Executive forecast: Industry leaders look forward to robust year ahead

December 08, 2017

November 27-December 11, 2017: Volume 32, Issue 13

By Ken Ryan

 

Words like “sluggish” and “tepid” to describe growth in the flooring industry are being replaced by “healthy” and “sustainable” as some of flooring’s top executives see an industry that is now accelerating to a respectable cruising speed as we approach 2018. The catalyst driving this momentum is winning products—the still-booming LVT market and across-the-board innovations in other segments.

We expect 2018 will be even better than 2017. Continued GDP expansion, employment growth and rising wages will drive consumer spending. Residential new construction and refurbishment growth is responding to demographics, and lack of housing inventory with mixed use development continues to shine. After a lackluster 2017, commercial should be stronger in 2018 with rising business confidence.

The big unknown for 2018 could be corporate and individual tax reform. This could be an accelerator for all of the above.

In terms of the biggest challenge facing the industry—short and long term—it is adequate supply of qualified installation. Manufacturers are responding with easier-to-install flooring, but attracting and retaining qualified installers must be dealt with on a local basis. In general, the greatest opportunities are for manufacturers to truly understand consumer and end-user needs and requirements, which result in innovations with real solutions. Also, manufacturers need to transparently provide information and tools for consumers to make better flooring decisions.

We continue to invest and spend capital at record rates, [dedicating resources to] new businesses, new manufacturing platforms and new technology. We will continue to expand our revolutionary StrataWorx carpet tile platform with new looks and new installation methods. We are also investing heavily in our key brands with the rollout of the new Anderson Tuftex brand, a new consumer campaign on COREtec and exciting soft and hard surface introductions from Shaw Floors.

As an industry, we must be diligent about changing consumer purchasing habits—the move to digital, her desire for transparency and ease of transaction, and the reputation and integrity of our products. If we acknowledge and understand the consumer, and offer products, services and selling environments that relate, we will continue to prosper.

 

The variables that tend to drive the success of our business—employment and income, the equity markets, inflation, consumer confidence—are in a good place.  Flooring is a discretionary purchase; therefore, [consumer] confidence is important. If you look overall at the market there are a lot of things that are favorable for the consumer. The GDP is now tripping above 3%, so all things collectively are positive for the floor covering business.

What’s driving it? Never has there been more innovation nor excitement than we see today. Every category is being impacted by true product innovation. We think that is weighing in on stimulating the consumer to come into the category. Air.o is just one example of an innovation that is driving industry growth. To be successful innovation has to be understandable—it has to be executable on the retail end, and it has to be promoted.

Our biggest challenge as an industry is standing out in front of a very inundated consumer. Of all the things that keep me up at night it is that flooring [must] stay top of mind. Are we, as manufacturers, doing everything we can to make the product exciting? Are we adding value and making it relevant at a time when that consumer is about to part with $1,000 to $3,000? Are we continuing to excite consumers? (And that starts with first exciting our retail partners.) The charge of the industry is how do we stand out in front with the most innovative products—not just vis-à-vis flooring but vis-à-vis other big-ticket products like electronics or refrigerators with Internet capability.

As a company, we are going to continue to refine and improve our execution in digital marketing and consumer lead generation in conjunction with our retail partners. Most consumers are starting out in the digital universe in their journey. Mohawk wants to be front and center in that process so our retail partners win in that selection process.

Our whole business culture is built on product innovations that are brought to market with exciting stories and opportunities for our retail partners to upsell their customers. As for big initiatives for 2018, you’ll just have to stay tuned for January.

 

Across the industry, we expect to see a continuation of the measured growth we’ve seen this year, with ongoing migration to hard surface flooring and continued robust growth in the LVT/rigid core category. At Armstrong Flooring we are well positioned to capitalize on the market surge in LVT with the recent increase in our domestic LVT production capacity and leading the way with the introduction of revolutionary new products such as our Diamond 10 Technology, rigid core and exclusive Pryzm LVT flooring.

There are tremendous opportunities out there. As one example, we recently repurposed part of our Stillwater, Okla., resilient sheet plant to produce LVT. This increases our domestic LVT production and leads to better capacity utilization for our sheet business.

Ongoing challenges within the industry include recruiting experienced installers and retail associates to help educate the consumer/end users on their purchase decisions.

As our economy heats up, likely increases in raw materials, energy, transportation and operating costs would likely need to be covered with increased pricing. Additionally, the industry is dealing with overcapacity in some product categories.

Our strategy in 2018 is to improve our mix of sales to higher-growth products like LVT and rigid core, while maintaining strong competitive positions in our legacy categories. At Armstrong Flooring, we’re focused on innovation—not just in products themselves—but in the way we do business. Our marketing campaign, “The Floor Is Yours,” goes beyond illustrating the design and performance of our floors and enables us to tell stories that really connect with consumers. We recently launched a new website to inspire homeowners and guide them through the purchase journey, and we will continue to collaborate with our distributor partners and aligned retailers to ensure we are delivering not only exceptional products but also an exceptional experience for our customers.

One initiative in 2018 is our retailer-centric program, Elevate, which helps independent specialty retailers grow their businesses. Elevate offers resources to drive store traffic, maximize the in-store experience and enhance sell-through via an aligned connection with Armstrong Flooring. We will continue to expand that program in 2018.

 

Overall, we anticipate the industry in general—and Mannington specifically—will continue to see good growth in the residential market. We expect to experience a similar pace as we’ve seen over the past 18-24 months: Roughly a 10% increase in single-family starts and a 4%-5% increase in remodeling activity. LVT/WPC will continue to be the stars of the show. There is nothing on the horizon right now that will change the momentum of that category relative to the other categories. All the other product segments are more aligned with the growth curve in remodeling.

Whereas the economy has driven consumer sentiment in the past, today I think the wild card is the political scene. The X Factor, I think, is tax reform and its impact on both spending and investment decisions.

The biggest challenge we face in the industry is the rapid change and shift in consumer preferences. I can’t think of a time the industry has seen such a shift between categories like we’ve seen over the past two to three years. There’s been incredibly rapid growth in LVT coupled with the emergence of WPC as a major category in and of itself. It has literally changed the game overnight, and that continues to evolve. With so much change in the product mix, retailers and consumers alike are finding it confusing. Our greatest opportunity lies in how we, as manufacturers, help them simplify and focus amongst so many choices.

As always, Mannington has an outstanding lineup of new product introductions rolling out at Surfaces. We can’t tell you much more than that—you’ll just have to come to our booth to find out.

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