Laminate: State of the industry—Focus shifts from Asian exodus to U.S. production

March 06, 2017

February 27/March 6, 2017: Volume 31, Issue 19

By Reginald Tucker

 

Screen Shot 2017-03-06 at 10.54.42 AMHeading into 2016, many laminate flooring manufacturers, distributors and retailers were dealing with the fallout of the 2015 “60 Minutes” Lumber Liquidators report about excessive levels of formaldehyde in laminate flooring planks imported from China. The end result was the palpable departure of many laminate flooring products imported from Asia combined with a simultaneous and dramatic influx of shipments from Europe.

While the dust has largely settled from that episode, industry observers say they are still feeling the tremors as it pertains to the rising domestic production along with newfound capacity from producers from Germany and elsewhere.

“That dynamic continues to spill over in 2017; however, it has significantly moderated,” said Dan Natkin, vice president, wood and laminate, Mannington. At the same time, he sees U.S. capacity continuing to expand. “Many are investing in newer technologies to deliver even higher levels of performance and visual differentiation. Some domestic manufacturers have expanded production capacity as well.”

Other industry observers are gauging the impact of the rise in domestic laminate production and investment over the past year and into 2017. “The trend of this pullback was readily evident last year, but the day-to-day operating in this new climate continues,” said Derek Welbourn, CEO of Inhaus. “There was an increase in European and domestic supply with less interest and volume from the market for Chinese-made goods. This trend is continuing and has become firmly entrenched with greater competition among the producing sectors that displaced the Chinese production volume.”

One company that is investing heavily in stateside production of laminate flooring and its components is Kronospan USA. The company recently completed the construction of a laminate facility in Oxford, Ala., in a move to add more capacity to feed distributor and retailer demands. This comes on the heels of its 2015 purchase of Shippenville, Pa.-based Clarion Boards and Clarion Laminates, which produces medium-density fiberboard (MDF) and high-density fiberboard (HDF) panels as well as laminate flooring at the same site. This acquisition supplements the production coming out of a separate facility in Eastaboga, Ala., a site where Kronospan manufactures MDF and HDF for manufacturers of laminate flooring, furniture, store fixtures, moldings, doors and other architectural applications.

“Capacity, technology and vertical integration is aiding U.S. manufacturers who are investing by lowering costs and producing a more desirable product for the consumer,” said Mike Babula, chief marketing and sales officer. “We see more focus on higher-end, thicker products that yield better margins for the retailer and manufacturer.”

Other industry watchers believe the Chinese retreat continues to create opportunities for U.S. and European producers. Case in point is Swiss Krono, which has a significant presence in both markets. According to Travis Bass, executive vice president of sales and marketing, Europe-based suppliers have also enjoyed the benefit of the eroding exchange rate. On the plus side, he believes consumer interest in higher-end laminate flooring seems to be growing. “The market is becoming more competitive with growing capacity and relatively flat demand—though we do see a positive shift in product mix.”

Not everyone, however, believes the full impact of all this additional capacity is being felt at present. Some industry experts feel the biggest ripples are yet to come. “It really hasn’t had an impact yet because most of that new capacity has not yet come online,” said Roger Farabee, senior vice president, laminate and hardwood at Mohawk, which counts the Quick-Step brand among its assets. “We’re certainly seeing companies putting more capacity in the U.S., going after all the big box customers in particular. This will continue as that capacity comes online.”

In some cases, this new capacity simply displaces product that had previously been made in Europe by those same companies that are now producing domestically, Farabee stated. This phenomenon, he believes, will put pressure on the remaining producers both in the U.S. and in Europe to be able to compete not only on price but also in terms of product performance and visuals. “It will be interesting to watch because there’s a lot of new capacity coming online in a category that’s not really growing. However, we do expect some price pressure.”

Onslaught of LVT, WPC
Screen Shot 2017-03-06 at 10.54.24 AMCompeting laminate manufacturers, as it turns out, are not the only threats suppliers are facing these days. The well-documented success of waterproof core floors, LVT and the like is also forcing laminate suppliers to adjust their strategies or—at the very least—pay more attention. “There is no doubt these hot categories have stolen growth from the laminate category and others,” Welbourn said. “However, laminate is in a much better cost position than these plastic-based categories and is able to deliver some of the best value in the flooring business. This fact, along with continued innovation in the laminate category, has kept it competitive.”

As consumer preferences shift toward more hard surfaces being incorporated into the home, resilient flooring has seen an uptick in market share. The challenge for laminate flooring, executives say, will be its ability to improve upon water-resistant technology. “Today’s consumer demands functionality without sacrificing style or comfort, and water-resistant flooring is a top concern of many active households,” said Carr Newton, vice president, hardwood and laminates, Shaw Floors. “Our latest laminate collection, Repel, has been specially designed to take laminate to the next level in water-resistance technology and is the hottest revelation to hit the laminate industry in a decade.”

Laminate suppliers agree the water-resistance story has boosted the category’s value proposition, as evidenced by the various performance demonstrations conducted at Surfaces 2017. Although this story is not new (the innovations that originally created the laminate sector was improved performance in regards to moisture and general everyday use), suppliers say enhancing these features certainly has created greater value for laminate flooring. “Additional focus on design continues in laminate with further enhanced textures and high-definition printing continuing to create the best designs the laminate category has ever been able to offer,” Welbourn added.

Laminate, like other flooring products, has indeed ceded some share to WPC, which targets one of laminate’s key selling points—its rigid structure, but without the susceptibility to moisture from laminate’s fiberboard core. But from the consumer’s perspective, according to Morgan Hafer, product manager, Armstrong, laminate is a great product that’s relatively inexpensive and offers great styling, design and amazing performance. “Our premium laminate business is strong, driven by our cutting-edge designs, realistic looks and great performing products. Buyers love our laminates because they are able to get premium hardwood visuals—not necessarily available as an option in natural woods either due to cost or impracticality—and they can make a personal design statement in their homes.”

Managing channel conflict
In terms of the category’s internal battles, laminate flooring manufacturers must still contend with the issue of feeding competing supply chains—namely the specialty retailer sector vs. big boxes. While suppliers have certainly become more adept at appeasing these diverging market sectors, it’s still a challenge impacting their respective product development and go-to-market strategies.

“We’ve always tried to create differentiated products in terms of style and performance so those products can compete with one another in the marketplace,” Farabee explained. “So far that strategy has worked pretty well. We’ve not only been able to do that with respect to the quality of the product itself but also with respect to our brands that have meaning to the consumer and the trade. It is a challenge, but that’s why we have so many products in the pipeline. We want to make sure the key features are available in all the brands we offer, although we might utilize them in different ways.”

Armstrong is taking a similar approach. “We are committed to continued innovations in performance and design to not only compete but also give specialty retailers more products that can’t be shopped at the big boxes,” Hafer said.

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