Volume remains sluggish; domestic species usage on the rise
by Emily J. Cappiello
At the end of 2010, the wood flooring industry was being dragged down by continued sluggishness in new home construction and remodeling along with the continued increase in lumber prices. But in 2011, hardwood flooring was able to bounce back a little and, according to many industry insiders, the category made some much-needed gains.
According to the Department of Commerce, in the first half of 2011 wood flooring sales saw a 2% increase in sales versus the same period in 2010 and accounted for about 5% of total flooring sales. Although some industry experts believed sales were down slightly in 2011, the overall consensus is the hardwood industry grew in sales by 2%. In 2010, overall hardwood sales stood at $1.539 billion, where as in 2011, sales came in at $1.57 billion, even though pricing pressure was tops on a list of persistent problems in the sector.
“During 2011, the industry as a whole faced the challenges of slow to flat recovery in new home and replacement/remodel sales as well as increased raw material and energy prices,” said Harry Bogner, senior vice president of hardwood, Unilin Flooring, a Mohawk company.
Milton Goodwin, Armstrong’s vice president, hardwood, added that in addition to the housing market, one of the biggest challenges was over capacity, which lead to a drop in sales prices. Neil Poland, president of Mullican, added other factors hindering further growth in 2011 had to do with pricing. “The biggest challenges were weak pricing, pricing pressure and the continued trading down by the consumer.”
In addition, Don Finkell, CEO of Shaw Hardwood, explained the continued development of wood looks in other categories like luxury vinyl tile (LVT) and ceramic were added to the list of issues in 2011.
Bogner echoed his sentiment and told FCNews that because of pricing in the category, consumers wanting to trade down were able to do so and get the same look. “In response to the economic turbulence of the past few years, those consumers who were worried by the unfamiliar economic dip during 2011 continued to simply purchase the cheapest flooring they could find, just to get something on the floor. These particular consumers remained predominately fixated on price during the buying process to the exclusion of the many other important considerations that should appropriately be part of the selection process. Because inflation drove up hardwood prices, some consumers were pushed into a less expensive flooring option such as vinyl.”
Imports, said Dan Natkin, director of wood and laminate sales for Mannington, also added to the strain on hardwood sales. However, the Coalition of American Hardwood Parity (CAHP) formed in the last quarter of 2010 should continue to help combat low-cost goods from other countries.
In 2011, hardwood flooring imports dropped from 33% of the market in 2010 to 29% in 2011 while domestic goods grew to 71%. According to experts, there were several reasons for this change; however, the most prevalent are the ITC investigation as well as the consumer’s growing demand for goods made in the U.S.
“We’re seeing a stronger demand for domestic species and additionally, the trend toward buying American-made product became stronger in 2011,” Finkell said.
There are several benefits to purchasing products that are made domestically, and those benefits were touted by manufacturers throughout 2011 to retailers and consumers alike. Some of these include stimulating the American economy by adding jobs and cash flow back into the country; as well as ease of stocking for retailers.
Manufacturers, too, saw the benefits of producing domestically, including saving on transportation costs and shipment times.
In addition, many domestic suppliers ramped up introduction of goods and production of products during 2011 to take advantage of the pending ITC case and the fact there was trepidation in the industry to-ward imported offerings from China.
An issue that started in 2010, but had many in the hardwood industry on edge throughout 2011, the effects of the ITC anti-dumping investigation was shown through the stats by the slight decrease in imported offerings. “Imports were down because I believe the tariff duty discussion scared some people away,” Poland said.
Throughout most of the year, there were multiple hearings in regards to whether countries were illegally dumping engineered hardwood into the U.S. and causing domestic manufacturers to lose business. In 2012, the investigation came to a close and tariffs were not as harsh as they were initially thought to have been, with most of Chinese imported engineered hardwood set at a 3.31% for anti-dumping and a 1.51% rate for counterveiling.
According to John Himes, president of Wood Flooring Inter-national (WFI), the ITC case presented the biggest challenge of all for his company. “Clearly for companies like ours, we had to make sure all our customers knew they had a solid supply chain that they could count on through the ITC hearings. With the outcome as it was, they are now even more confident.”
Click installation will continue to be a hot growth spot in hardwood, as shown by its increasing share of the installation pie. In 2010, click systems made up about 12% of hardwood flooring installations, with traditional still taking home the lion’s share of the market with 88%. Although click system installation only gained 4%, as per industry estimates, in 2011, there is a consensus this method will be a force to be reckoned with in the future.
“We project the popularity of click wood will continue to grow consistently during the next few years, including this year, and anticipate about 18% of total industry hardwood sales will be driven by click within the next five years. The search for greater value by today’s consumer and a willingness to install product themselves should continue to drive sales of glueless hardwood products,” Bogner said.
In addition, hickory is continuing to be more in-demand in the market, although oak still topped the market at more than 55% of total sales. “Red Oak is still the No. 1 seller in the industry, but we have confidently seen growth in hickory, maple, walnut and cherry,” said Poland.
WFI’s Himes agreed. “For us, hickory is the stand out winner.” Exotics, like Brazilian Cherry and Santos Mahogany, dropped slightly during 2011 throughout the industry. Bamboo and cork also continued to make gains in the market as companies devote more time and energy to the design of the products and sustainable installations continue to be a factor.
In 2010, hickory was 5% of sales, however in 2011, hickory grew to 7% of total hardwood sales. In the engineered category, said Finkell, hickory was the top seller. However, other domestic exotics, such as cherry, walnut and maple, also saw growth in sales in 2011 as homeowners searched for something a little more unique than the standard, Bogner said. “As the recent economic environment shifted the primary source of industry sales from new homes to renovation/remodel business, there was a definite uptick in sales of domestic exotic products. Domestic exotics were and continue to be a favorite of this demographic. One of the most prominent reasons is that domestic exotics are the species of choice for character wood products. The renovation/remodel customers are primarily buying character woods—those unique products rich in time-worn visuals, rustic textures, and organic features such as natural knots.”
As for what the future holds, as the economy continues to come back during the remainder of 2012, consumers could possibly act upon some level of pent-up demand regarding repair/remodel projects in both existing homes and in recent foreclosure purchases. In addition, insiders told FCNews new home construction should begin to make a turnaround during the next two years—as much as double-digit growth—which should help the industry bounce back even more. “Retail is definitely coming back. As consumers feel like they will be in their homes longer and wood continues to be a value versus historical pricing, it will continue to be the go to product,” said Natkin.
As for areas of the U.S., Poland said the Baltimore/ Washington, D.C. area seems to be a bright spot for the industry “due to the tremendous amount of jobs being created by the Obama administration,” he said.
According to Natkin, the Southeast and Southwest strengthened in 2011, as did the Midwest. The West Coast and Northeast saw weaker hardwood sales for the year.