Volume 27/Number 5; June 30, 2013The glory days of the mid-2000s are long gone, but 2012 finally has industry members grinning with optimism as the year posted its largest increase in sales dollars on a percentage basis since 2005. Further supporting the notion that the industry is slowly righting its ship is the fact that this year marked the third straight year of growth in sales dollars.
When the dust settled, the year that was 2012 boasted floor covering sales of $17.305 billion, up 3.7% from 2011’s $16.686 billion. This was the highest volume since industry recorded sales of $19.743 billion in 2008. And after posting gains of .2% and 2.9% in 2010 and 2011, respectively, last year’s leap was the greatest since 2005 when sales were up 9.1%.
The good news doesn’t end there. More floor covering was sold last year than the previous year for the first time in seven years, even if it was just a slight 1.5% increase. According to FCNews’ research, sales reached 16.799 billion square feet, up from 16.554 billion square feet in 2011.
(Editor’s note: FCNews does not include stone flooring in its aggregate total, nor does it include ceramic wall tile. And its rubber numbers include rubber sheet and tile flooring, accessories and cove base.)
An additional interesting note: For the first time since the mid- 2000s, every floor covering category in 2012 posted dollar gains led by ceramic tile’s 6.8% and resilient’s 6.4%, reaching $1.623 billion and $1.957 billion, respectively. Ceramic tile also posted a 5% gain in volume to 1.449 billion square feet, trailing only hard- wood’s 5.1% boost to 685 million square feet on a percentage basis. And with dollar increases outpacing volume gains in the ceramic, resilient and carpet categories, the average selling price across the industry showed an uptick.
Resilient remains the industry’s shining star as it continues to outpace other categories, with LVT accounting for much of the growth. FCNews research reveals LVT is now nearly a $750 million business, accounting for roughly 37.5% of all category sales. On a volume basis, LVT represents only 20.6% of the category given how it commands a premium price. According to a consensus of manufacturing executives, LVT’s growth was in the 15% to 20% range in 2012, and even higher among top-tier manufacturers such as Mannington and Armstrong.
In addition, sheet vinyl grew in the mid- to high-single digits, though not quite as robust as LVT. “The growth in LVT is due to the taking of market share from wood, ceramic and VCT thanks to easier maintenance, installation and competitive price points without the sacrifice of design and style,” said Michael Raskin, CEO, Raskin Industries.
David Sheehan, vice president of resilient business for Mannington, said the continued growth and strength of the resilient category is driven by a confluence of factors. “Vinyl has never looked or performed better. And installation options for both sheet and LVT are numerous— loose lay, click systems, grouted visuals.”
Another factor driving the lion to $10.372 billion. Carpet comprises 78.3% of that number, or $8.119 billion. Volume-wise, the soft surface category was virtually flat, moving from 10.81 billion square feet to 10.84 billion square feet.
While minimal growth is better than no growth, Tom Lape, Mohawk’s president of residential and commercial, said 2012 did not live up to the anticipated demand that the industry thought it would see. “Business began a little stronger in the early part of the year, but that momentum did not sustain itself from an overall perspective.”
Lape added that a bit of a gap began to form residentially. “The higher end of the market and lower end of the market performed slightly stronger, while the middle portion remained a bit weaker. And we saw the builder segment begin to show some signs of rebound, albeit off exceptionally low levels of volume.”
Also driving carpet’s growth was residential replacement. “Existing homes finally started to sell and people were beginning to qualify for financing,” Lape said. “We saw the home inventory come down, which gave some stability to the real estate values that are out there.”
Had 2012 not been a presidential election year, most agree carpet would have posted more significant gains. Election years breed uncertainty, and many consumers sit on the sidelines until the votes are tallied. “Since flooring doesn’t break, it’s a deferrable purchase, so confidence— whether it is consumer confidence or CEO confidence—plays a big role in the flooring purchase decision,” Lape explained. “The overhang of this election created some concern in the confidence level.”
On the positive side, however, equity portfolios and the stock market came back, and the back- log of unsold homes was at its lowest level in about 2½ years. As well, that medium- to higher-end consumer, who sat on the sidelines, started to come back toward the end of the year.
Randy Merritt, president of Shaw Industries, also believes consumer confidence continued to hold back growth. “The housing industry saw an increase in construction in both single- and multi-family formats. The values of existing homes in many markets began to increase again for the first time in many years. However, unemployment, job security, consumer confidence, and the challenges around consumer borrowing tempered the growth rate. But we did show signs of some improvement.”
On the wood side, it was a tale of two cities. As the housing market began to rebound, so too did the wood flooring category. However, with numerous sawmills going out of business during the down- turn, there came a shortage of raw materials, which led to price hikes. Those increases were reflected in the industry posting a 4.4% growth rate from $1.57 billion in 2011 to $1.64 billion in 2012. And the housing market rebound was reflected in volume increasing 5.1%—from 652 million square feet to 685 million square feet.
The spike in lumber prices was attributed to a number of factors beyond shortages of sawmills and workers. These include increased competition from other industries, particularly newer developments such as natural gas. The natural gas industry is vying for the same logs the flooring industry uses to build platforms for its fracking operations as well as to help build the roads to get to these sites.
“There was a time when the flooring industry would get about 60% of the log,” said Milton Goodwin, Armstrong’s vice president of wood and laminate products. “Now we’re getting 40% with the rest going to other industries. And, in the case of natural gas, they are willing to pay more so we are forced to pay more.”
Possibly the biggest shift with-in the industry is the consumer’s desire to purchase domestically made goods as opposed to those coming from China and other far-off countries. As a result of this change, not only are more manufacturers choosing to use domestic species, they are also bringing more production back to this side of the Atlantic with the opening of new plants or expanding existing facilities to handle more capacity.
“In recent years, there has been an obvious and steady increase in the importance of ‘Made in the U.S.A.’ to consumers,” noted Harry Bogner, senior vice president of hardwood for Mohawk’s Unilin division. “Not only do consumers feel more confident in trusting products produced by American manufacturers under U.S. regulations, there has also been a renewed pride in purposefully supporting brands that keep Americans working.”
This general desire for domestic goods may have stemmed from the recession, but executives point out numerous factors affecting the wood industry, from the economy to the anti-dumping case against imported engineered floors from China, which occurred a few years ago.
Also, over the past several years, most retailers and distributors have maintained lower levels of inventory in response to the tightening overall economic conditions. This strategy requires more rapid service. American-made products are capable of filling these quick-turn requests better than most imports.
Another shift that continued with hardwood flooring in 2012 was the increased usage of locking systems. Used originally with laminate floors, mechanical, glueless locking systems have slowly integrated the wood industry—mainly for engineered constructions— making the product easier and less expensive to install.
“Sales for hardwood with glueless installation systems continued to grow consistently during 2012,” Bogner said. FCNews data estimates glueless installations accounted for nearly 18% of all hardwood flooring installations, up from 16% in 2011.
Luc Robitaille, vice president of marketing at Boa-Franc, maker of the Mirage brand, said the company first introduced a glueless system in 2006 and sales have grown every year since the launch. “We expect this to continue at an even faster pace in the next few years.”
A rebound in the housing market also proved to be a boon for the ceramic category, as sales increased 6.8% from $1.52 billion in 2011 to $1.623 in 2012. Again, this number reflects floor tile only, which knowledgeable observers believe to be between 75% and 80% of the total ceramic market. From a volume standpoint, sales increased 5% from 1.38 billion square feet in 2011 to 1.449 billion square feet in 2012. These figures suggest the average selling price per square foot of tile jumped from $1.10 to $1.12. That’s not too shabby considering that number was $.98 in 2007.
According to Lori Kirk-Rolley, senior marketing director for Dal-Tile, two factors contributed to this growth: a pick-up in housing and continued commercial growth. In addition, the industry started to see more upgrades as interest rates continued to stay at record lows.
Bart Bettiga, executive director of the National Tile Contractors Association, noted the average selling price definitely increased due to a rise in both labor prices and the selling price of not only the tile, but installation materials as well.
The biggest challenge, according to Hector Narvaez, vice president of sales and marketing for Marazzi Tile, was an over supply of low-priced goods from around the world, which makes it difficult for domestic manufacturers to compete with their high quality products. “Raw material costs are always an ongoing concern as they continue to climb.” As a result, manufacturers initiated price increases of their own, which contributed to the 6.8% growth in sales dollars.
The category has been under as much scrutiny as any in recent years, primarily because of a prolonged shift away from the specialty retail channel. In fact, many have dubbed it a “home center product.”
FCNews research suggests it is, in fact, difficult to argue the “home center” sentiment. In fact, specialty retailers in 2012 accounted for only 32% to 33% of sales in terms of volume, and no more than 38% of the category’s dollars. The bright side is that the higher-end products are moving through the specialty retail channel, so dealers can make some margin on what they sell.
Specifically, Home Depot, Lowe’s and Menard are estimated to command about 51% of laminate volume in the U.S. Then, when you add Lumber Liquidators to the mix, that market share eclipses 60%. Warehouse clubs add another 4% to 5%, and then there are the flooring outlets, such as Grossman’s, which focus on the lowest end.
Interestingly, while the category continues to experience pressure from less expensive Chinese and European imports, along with the growth of LVT, laminate still increased its sales dollars and volume in the U.S. as sales increased from $1.094 billion in 2011 to $1.109 billion, a gain of 1.4%, in 2012. Volume was up 1.8% from 1.02 billion square feet to 1.04 billion square feet, and as has been the case since its inception, the average selling price decreased, but this time by only a penny, suggesting there is now some price stability.
“I think domestically, we saw a little more discipline in pricing with the realization that pricing at times was below our cost,” said Roger Farabee, senior vice president of marketing for Mohawk’s Unilin division. “So cost pressure drove people to get a little more disciplined.”
George Kelley, president and CEO of Kronotex USA, told FCNews he saw some price erosion on the low end. “But I think prices improved because the mix started to move off the low end.” The company started to see consumer activity moving away from the base 7 mm product, “which the home centers and larger retailers got drunk on. I think during the second half of the year we saw a market shift up the food chain toward more value- added product.”
Scott Sandlin, vice president of Shaw Industries’ hard surface business, also observed the beginnings of a shift to higher-end product. “If you go back to 2010 and 2011, one manufacturer’s predatory practices in the market- place drove prices down 10% to 15%. So staying flat last year was a result of shifting product mix.”
He added that another factor impacting prices was the immense amount of pressure on the high end of the market. “I think the upper-end price points dipped to the middle. That’s where we used to make a lot of money.”
The statistics presented in this study were derived from an extensive research project undertaken by Floor Covering News. Figures were gathered from a variety of sources to develop the most plausible and credible results at the time of publishing.
Sources included, but were not limited to, published governmental records (both U.S. and foreign sources); filings from public companies; extensive and confidential interviews with top officials from all levels of the supply chain—manufacturer, distributor, retailer, installer, importer, agent, industry organization, buying group, etc.—historical trends and data; reports published by associations along with private conversations with directors, and previously published reports and stories in FCNews and other credible media sources.
Some of the data came from sources such as the U.S. Department of Commerce, Federal Housing Finance Board, U.S. Bureau of Economic Analysis and other federal agencies. Information was also gathered from foreign agencies and respected international organizations, such as China Wood International, the European Producers of Laminate Flooring, Carpet Export Promotion Council, Tile of Spain, Ceramic Tiles of Italy and other international groups affiliated with the flooring industry.
Data available from U.S. industry associations and groups were also used as part of the evaluation process. These include the National Wood Flooring Association, North American Laminate Flooring Association, Carpet & Rug Institute, Tile Council of North America, Carpet America Recovery Effort and others.
Some current and historical data came from sources such as the National Association of Home Builders, National Association of Realtors, U.S. Green Building Council, National Association of Manufacturers, etc.
Floor Covering News also held numerous private conversations with high-ranking executives from many of the industry’s leading mills, groups and associations about the overall industry and their respective category(s) of business. While these discussions were off-the-record and confidential, the information gleaned from them was incorporated into the research to help arrive at the final figures.
These numbers do not include sundries or installation but represent goods sold at the key point of sale, meaning products that are private labeled from one mill to another are not counted twice. Also, in the case of the tile category, only sales of floor covering are included, which account for between 75% and 80% of the segment’s revenues and volume (the rest comes from wall tiles). In some cases percentages may not total 100 due to rounding. Unless noted otherwise, all graphs and charts were derived from FCNews’ research.
FCNews does not claim the numbers presented here to be exact and final. Governmental and company data is often revised—sometimes by more than 5% and as much as five years after being first published.
That said, these figures do represent what FCNews believes to be the best and most accurate account of what the floor covering industry accomplished in 2012 in terms of sales, volume and other pertinent information.