State of the hardwood industry: Foreign competition, uncertainty weigh heavily on the category

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Hardwood has been a flooring category generating plenty of buzz recently. The Lacey Act revisions two years ago sent ripples from Washington, and the recent anti-dumping case brought many manufacturers flocking back to government agencies in an effort to understand just what is at stake. While hardwood has long enjoyed a strong domestic manufacturing presence, recent shifts in the trade balance have shed a light of uncertainty on the category’s future. Coupled with the troubled economy and a struggling building sector, this last year is one that is best left behind in the books.

How were the industry numbers in 2010?

Suffering another disappointing year, the numbers for hardwood sales in dollars experienced a general decline. While Brian Greenwell, vice president of sales and marketing for Mullican, reported a 10% decrease, Armstrong’s Milton Goodwin, vice president, product management-hardwood, said dollars and volume equally fell 5% from 2009 numbers.

Mannington described 2010 as essentially flat over 2009, although executives were still working on final numbers. “It was kind of ‘A Tale of Two Cities,’” said Ed Duncan, senior vice president, residential sales and marketing. “The first half saw a very nice increase and appeared primarily driven by the home- buyer tax credit. Once that credit went away we saw business slide down for the remainder of the year.” He suggested everyone underestimated the tax credit, knowing it had a positive affect but was unaware of it until it went away.

Mohawk’s Unilin division saw flat to slight growth overall on the hardwood side in 2010, driven entirely by the residential replacement market, according to Dewevai Buchanan, vice president, hardwood. Sales under the Mohawk, Columbia and Century brands were said to have fared better than the overall industry. “We attribute this, in part, to our recent re-engineering of each brand’s entire product line,” he explained. “We entered 2010 with the right mix of competitively priced products for each of the different audiences our brands target.”

Conditions fared better in the north: Canadian suppliers experienced an increase. Preverco touted increases of 11% in both sales and volume. “We recaptured some of the accounts we lost over the years,” said Louis Morin, vice president of sales and marketing. “We’ve been steadily increasing since 2009 when we were up 5% in both the U.S. and Canada. We’re more aggressive.”

Mirage also came forward with positive, albeit more modest, numbers. Luc Robitaille, vice president of marketing at Boa-Franc, makers of the brand, said 2010 experienced a 2% to 2.5% increase over 2009, “which is not great considering the catch-up we need to do to get back to past levels.” Volume grew 3% to 4%, due primarily to the popularity of low-cost imports.

How has the Lacey Act affected the industry?

With punishment yet to be doled out to Gibson Guitars, the most public case of sourcing illegal hardwood, mills in the flooring industry are conscientiously complying with the latest revisions to the 100-year-old law. Armstrong’s Goodwin said the amendment has affected all imported wood in that the industry now needs to provide third-party documentation on where the product originates.

Although huge changes are yet to be seen in the U.S., Don Finkell, president, Anderson Floors, said companies of every size are concerned about public persona and doing the right thing as far as com- plying with the law. The biggest changes are seen mostly in other parts of the world. “Indonesia now has stiff laws about illegal logging,” he said. “It was one of worst exporters but is cleaning up, and Australia is also considering a Lacey-style law.”

He added the European Union is drafting legislation inspired by the Lacey Act but more prescriptive to prove what is legal, and Brazil’s IBAMA is serious about getting its hands around FSC regulations because it is an important market for them.

Although efforts have been made internationally, Mohawk found an effect on U.S. imports coming from China and Brazil. “The offshore mills that are left are those invested in being Lacey Act compliant, so they can continue to sell product in the U.S.,” Buchanan said. “The market has seen those imported exotic species that were not Lacey compliant or that may not have had the required level of documentation drop out of the market.”

What impact will the ITC hearing have on Chinese imports?

The anti-dumping case made by U.S. manufacturers of engineered wood flooring, collectively known as the Coalition for American Hardwood Parity (CAHP), has reparations yet to be ruled. At press time, the Coalition requested an extension from the U.S. Department of Commerce (DOC) issuing the preliminary antidumping determination, however it is not expected to affect the preliminary countervailing duty determination from the International Trade Commission (ITC) expected March 21.

Across the board, there is a lot of confusion and uncertainty surrounding the proceedings. As far as definitive effects on importers of Chinese engineered wood, Mannington thinks the impact is yet to be felt. “It’s too early to comment,” Duncan said. “We believe in the process to run its course and if the government determines it’s uneven, it will strive to level it.”

Jason Webb, product manager, Harris Wood, stated the uncertainty left a lot for speculation but looked at the brighter side of the situation. “U.S. manufacturers such as ourselves have seen some opportunity for additions to private lines based on drops they experienced.” The majority of change has been in a tentativeness to expand or retract product lines.”

Scott Sandlin, vice president, business development, Shaw Industries, echoed a similar sentiment, stating a dramatic impact is yet to be seen. “We hear distributors and retailers are buying less Chinese product because of uncertainty and there will be some influence as a byproduct of what the numbers are [reached by the DOC and ITC].”

The decision is aimed to affect the entire hardwood industry, not only those who import product from China. “With a potential tariff looming, it is hard to plan or predict the future related to engineered flooring products,” Greenwell said. “The market effect of the potential tariff is a huge unknown, even for products that are not from China.”

Ultimately the decision is thought to have the most immediate effect on competition. “From a competitive standpoint, the biggest impact is that companies importing from China are looking for other alternatives, if the ITC case impacts them negatively,” Armstrong’s Goodwin said. “About 97 square feet out of 100 square feet of the product we sell every day is made here in the U.S. No matter which way it goes, Armstrong is in a good position.”

Uncertainty was prevalent throughout the year, prior to any complaint filing. Figures from the U.S. Department of Agriculture saw a drop in 2010 imports of mainly solid wood flooring from China by 59%. It also suffered a loss in assembled flooring panels: While U.S. consumption rose 1%, imports from China dropped 1%.

Where has the share of exotics shifted?

Shaw’s Sandlin said the Lacey Act had a hand in reducing exotics sold domestically. “They have gone from extremely popular to moderately popular in retail stores. People still like the visuals if they are legally harvested and produced responsibly.”

Finkell attributes reduced demand to a consumer tendency to buy American-made products. Promoting this philosophy is the Unified Hardwood Promotion (UHP), a coalition of hardwood industry leaders who have come together to raise awareness and promote the use of American Hardwoods in products for the home and building industries.

Outreach will involve tactics including website development, leadership training, print materials, show home placement and extensive social media presence on Facebook and Twitter, to achieve the most effective use of existing communications channels or developing new avenues to reach the hardwood customer.

Softening the gaze at wood visuals

As rustics have come to dominate the majority of hardwood produced today, the look has softened since the initial foray on the trend scene. “The new rustic is more subtle and natural as opposed to dramatic, heavy scrapes of a couple years ago,” Mannington’s Duncan said. “Consumers want a more subtle, sophisticated look.” While consumers are moving toward buying domestic species, Mirage’s Robitaille predicts, “Wide will still be the choice of most consumers and dark colors will still have the main share in the stains.”

This idea was echoed at Mohawk. “The most popular looks in both engineered and solid today are domestic exotics and rustic looks, particularly in wider widths,” Buchanan said. “Those products in our Mohawk, Columbia and Century brands have been the strongest sellers.”

While a casual look has been popular recently, Webb predicts gloss levels cycling back around. “There has been some call for higher glosses than what we have done in the past several years.”

-Emily Hooper

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