By Matthew Spieler
Volume 27/number 15; December 3/10, 2012
When it comes to the carpet industry, soft is the key word. Soft as in softer products continuing to expand, and soft as in the ways sales continue to be.
While fibers keep getting softer, to the point where some carpets feel like cashmere, sales are starting to come out of their funk. Overall dollars may have been flat for the year and units a tad down, but compared to how things have been most executives are OK with these results.
The carpet category, like many other sectors, is going into 2013 with some uncertainty due to varying economic conditions that could tilt business either way. Nonetheless, executives are optimistic and are expecting 2013 to be a little better than 2012.
President, Beaulieu of America
We had seen so many years where we thought it was going to get better and it didn’t, so Beaulieu budgeted for the year to be flat and we came out a little less, but on the bottom line it was better than recent years. After we got our financing in 2011, we were able to consolidate some facilities. Also, our low end was down as we dropped a lot of products that were redundant or had low margins. We also needed to simplify our lines due to the plant consolidation.
The industry should be marginally up in dollars and down in units for 2012, but pretty much flat, which is how it’s been since 2009, meaning we hit the bottom. The low end of the market has been good, driven by foreclosures and multi-family which is experiencing low vacancy rates and why new ones are being built. The high end is also doing well as people with money are still buying, but it’s the everyday consumer who is reluctant to spend.
On the commercial side, corporate was good going into the year then slowed. Hospitality has been good the whole year—the same with healthcare—and we expect them to continue to grow. Education has dried up as cities and states are strapped for cash.
For 2013, consumer debt is down from $5 trillion to $2.5 trillion, sales of homes up and home prices are on the rise which means equity in the home is up, and savings rates are up. All this bodes well for consumer spending, but people and companies have lots of concerns, such as unemployment remaining high, federal spending versus revenue, not knowing the full economic impact until the healthcare reform fully gets going in 2014, etc. As we get closer to 2014 we’ll see how companies respond— from possibly cutting full-time positions for part-time ones and deciding they may be better off paying the penalty. So people are not sure what will happen. It is vital for the government to get together and find solutions.
If housing continues to improve it should have a positive impact on flooring in the second half of 2013. But, apartments are up and that could impact the sales of single family homes.
On the product side, we’ll continue to see significant movement to polyester BCF. In the mid 1980s, 82% of the fiber was nylon, now it is just over 50%. And, if you take commercial out of the picture nylon is 30% of the market, polypropylene is 20% and polyester has a 50% share. That’s a dynamic shift and it will continue as people are getting used to seeing polyesters look good and perform well.
Executive vice president of sales and marketing, Gulistan
We forecasted nominal growth of 3% to 4% for 2012, and were feeling pretty good during the first half of the year, but the second half really slowed down. Fall spending was weak. Part of it could have been from Sandy, part from the dysfunction in government as 80% of people think we’re going over the fiscal cliff.
The recovery overall has not been able to sustain itself. It’s like trying to shift a car from second to third gear and it just doesn’t get there.
Long-term, things will get better but the points just mentioned as well as other factors play on people’s psyches—especially mid- to high-end consumers who are our customers. As some of these issues ease, the independent retailer will start to see better times as people who buy in the mid- to upper-end use specialty retailers over home centers, so this should be a real positive.
We’re already seeing housing have a positive increase, especially at the mid to higher levels, plus the consumer has no debt.
As such, we will be even to slightly ahead, as the year is finishing up strong— unlike the way it did last year. But with the fiscal cliff looming I think the first half of 2013 will be bad, though it may help soften up Congress to do what is right, which is raise taxes and cut spending at the same time.
Floor covering can be put off but there comes a point where it has to be done, and with consumers now staying in their homes, they will redecorate nicely. It’s starting to happen at the higher end so it’s just a matter of when it will move down to the [sweet] spot.
Challenges going forward continue to be the fight for retail and consumer dollars—it’s about what’s sexy now. For carpet that means soft. My only concern is the industry goes too soft at the expense of performance and maintenance. If that happens it could set the industry back dramatically as people will make their next purchases hard surface floors.
Gulistan has re-engineered our dying and finishing lines, which has allowed us to achieve a softer hand without changing the performance on products using Invista’s Stainmaster Luxerell and Tactesse products. We can say this because in order for a product to carry the Stainmaster label it has to meet certain performance criteria. The industry needs to educate the consumer on what to be aware of before purchasing so she is not dissatisfied. This includes which type of vacuum to use on a particular carpet. It’s part of being a good steward.
One of the big jobs of our salespeople is to hold product knowledge sessions with every employee at all our retailers as you never know who will touch a consumer. We try to make it easy with our displays, as well, by showing the same styles, such as our popular Jarkarta and Bombay, which are the same but in two weights. It gives the consumer a natural trade-up option.
You’ve got to focus on differentiating yourself. That’s why we don’t play in polyester. And because we stick to the better goods, one of our biggest challenges is the cost of sampling—it’s hard to get a return on investment. For the low-end manufacturer this is not a big deal but for a company like Gulistan it’s a real challenge and something we need to be more judicious about.
Social media will continue to play an important role—it’s a way to communicate directly with the consumer and hold a discussion. Plus, we’re constantly updating our website to be user friendly. That includes responding to questions the same day. We also work hard to be user friendly for retailers by allowing them to conduct business-to-business 24/7. We’ve gotten rave reviews as it makes the dealer’s life easier.
Chief marketing officer, Invista Surfaces
Overall, the residential carpet industry will probably be flat in dollars in 2012 and maybe 1% down in units. While it’s sad to say, flat is better than previous years and is what we hoped for to show things have bottomed out. We’ve been in the longest downturn we’ve ever experienced and each year we kept expecting to hit the bottom, but we didn’t. We think we finally did in 2012. Even if we end the year down a percentage point or two, it is still a substantial improvement from previous years.
The volatility in the consumer market makes it hard to predict, at least harder than it used to be. There are a number of prevailing factors for this, including consumer confidence and all the political stuff. Housing starts are getting stronger but the industry won’t know until six months later as you need to wait for the house to be finished and the sale to take place for the flooring to be in.
Existing home sales are still depressed so people are holding off and not replacing their carpets like they used to. The replacement cycle has increased since 2006 when the industry first started to feel the downtown. Back then it was 12 years, now it’s 15 to 16 years. This is also due to hard surfaces taking share, which had been gaining and will happen again as the economy improves.
On the commercial side, sales will be up about 4% in 2012 and, like residential, units will be down a tad. Corporate earnings have been pretty good going into the year so our expectations were pretty much on target. Also like the residential side, commercial did slow some in the second half of the year as there is a lot of uncertainty and businesses are waiting to see what will happen.
It has taken us six years to get out of this downturn so it will take [at least that] to fully get out. Therefore, we hope 2013 will be slightly better than 2012; if it’s up a couple of points it will be positive. We do expect hard surfaces to continue to gain share. There are still a number of things that have people uncertain about the future—there’s an important government decision coming up, foreclosures have slowed but they are still in the millions and unemployment is down but it’s still up there as a concern.
LVT continues to grow at a double-digit pace but Invista is helping the carpet sector with a huge innovation transition launch. We just unveiled our Stainmaster Essentials polyester line (FCNews, Oct. 1), and our new TruSoft fiber hit dealers’ floors a month ago. Then there is Solarmax, which features great aesthetics and value to drive it.
While all three yarn systems hit the market later than we wanted, they got out in time for the fall selling season and we’re experiencing tremendous growth in each one. We expect a great deal of carpet introductions featuring these fibers from manufacturers at Surfaces.
We also introduced this year our 895 commercial fiber. The commercial market takes longer to penetrate than residential but this is ramping up now, and, like the three residential fibers, is out early enough to have products introduced in early 2013.
Plus, we plan on having a few more innovations in 2013. Soft fibers continue to be the biggest trend. Invista just spent two years researching consumers and retailers and we’re starting to launch a new way to sell to the end-user based on the knowledge gained.
We are going through fairly large changes in how the consumer shops and acts, the economy, the degree of government involvement and how it impacts on business continues to increase. All companies need to look at how and where they do business and where their competitive advantages are. Business is getting harder and unless the building market grows it will continue to be challenging.
Volatility is the new norm—from raw materials to interest rates to the global economy. So how do you engage and capture consumers in this climate? After six years of economic pressure, Invista believes there are two ways: First is innovation. Continue to invest in products and in your store. The other is the message and how to communicate with consumers. She is different than five years ago.
Mills and dealers have less cash overall so advertising and marketing have been more subdued than a handful of years ago. Even the home centers are not as strong. The big trend is the technology revolution with the consumer, namely interactive devices. This area is growing rapidly and interactive sources of information are one of the three largest things consumers seek when looking for flooring. The scope of products in flooring make it so it’s not typical to buy on the web, but consumers seek out information online about products, businesses, installers, etc., so there needs to be more partnerships with the mills and retailers to better engage the consumer.
Invista has and continues to invest in this area as we are following the consumer with our brand. We keep modifying our website, including our dealer locater, and area investments in interactive media complement our print and TV advertising. Our ads attract millions of consumers to our website and while we’re sending these referrals to dealers, we need to get them to contact the consumer.
Social media is a challenge as it’s not the highest rate of return for advertising. It’s more about people communicating, so the challenge is to figure out how to translate it into sales.
On the environmental front, green ranks low on the residential side and will continue to do so while the economy stays slow. But that hasn’t changed what we as a manufacturer do to invest in being more sustainable. People want their carpets to be easy to clean and to last a long time, which plays into our sustainability initiatives.
On the commercial side, green continues to be one of the primary decision factors with the A&D community. It hasn’t slowed down during the economic slump, either as corporations and their public images have always been important.
President, Mohawk Residential
The first thing is we believe the success we enjoyed in 2012 is directly linked to the success our customers enjoyed that same year. We offer an innovative product in SmartStrand Silk with an attribute that connected with consumers across the country.
Our retailers aligned with these same efforts. They promoted aggressively in their local markets, and in simple terms, they won—financially, from a market share standpoint—and they won with creating a satisfied consumer with a product their customers tell them they love.
Soft, soft and soft, that is the trend in carpet. The consumer has spoken, and our role as a manufacturer is to be at the forefront of anticipation of where she wants to go. Obviously soft has connected with her, and we at Mohawk will do whatever we can to stay at the forefront and drive that movement with our retail partners.
In response, we are quickly broadening the platform of soft through construction styling options to cover a wider footprint in the retail offering. The goal of any product movement is if your retail partners sell consumers on that attribute, they need to have a wide enough set of product options to close the customer on the option you are offering.
We are expanding SmartStrand Silk, the softest carpet in the world, with 12 more styles. In addition, we are launching Wear-Dated Embrace, which offers next generation softness in nylon constructions. Our testing has validated the statement that we make the softest nylon in the market.
Despite the economic downturn and depressed conditions in recent years, investments made by the carpet industry have collectively been in excess of a billion dollars over the past five years. And, it’s not just in hard assets but also to the tune of systems, brand investments, customer automation technologies, sales force automation technologies and digital media technologies.