Executive Forecast: Major manufacturers see slow, steady growth; stalling recovery for 2011 business

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Flooring manufacturers survived another challenging year, and the consensus is it was not as harsh as 2009. The expected recovery may not have materialized, but there were enough bright spots to lend hope for the future. While 2011 is not expected to bring any turbo features to drastically jumpstart the industry, manufacturers are patiently plotting higher consumer demand and ultimately increased sales.

Large or small, no company has been immune to the debilitating effects of this recession. There are less than a handful of manufacturers that are not only considered large by any standard, but they are also heavily involved in multiple flooring categories, giving them a unique perspective on trends.

This bird’s eye view affords them an insight others do not see as clearly. While this year was no walk in the park, most admit it was not as rough as 2009 when it seemed as if business would come to a halt. Conditions across the board are expected to remain though into the new year, but there have been some signs of light, signs enough to have executives cautiously optimistic that 2011, at least the second half, will mark the slow, steady climb back to prosperity.

With that, FCNews spoke with the top executives at four of the industry’s largest mills to get their take on how 2010 has been and what they are projecting for the upcoming year.

Kim Holm

President of residential business, Mannington Mills

As we’ve all learned over the past few years, the economy is so uncertain. One of the advantages we have at Mannington is we’re involved in every category, with the exception of residential carpet, and we’re balanced between commercial and residential. This also helps us because, generally, both sides of the business are never down; certainly the commercial side of our business has carried us the last three years.

The economy continues to be major drag on the industry. We thought we saw signs of improvement but that was driven mainly by the homebuyer’s tax credit. We are anxious to see recovery hit our industry. We haven’t felt it in flooring because our products are seen as a purchase that can be postponed, but as the industry as a whole improves we’ll continue to see improvement.

We’ve seen the commercial side of the business hold up much better than residential. We think remodeling will grow more in 2011 as facilities compete for work. It has held up surprisingly well, driven mainly by continued investment in institutions and hospitals, which is a strong suit for our company.

For 2011, there continues to be uncertainty about the economy. [But] we’re predicting it will begin to show signs of recovery and that business will improve slightly for 2011. We anticipate growth of 5% next year in residential business and 7% next year in commercial, which includes both carpet and hard surface. Commercial growth this year was 13% over 2009 but residential was flat.

Randy Merritt

President, Shaw Industries

At the beginning of 2010 we had expected a challenging first half of the year. The commercial side of the business was coming off a terrible 2009 and, while we thought this would moderate some, we still expected a down year. As expected, the year started quite slowly but it turned around and we will end 2010 up as much as 2% with some positive momentum working as the year ends. Most of this strength has come from continued growth and expansion across multiple segments in carpet tile.

Residentially, business was still very difficult coming into 2010. Unemployment, consumer confidence and the willingness of banks to loan money were certainly negative factors. In the second quarter, as the housing stimulus was nearing its end, we saw a little momentum and were hopeful this would carry over into the second half of the year. But, that did not happen as the stimulus dried up. That said, it does seem that even residentially we have hit the bottom of the cycle. For the year we expect the industry will be somewhere in the +/-1% level. [For 2011] looking at overall economic issues it is a mixed bag.

But there are subtle signs of some improving metrics. Most projections say homebuilders will build more houses in 2011. Not a huge number and smaller in size, but more houses. That is positive for flooring.

On the economic front we still have a long way to go before we see consumers spending and borrowing more freely. We do think there is tremendous pent-up demand in all segments, especially in remodeling. At some point this will break free. Hopefully we will see some of this in 2011. But we still expect a slow, long recovery.

Right now, without question, the biggest issue is traffic and buyers in stores. We need more people willing to spend money on remodeling. When they do, flooring will be close to the top of the list.

Frank Peters

President, Mohawk Flooring

The biggest thing that has happened is that the recession has allowed us to look at how we do things now versus how we did them in the past. We have reduced our infrastructure and simplified all our efficiencies—IT, manufacturing, sales—so we could be as profitable as anyone and help make our dealers profitable.

Residentially, we won’t see any real growth in builder business until the second half of next year, and even that growth will be less than I would have anticipated six months ago. So the opportunity is on the residential remodeling side. There is plenty of pent-up consumer demand.

If for some reason consumer confidence drops, the best we can hope for is a flat year. If it doesn’t, then we should see low single-digit growth. We see a continued drive toward value, and that is why our triexta business is taking share from polyester and nylon.

Commercially, ours and everyone else’s business is 80% remodel, and I would expect that area to be strong next year. I am expecting that to rebound more than residential.

We are seeing phenomenal growth in carpet tile. Unfortunately broadloom is declining, but we are seeing growth over- all. The one slow spot is hospitality, but there is a great deal of pent-up demand, so when the hotels realize they have some money to spend, that segment is going to explode.

Overall, while I expect residential to be up by low single digits in 2011, commercial has the potential to be up in high single digits.

Alan Cubell

Vice president, residential sales and marketing, Armstrong Floor Products

We are preparing for the market to be flat in 2011 under the weight of high unemployment and declining home values. We will focus on value-oriented products to drive business for our retailers. This is an area of strength for Armstrong. Retailers want customers, and Armstrong does the best job of driving customers to retail. We have a clear strategy focused on helping our retailers succeed from products to programs to training.

Armstrong will continue to invest in new products across all categories to provide both the retailer and consumer with the broadest selection of visuals and quality grades. We will also continue to do the things you would expect us to do in this tough economic environment. We will manage our spending, continue to drive out cost through process improvement and adjust our manufacturing footprint based on demand. We will not, however, cut our investment in what’s important to our success: investment in our brand, new products, and programs.

The biggest challenge we see heading into 2011, aside from the economy and housing market, is raw material inflation. The cost of raw materials continues to rise at an extraordinary rate.

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