Area rug: State of the industry—Custom programs, hard surface surge bolster category

May 30, 2017

May 22/29, 2017: Volume 31, Issue 25

By Ken Ryan

 

For the third year in a row, the U.S. rug business will outperform carpet. FCNews research puts area rugs sales at $2.5 billion in 2016, up an estimated 3.5% from the year-ago period.

Buoyed by the surge in hard surfaces and the popularity of custom rug programs, the category has provided manufacturers with additional selling opportunities. Most traditional broadloom companies now offer some variation of a custom rug program in which rugs are cut from broadloom and can be specifically tailored to the needs of consumers. Executives said they expect the custom rug trend to continue to evolve as more flooring dealers—and non-flooring outlets—take advantage of this profitable add-on opportunity.

Some flooring retailers who have de-emphasized the rug category or abandoned it altogether are reconsidering their position. Some are doing it via online sales. Then there are those who never wavered and have benefited from the increase in rug sales.

Screen Shot 2017-05-30 at 10.58.16 AMAccording to Teri Whittaker, rug buyer for R.C. Willey Home Furnishings, with 14 locations across four Western states, rugs grew by nearly 4.7% in the first quarter of 2017. “There have been steady increases each month.”

The numbers were even more robust at Nebraska Furniture Mart, where sales across its three locations increased 6% to 10% in the first quarter. David Snedeker, division merchandise manager-flooring, reported that larger sizes (8 x 10, 9 x 12, 10 x 14) were up, as were knotted sales but not necessarily high-end knotted. “Simple, low-profile or textural knotted rugs are on trend. Machine made, due to better construction, is also on the increase.”

Baker Bros., with multiple locations in the Phoenix metro area, has always been a staunch advocate of rugs. Phil Koufidakis, owner, said rug sales were up “double digits in the Q1,” which he finds encouraging.

Not all dealers were chalking up big increases, however. At Crest Flooring in Allentown, Pa., rug sales were about even with the year-ago period, according to Steve Weisberg, owner. He said his challenge is the sheer number of places where consumers can buy rugs. To get in on the action, Weisberg is contemplating a “Crest Cash” program that would give customers who purchase hard surface from Crest credit to use within 90 days for purchasing areas rugs. “This way they at least come to us,” Weisberg explained. “‘Kohl’s Cash’ is such a big draw for those who shop there that I figured I would copy them a bit.”

Custom is king
As more hard surfaces are being used in open floor plans, there is a growing need for larger and custom-sized rugs that can define areas with a design aesthetic. Retailers are taking advantage of this trend and allowing their customers to design a custom rug in standard sizes.

Some executives suggest that custom rugs, which incorporate customer service and product, is going to differentiate brick and mortar merchants from Internet retailers. Stephen Hoberman, vice president of sales at Momeni, is one of them. “Having a custom program gives retailers access to the customers’ needs that they can’t get online. They need to come to the store. They need to work with the person. The price points are not expensive for custom. You can give customers what they want at a price they can afford.”

Hoberman said he used to wonder what it would be like to make rugs out of broadloom. That idea came to fruition seven years ago, when Momeni launched a custom rug program. “We were the first ones. Now it is an endless business.”

Eric Demaree, president of Carpet One Floor & Home, acknowledged that while competing in the rug business is difficult these days for members—given the competition from big box stores and online retailing giants like Wayfair—he nonetheless encouraged dealers to embrace the new Cutting Edge program, which allows them to choose from the entire broadloom collection to create custom rugs for consumers.

Doug Jackson, vice president of sales and marketing at Tuftex, the high-end carpet brand for Shaw Industries, called the CCA Cutting Edge custom area rug program a “home run.” Tuftex has 700 displays in the Cutting Edge program, and because each display includes binding and tape, dealers have plenty of options to sway customers. Jackson said Tuftex’s business—both broadloom and rugs—is much stronger than the industry average. “No question carpet is losing share, but the carpet that is going out there is better goods and we’re getting that share. The share that is out there—in the upper end of the market—is in our wheelhouse.”

John McGeary, territory manager for the Northeast region at Karastan, said the rug division is coming off a very healthy 2016. “While true wall-to-wall carpeting was down 20%, we were up 8% in rugs. Units were up in the mid to high 30s, percentage-wise, but less expensive rugs brought the overall margins down.”

Hard surface factor
Larry Mahurter, vice president of marketing and advertising, Couristan, said in his 25 years in the business rug sales have always been influenced by hard surface activity. “Rug sales jump up when hard surface is up. Right now rugs is gaining momentum and broadloom is flat.”

Screen Shot 2017-05-30 at 10.58.55 AMDealers agreed that the growing demand for hard surface flooring in the home is impacting the rug market. To what degree, however, is debatable. R.C. Willey’s Whittaker said the growth of hard surfaces “has definitely increased the sales of rugs.” Koufidakis agreed, noting the growth of hard surfaces “has clearly had a positive impact on rug sales—something that should continue for the foreseeable future.”

Sam Presnell of The Rug Gallery in Cincinnati, who added luxury vinyl tile to his previously all-rug showroom more than a year ago, said hard surfaces “has helped the sale of rugs a little bit,” but he says it could be better.

NFM’s Snedeker said the transactional pairing of rugs with hard surfaces might just now be catching on. “It was not a noticeable relationship in 2016.”

Indeed, there appears to be some reticence on the part of dealers to embrace rugs as an add-on sale. At DeGraaf Interiors, with four locations in Michigan, owner Deb DeGraaf bemoans the fact she has been unable to energize her staff into making rug sales a priority. “It is unfortunate because the margins on rugs are good, and we are selling more hard surface than ever before.”

Online impact
The online world is one obstacle preventing flooring dealers from going all in. These days consumers can easily purchase rugs from major home goods sites like Wayfair, Overstock and Amazon. Mahurter said Couristan’s business is up 60% from last year, driven by ecommerce through the likes of Wayfair. Mahurter said these e-commerce companies have enhanced their visual search features to present close-ups of rugs from several different angles to show extremely realistic looks that make visiting a physical showroom unnecessary for some customers.

“Rugs have been strong across the board, from $299 to $799 for a 5 x 8, all driven by ecommerce sales through our accounts,” he said. “The marketing and promoting of area rugs online has taken on a whole new meaning.”

Rugs Direct, a Winchester, Va.-based retailer that lays claim to being the country’s leading online retailer of area rugs, throw rugs and rug runners, recently received an investment from a private equity firm that will help fuel growth.

Anecdotal information indicates the bulk of online area rug sales are for products $199 and under. This, executives said, is not likely to affect the luxury companies such as Dixie, Tuftex and Karastan.

 

 

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