Scoring flooring: Industry stats for 2016

July 05, 2017

June 26: Volume 32, Issue 1


Screen Shot 2017-07-05 at 9.05.12 AMThe flooring industry in 2016 continued its recovery from The Great Recession. While growth rates pale in comparison to the mid-2000s heydays, the industry last year continued to post steady gains across the board with increases of 5.1% in dollars and 3.8% in volume. This comes on the heels of 4.4% growth in dollars and 3.2% in volume in 2015; 3.6% growth in dollars and 1.8% in volume in 2014 and respective 5.5% and 3.8% growth in 2013. In fact, 2016’s figures represent the seventh consecutive year of dollar growth and fifth straight year of volume increases.

FCNews’ exclusive research reveals total 2016 flooring sales of $21.174 billion and 19.13 billion square feet. (These numbers are in wholesale dollars reflecting the first point of sale.) While the industry remains far off the peak it reached in 2006, when sales of $24.175 billion and 26.36 billion square feet (down 12.4% and 27.4%, respectively) were posted, it has gained back much of what was lost. The low point for the industry was 2009, when sales bottomed out at $16.189 billion and 16.625 billion square feet (in 2010). Since that time, the industry is up nearly 31% in dollars and 15% in volume.

Perhaps more significant is total industry sales surpassed the $21 billion mark for the first time since 2007, when sales were $22.337 billion, and volume is at its highest level since 2008’s 19.905 billion square feet.

Also of note is the fact dollars are growing faster than volume. That is a reflection of consumers buying more expensive goods in addition to a series of price hikes, particularly on the carpet and hardwood sides. The average selling price of all flooring in 2016 was $1.11 (same as 2015) and up $0.02 from 2014 and up $0.04 from 2013). Just to compare, the average selling price of all flooring in 2006 was $0.94. One needs only to look at the resilient category for an explanation. Ten years ago the average selling price for all resilient flooring was $0.64. In 2016 it was $1.04. A decade ago, sheet vinyl, vinyl composition tile (VCT) and the low-cost, peel-and-stick tile commanded 75% of dollars. Last year that number plummeted to 33%. The increased usage of the higher-cost LVT and WPC has been an industry game changer.

But it’s not just resilient. The average ceramic tile price has increased from $0.95 to $1.20 a square foot over the last 10 years, and hardwood has seen an average-square-price jump from $2.21 to $2.48 per square foot. Even the maligned soft surface segment—which has seen its share of the market dip from 63.6% in 2006 to 53.6% in 2016—has seen an increase in average pricing from $0.89 to $1.01. For the record, laminate is the only category with pricing in decline, going from $1.30 a square foot in 2006 to $1.09 in 2016.

Why has the growth been slow and steady and not more robust? For one, housing has not led the recovery from the recession and is actually lagging the economy. Also, in past recoveries there has always been a period of strong economic growth before it settles into normal growth mode. That has not happened with this recovery.

(Editor’s note: FCNews does not include stone flooring in its aggregate total, nor does it account for ceramic wall tile. In addition, rubber flooring numbers now reflect solely sheet and tile flooring with no accessories or cove base.)

Much like the past few years, the resilient category continues to be the locomotive powering the industry and luxury vinyl tile/WPC the catalyst for this explosive growth. In 2016, resilient posted the largest percentage gain of any flooring category, rising 19.7% to $3.499 billion from $2.924 billion in 2014. Since 2010, the category has increased a stunning 103% and is now at its highest point in history in terms of dollars.

In the grand scheme of things, resilient now accounts for 16.5% of the total flooring market in dollars and 18.8% in volume after a 6.5% rise in units to 3.537 billion square feet. In 2015, resilient held a 13.3% market share in terms of dollars, which was up from 12.2% in 2014, 11.9% in 2013 and 11.2% in 2012. Interestingly, its market share in volume had stayed around 15% for eight consecutive years until leaping to 17% in 2015. That suggests resilient’s average price point has increased by virtue of the migration from felt to fiberglass sheet, along with the transition from residential/commercial sheet and vinyl composition tile (VCT) to LVT and WPC.

Screen Shot 2017-07-05 at 9.06.32 AMFCNews research reveals just how much LVT along with its subcategory, WPC/rigid core, is driving growth of the segment. Sales have gone from nearly $750 million in 2012 to $948 million in 2013, $1.142 billion in 2014, $1.651 billion in 2015 and $2.161 in 2016. That represents respective gains of 26.4%, 20.5%, 27.1% and 30.9%. More telling, LVT sales have more than doubled in three years. It also carries with it a premium price tag as it comprises 62.5% of the category’s dollars but only 38.4% of its volume. To illustrate its growth, those numbers were 53.2% and 33.6% in 2015; 47.7% and 26.4% in 2014; 43% and 22.3% in 2013; and 37.4% and 20.6%, respectively, in 2012.

LVT increased significantly in both residential and commercial markets—dollars and square feet—in 2016. Residential LVT saw a 68.3% increase in square footage from 760 million in 2015 to 1.04 billion (including WPC), making up 76.1% of the LVT market. This number was 71% a year ago and 55% two years ago. The big increase can be attributed to the WPC bandwagon, which, to this point, is almost exclusively residential. The commercial market rose from 297.2 million square feet to 326.3 million square feet, a 9.8% increase. While residential brought in more dollars—$1.512 billion—last year, commercial LVT still performed well, posting a 12.5% increase, rising from $576.4 million in 2015 to $648.6 million in ’16.

Proponents of the category say the versatility of LVT—tile or plank—makes it an ideal solution for any number of residential, commercial and project-oriented applications. This multi-tasking ability has allowed LVT to migrate into builder, multi-family and residential-remodeling applications. The large space in which LVT operates, in turn, has afforded manufacturers the means of introducing differentiated product across a wider front, ebbing the march toward commoditization.

Originally, LVT became popular as a water-resistant, hard surface product ideal for mainly kitchens and sometimes spaces such as a laundry room. In the past, LVT would not be considered for bedrooms or other larger living spaces throughout the home. However, this perception has changed in recent years.

As LVT grows, it is taking share from other resilient categories, especially VCT. But it is also nipping from sheet vinyl as well. Sheet vinyl—both residential and commercial—has grown only 2.4% in the last three years, going from $791 million in 2013 to $809.6 in 2016. It actually was down 0.5% from $813.5 million in 2015. Residential has led the way here, but if not for the rebound in new home construction and manufactured housing, sheet vinyl would surely be down. The commercial market has taken the bigger hit, declining 16% in dollars from $254.24 million in 2013 to $213.5 million in 2016. However, the category was only down slightly in 2016, 1.2% to be exact, on the heels of a 1.4% decline in 2015. Sheet remains the volume leader in residential resilient sales with 47% of the market, down from 55.1% in 2015 and 60.2% in 2014, but it comprises only 26.7% in dollars, down from 38.9% in 2015.

If you are looking for a bright spot in an otherwise flat year for carpet, there was builder and multi-family, in which the carpet segments fared pretty well in 2016 vs. 2015, according to executives. However, with overall residential carpet dollars down a tick in 2016, executives say that points to a decline in the residential replacement carpet business—further evidence of carpet losing out to hard surface.

FCNews’ research shows that carpet sales fell 1% in 2016 to $8.7813 billion compared with $8.87 billion in 2015. However, total volume—which includes carpet and area rugs—gained 1.2% to 11.22 billion square feet from 11.09 billion square feet in 2015. Residential carpet sales declined an estimated 1.5% in 2016 while units were up 1.3%. The commercial portion of the pie, meanwhile, dropped 0.5% in sales with volume falling about 1.5% year over year.

The carpet story really hasn’t changed much in the last three years, except in 2016 commercial was softer than it had been in the previous two. Flat to a point up or two down is nothing to write home about, but it is a far cry from a decade ago when carpet was in the throes of a deep recession—as were other flooring segments—with double-digit losses in both sales and volume.

Executives say carpet is doing well at the low end, where polyester has been dominant. However, some note that PET is contributing to the shrinking dollars in carpet in what they see as a race to the bottom and, consequently, a devaluation of the category.

The high end ($14 and up) is said to be doing well, with soft luxury goods as well as stain and soil resistance resonating with consumers. Still, it is going to be a challenging road for carpet going forward. One leading executive said builders in the South and Southwest, which is seeing the greatest population growth, are constructing homes and apartments with much less carpet than in the past.

Screen Shot 2017-07-05 at 9.06.51 AMOn the bright side for soft surface is rugs, which for a third year in a row outperformed carpet, with sales rising an estimated 3% over 2015. The area rug business, observers say, is benefiting from hard surfaces; however, many specialty flooring dealers say they are not yet reaping the full benefit of these add-on sales in the same as way furniture stores and other outlets.

A strong residential replacement/remodel market, combined with improvement in certain sectors of the new construction market, contributed to another year of growth for the U.S. hardwood flooring category. FCNews research shows hardwood flooring sales reached $2.23 billion in 2016, a 5.1% increase over 2015’s upwardly revised sales of $2.12 billion. Square footage sold likewise grew to an estimated 898 million square feet, a 4.8% increase over 2015’s 857 million square feet.

Looking at the big picture, hardwood flooring represents 10.5% of total industry sales but only 4.7% of total volume. Compared to five years ago, wood represented 9.1% of total flooring dollars at the first point of sale and only 3.9% of total volume.

Industry observers attribute much of hardwood’s activity in 2016 to the growing popularity and production of engineered floors. While solid wood flooring still remains the go-to product in certain parts of the country, several suppliers have introduced engineered hardwood products that replicate the overall thickness of ¾-inch solid wood flooring. The end result is the traditional solid wood flooring end user—builders and contractors, in many cases—can now nail down an engineered floor in much the same way they would a solid product and still be able to sand and finish multiple times.

Right in line with the swing from engineered to solid is the move to prefinished from unfinished (traditional hardwood flooring contractors being the primary exception). FCNews research shows the share of prefinished products grew to nearly 60% last year—up from just 54% the year prior. Looking back five years ago, the ratio of prefinished to unfinished was just the opposite.

The U.S. hardwood flooring market also saw a bit of a shift with respect to domestic production vs. imports. FCNews research showed imports from Canada rose slightly from 9% to 12% in 2016. At the same time, shipments from Brazil dropped from 5.6% in 2015 to just over 3% in 2016. Although China—which ships more engineered than solid product—still accounts for the bulk of imported hardwood flooring, its share also fell slightly year over year.

The tile segment closely follows the overarching economic trends that impact all major spending. Those drivers include new housing starts, commercial market recovery, consumer confidence, credit availability and interest rate fluctuation. When those indices are positive, ceramic sales and volume follow suit. And so it was again in 2016, the seventh consecutive year of growth for ceramic, with sales rising 5.7% to $2.761 billion and volume increasing 5.9% to 2.31 billion units.

The seven-year winning streak followed a dark three-year period, during which time sales and volume plummeted an almost incomprehensible 20% or more each year, with 2009 representing the low point (24% decline in sales, 22.5% down in volume).

The trend since 2010 has been that single-family homes grow ever larger, and multi-family residences continue to shrink. Since ceramic tile represents a greater percentage of the flooring used in a single-family home than a multi-family property, this has had a positive impact on the category. In 2016, growth occurred in all segments; builder and overall commercial each rose an estimated 7%-10%, while retail—the laggard of the group—was still up an estimated 2%-4%.

Domestic production has been a big story in ceramic tile for the past few years, and 2016 saw several companies expand production or break ground on new plants. In March 2016, almost two years to the date that Dal-Tile’s $180 million, 1.8-million-square-foot facility was announced in Dickson, Tenn., the company’s first production run was completed, with large format 12 x 24 glazed porcelain tiles being produced.

Commercial activity was up in most sectors with growth seen in hospitality, healthcare, education and corporate spaces. Commercial projects and spending continued its upward trajectory as well.

The only discernable drag on ceramic tile is labor. Experts say growth was partially stunted due to continued labor issues in the marketplace. For the ceramic market to reach its full potential, more qualified tile installers are needed. As the flooring industry knows all too well, that is no small task.

For now, however, achieving mid- to high single-digit growth will have to suffice. Compared to the 2007-2009 crater, the industry will gladly take it.

In 2015 the U.S. laminate industry began to see a significant drop-off in imports from China. At the same time, many European suppliers—particularly German laminate flooring producers—expanded production capacity to fill the void. Observers say that trend spilled over into 2016 where U.S. laminate flooring sales were estimated at $1.154 billion. Taking the pullback of Chinese product into account, that held growth to just a mere 1.5%—the lowest rate of increase of any hard surface category.

Volume-wise, the category grew at a rate of 2% to 1.054 billion square feet—a reflection of the rise in shipments from Germany plus the increased domestic capacity that came online toward the latter part of the year.

“Europe has shifted from 14% to 19% while China fell from 26% to 21%,” said Travis Bass, executive vice president, Swiss Krono, which puts the domestic/import split around 60/40, respectively. The company, which has production facilities around the globe—including here at home—says its share of the market grew to 12%.

Just as the mix of laminate sources has changed in recent years, so has the sales activity as defined by distribution channel. FCNews research shows the specialty retail sector accounts for roughly one-third of category sales. What’s more, observers say, many of the laminate flooring products sold at this channel represent thicker, higher-margin items not typically sold at the average home center or mass merchant. This includes 12mm and 14mm products vs. the thinner, entry-level boards available at many home centers and discount merchants. All this spells opportunity for the independent or aligned floor covering dealer.

The bigger story, though, was laminates’ decline in terms of the overall share of hard surface activity. In 2011, for example, laminate flooring represented 16.9% of all hard surface sales and a little over 14% in terms of volume; last year, the category’s percentage of hard surface sales slipped to 11.8% in value and 13.4% with respect to volume. Meanwhile, competing products such as resilient and ceramic tile grew their respective shares of the hard surface market over that time period.

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