At the end of 2009, following back-to-back years of devastating, unparalleled loses, most industry executives said the upcoming year couldn’t get any worse. Well, on one hand they were essentially correct. But, just because things didn’t get worse in 2010, doesn’t mean they improved over the previous 12 months.
Some flooring categories did, in fact, see their first year-over-year increases in either dollars and/or units since 2006, but they were not enough to offset the losses experienced in other segments.
The result, on paper at least, was a year that essentially mirrored the one before—in both sales and square feet. While total industry sales in 2010 did actually rise to $16.221 billion after three straight years of decline, the $32 million increase over 2009’s $16.189 billion, barely registers on the meter, making for what most called a “flat” year. In terms of the actual amount of flooring sold, total square footage fell slightly between 2009 and 2010 from 16.807 billion square feet to 16.625 billion square feet, or down 1.1%.
Again, on paper 2010 looks to have been a rough copy of 2009. But as any sports fan will say, championships are not won on paper. Which would explain why most people were eager to see the year end. Like any time period, there were winners and losers, and when examined from more of a macro level, it seemed that last year produced more losers as companies struggled to capture whatever business was out there.
The fact is, those who thought the bottom had been reached at the end of 2009 saw otherwise. And those who expected a quick turnaround after two dreadful years were given a harsh dose of reality.
Shortly after it was officially announced the country was mired in a recession the likes of which had not been seen in over 75 years, it was noted when the economic pendulum hits rock bottom, businesses should not expect it to immediately start swinging upward. In fact, many economists and experts said once the nadir of the trough is reached there was a very good chance the economy would labor along the bottom, showing some signs of life but not truly picking up steam, for a period of time before things begin to steadily go uphill.
So it was for 2010, as the economy basically sputtered—at times allowing people in the industry to believe the recession might truly be over, while other times making them wonder if the country’s economic ship would ever right itself.
As a number of flooring executives termed 2010, “It was the year that almost was.” That saying was given by both residential and commercial suppliers as each experienced stops and starts over the course of the year.
In a sense, 2010 could be looked at in two parts as the first half of the year compared to the second half were truly dichotomous. Thanks mainly to the federal government’s Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, the $8,000 First-Time Homebuyer Credit was both extended into 2010 and expanded upon.
In essence, the Act extended the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a binding contract was entered into by the April 30 deadline, the buyer had until Sept. 30, 2010, to settle on the purchase.
The new law also gave some people who did not qualify as a “first-time” homebuyer the ability to receive a “long-time resident” credit up to $6,500. And, for people who purchased homes after Nov. 6, 2009, the Act raised the income limits from $75,000 to $125,000 for individuals and from $150,000 to $225,000 for couples.
Home credit surge
The net result was a mini housing boon during the first half of 2010 as new housing starts not only had month-over-month gains for the first four months of the year, April’s starts were the highest of any month since October 2008, according to the U.S. Census Bureau. And, while May’s starts were below April’s, there were higher than the same period in 2009.
The overall growth in housing starts during the first half of 2010 ended up being a major positive for those involved in the residential industry as not only were new homes being built, existing ones were getting remodeled in hopes of being able to sell them.
Unfortunately, once the tax credit expired, so did the housing market. Except for a small increase in August over July, every month saw a drop in starts, and by year’s end they had dropped to levels not seen since the end of 2008/start of 2009. In fact, the December 2010 figure (33.8 thousand) for housing starts was the second lowest since the Census Bureau began tacking in 1959. The lowest month occurred in January 2009 when 31.9 thousand starts were recorded. For some, the slowdown in housing starts felt as if they fell off a cliff. Others began to realize just how much of an impact the tax credit had on the housing market and economy in general.
In the end, the falloff in the second half was so tremendous that depending on the category, it wiped away nearly all, if not all of the gains made during the first part of the year.
While the residential sector was enjoying a good start to its 2010, those on the commercial side were not having any such luck. In fact, after an extremely disappointing 2009, a year that saw sales drop upwards of 30% depending on the flooring category, 2010 was not faring any better. While the sector was not seeing the year-over-year drops it saw in 2009, sales of commercial flooring were still very much depressed.
The downward spiral the contract market was caught in didn’t just carry over from 2009, it kept going and going and…that is, until the fourth quarter hit.
Then the floodgates seemed to open, to the point that some contractors said December 2010 ended up being one of their best months in years.
Commercial business was so robust during the last three months of the year that it basically made up for the losses the sector experienced during the first nine months. In some areas, such as tile, it allowed the category to finish the year on the plus side of the equation, while helping others, such as carpet, to pretty much break even with the year before.
It wasn’t just commercial, though, that allowed the industry to end the year virtually flat. Rising costs in raw materials, energy and transportation, saw just about every manufacturer raising its prices at least once. These price hikes helped offset the lower to equal volumes of product sold. As a number of carpet executives noted, as good as the contract market ended the year, if not for the rate increases, 2010 would have been an all around worse year than 2009.
As already noted, while the industry as a whole ended 2010 roughly equal to the previous year, some categories fared better than others, with tile being the biggest winner in both sales and units.
Looking at just the flooring part of the tile industry, which accounts for between 70% and 75% of all sales, the segment posted gains of 5.9% in dollars to $1.427 billion and 5.5% in volume to 1.35 billion square feet.
This was the first year-over- year gain in both areas for tile since 2006 when sales reached $2.464 billion and units were 2.6 billion square feet.
Buoyed by commercial’s strong comeback, the rubber flooring industry (which includes cove base) had the next best year overall with sales posting a 3.6% gain to $487 million and a 2.8% increase in volume to 218 million square feet.
Looking back since the recession began, the rubber segment has been the one area able to weather the storm the best, as sales are only off 4.7% from 2007’s high of $511 million. Meanwhile, square footage is down 6.8% compared to the 234 million square feet sold in 2008. With some categories off as much as 40% from their pre- recession highs, being down in the mid single digits is considered a positive.
The rug segment rebounded in sales, showing a growth of 2.1% to $2.099 billion, while laminate saw a 1.9% increase in volume. Laminate sales were down 2.5% as the average selling price dipped five cents to $1.10 per square foot.
Sales of carpet essentially flattened out in 2010, dropping a miniscule one-half of a percentage point to $7.835 billion. In terms of volume, carpet and rugs combined fell 1.6% to 11.01 billion square feet.
Resilient sales, minus rubber, were down slightly—1.7% to $1.722 billion—but units were off 5.6% to 2.37 billion square feet.
Lastly, wood continued to get hit the hardest due to the overall housing market crunch, though the downfall was at least stabilized after posting back-to-back years of declines over 20%. In 2010, sales were off 4.8% from 2009 and volume was down 2.3%.
Moving back to a bird’s eye view, it appears the drifting along the bottom of the tank before the recovery gets going may have started in 2010. For how long it will last, and whether there is still another ledge to tumble over remains to be seen. The first half of the current year has been met with mixed results with predictions saying things are trending flat to slightly down depending on the category and sector, suggesting the saying, “Flat is the new up,” will remain in the vernacular for at least another year.