January 6/13, 2014; Volume 27/Number 18
By Ken Ryan
Luxury vinyl tile (LVT) is the fastest-growing category in the flooring industry across the globe and yet remains a business ripe with tremendous growth opportunity. This statement is not simply an opinion, but a belief shared among several major flooring manufacturers as expressed in 2013 with their announcements of multimillion-dollar investments in domestic LVT plants.
In the last six months, four of the largest companies in flooring disclosed plans. Armstrong World Industries announced in July a $41 million investment in LVT at its Lancaster, Pa., facility. In October, Mannington unveiled its plans to expand its existing LVT manufacturing plant in Madison, Ga., into an integrated manufacturing, research and development campus. The following month, IVC disclosed it will build an $80 million, 300,000-square-foot LVT plant in the U.S. When finished in early 2015, it will boast the largest capacity of any such site in North America. And, most recently, Shaw announced this month that it would exit the area rugs business and repurpose its Ringgold, Ga., facility into an LVT manufacturing plant.
The move toward domestic manufacturing of LVT affects the category in terms of pricing, logistics, imports and jobs. “Those who have the inventory that can serve the customers’ needs get the business,” said David Sheehan, vice president of commercial hard surfaces, Mannington. “You control your own destiny by having manufacturing here.”
By bringing LVT production to the U.S., companies can leverage their manufacturing expertise and create a strong cost, quality and service position domestically while reducing lead times. In turn, this can have a sizable impact on working capital.
“For the market, lead times from the Far East are lengthy and inventory planning is very hard,” said Paul Murfin, co-CEO of IVC U.S. “For example, one good-sized order can be lost if a company doesn’t have inventory. We believe we can be a low-cost, value-added and high-quality supplier, just as we have been in the glass fiber category of sheet vinyl.”
Lead times are essential, not only residentially but also commercially, executives said. Having the ability to deliver in five to 10 days, as would be the case with a domestic plant—compared to, say, 15 weeks from a facility overseas—gives a company a competitive advantage. “The way to counter [having offshore production] is to build up your inventory,” Sheehan said, “but that ties up a lot of working capital. Plus, if you are out of one SKU, you may lose the entire opportunity. We wouldn’t be [making the change] if we didn’t think we could be cost competitive.”
From a cost standpoint, the way LVT is made and the raw materials used are cost neutral globally, according to flooring executives. Factor in transportation costs and moving product overseas to the U.S., combined with today’s automation, and building domestic plants makes for a compelling business decision.
“I think demand will continue to outplace supply,” Sheehan said. “The short term will not have an impact on pricing.”
Murfin said he thinks U.S. LVT plants are increasingly relevant as the demand for LVT continues to grow. “In the case of IVC, we know our Belgium plant will not be able to keep up with demand from North America, so we need additional capacity to support that anticipated growth,” he explained.
By on-shoring LVT manufacturing from China, Armstrong said it expects to realize a more competitive cost structure with shorter lead times and improved customer service. The new facility will also reduce the company’s imports from China by 70%.
Shaw Industries, which plans to invest over $100 million in its new LVT facility, had been selling LVT in the residential and commercial markets for three years but until now has not manufactured LVT. Shaw president Randy Merritt called this move “the next logical step in this category.”
By repurposing the preexisting Ringgold facility to manufacture LVT, Shaw said it would be able to shorten the timeframe to begin making the product.
All four U.S. LVT investments followed the recent trend of “onshoring”—bringing more jobs back to American soil. “We were one of the first to say we are going to onshore this business to win [in providing jobs] and to continue to deliver innovative styles and platforms,” Sheehan said. “Everyone else is doing the same; [LVT is] the go-to category right now.”