transition is a reflection of the growing trend toward wood visuals with realistic looks that integrate graining, knots and texture. Our customers are searching for high-end styles that can be incorporated through more affordable WPC and tile styles. The influx in these imports is a testament to the increased innovation and commitment to creating the most realistic looks that are highly competitive with real wood and tile products.”

The “X” factor in this equation, many observers say, is the growing popularity of WPC or rigid core LVT products—which are primarily imported goods. As Rogg stated: “Therefore, while there is U.S. capacity coming online, none of these factories is producing this platform of product yet. This dynamic is causing an increase in the import ratio because there is no other category within the world of LVT that is accelerating as fast as rigid core formats.”

On the whole, as the resilient market has matured, products with a wide variety of styling and price points have emerged. “It’s no longer just a low-cost option thanks to innovations in aesthetics and performance, particularly waterproof performance and durability,” Hodgkins added. “As that diversification continues, it’s helpful to have a mix of sources to meet customer price and delivery expectations.”

screen-shot-2016-11-28-at-11-25-07-amSatin Flooring’s Mohn sees a mix across the board due to the sheer number of players entering the field. That, he said, has paved the way for companies to leverage various technologies as a means to further differentiate themselves. “It used to be just a low-end vinyl,” he recalled. “Then you had companies like Congoleum and NAFCO making good product domestically that was totally different than what you say with imports. Then Swiff-Train changed the whole thing with EarthWerks and what they did with the brand.”

Future trends
Statistics show nearly 80% of LVT is imported from overseas, mainly China. Suppliers remain divided as to whether or not this percentage will change dramatically as more production facilities online.

“We believe that domestic production of flooring has been a boon to the industry; if product trends and consumer preferences continue in the direction they’re going, it’s likely that we’ll see more investment in products made in America,” Hodgkins said.

Others, like Novalis’ Wu, predict there will be a shift from import to domestic but slower than everyone expected a few years ago. He cites two primary reasons for this: the first is the increase in market share by floating LVT which is not a capability that most domestic manufacturers have added yet; and second is in the increase in the major share by LVT against other product categories such sheet vinyl, laminate and carpets. “Asian manufacturers with their multiple ways to go to market tend to grab the increased share faster than domestic players,” Wu explained.

At Armstrong, the belief is the insatiable demand for luxury vinyl tile will continue to grow at a rapid pace for the next several years, according to Block.

Metroflor’s Rogg believes if rigid core LVT continues to grow at its current pace, and no U.S. capacity for this type of product is brought online in the near future, this ratio will likely stay the same. “Most U.S. capacity that has been built is either for dryback or click, but not rigid core,” he said.



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