Wood: State of the Industry

Home Inside FCNews Wood: State of the Industry

Despite obstacles, executives expect category to continue steady growth

Volume 27/Number 24; March 31/April 7, 2014

By Ken Ryan

The hardwood flooring segment continues to climb out of the years-long recession, buoyed by a healthier economy and improving housing fundamentals. As leading executives convene in Nashville April 16-18 for the National Wood Flooring Association (NWFA) Expo, there is the general sense that market conditions will continue to favor growth.

“All indications are that the category is continuing to gain momentum,” said Michael Martin, president and CEO of the NWFA. “We hear from our manufacturer members that production is increasing, we hear from our distributor members that sales are up, and we hear from our contractor members that they are booked several weeks, or even months, out. This is a significant shift from the previous five years or so when all flooring categories were down.”

The hardwood segment began its recovery in 2011, when sales rose for the first time in five years, although unit sales dropped. In 2012 both sales and units increased to an estimated $1.640 billon (a 4.43% increase), and 685 million square feet (up 5.11%), according to FCNews’ calculations.

The consensus among top manufacturers (based on the average of their estimates) is that the hardwood category grew about 10% in sales in 2013 to roughly $1.804 billion, while units increased about 6% to 726 million square feet.

“It was a strong year but not without challenges,” said Dan Natkin, director of the wood and laminate business at Mannington, referring to a shortage in raw materials that contributed to price increases.

Favorable data

Kevin Thompson, leader of Shaw’s hardwood marketing and national accounts for the builder division, said most estimates suggest that 50% of the hardwood market today is driven by new home construction. “With the anticipated improvement of the housing market for 2014, we have a positive outlook for hardwood in [the coming year].”

Similarly, Neil Poland, president of Mullican Flooring, said the company expects a rebound in the demand for housing after four years of historically low levels of housing starts and completions.

Several executives spoke about pent-up demand, and how consumer spending on discretionary items is now being allocated to big-ticket items like hardwood flooring.

Perhaps more than any other surface, hardwood flooring is influenced by consumer confidence. For now, that is good news as the economy recovers and the job market slowly improves. “With consumer confidence rising, the remodeling market is showing positive signs, which is excellent for the hardwood flooring industry,” said Luc Robitaille, vice president of marketing at Boa-Franc, makers of the Mirage brand.

Market research continues to show that consumers desire hardwood flooring in their homes, and this is evident in the trend of other flooring categories mimicking the look of wood. “We see it with laminate, with tile, with LVT, and even with carpet,” Martin said. “Consumers have a strong desire and preference for wood but may be hesitant due to its cost. However, wood provides the most long-term value of any flooring category as it can last for hundreds of years when properly maintained. Confidence is quite high for the category at this time.”

Kevin Biedermann, senior vice president of Armstrong residential floor products, agreed that consumers are becoming more comfortable spending again and that, for many of them, the inherent quality of real wood floors is a selling point. “[Hardwood flooring] continues to be desired by homeowners as the ultimate complement to any design style and taste, and is the flooring of choice,” he said. “They want an attractive, quality product for their dollar, and this is an investment that lasts for years and offers timeless style.”

What’s trending

At one time, engineered hardwood was only sold in southern U.S. markets that had mainly slab-built construction. Today, engineered floors can be found in virtually every U.S. market. For many companies, including Mirage, engineered offerings represent the fastest-growing platform in their portfolios.

Engineered’s trajectory is no surprise. It offers dimensional stability, environmental friendliness and, perhaps most important, appealing visuals. Some executives said women consider aesthetics first when choosing a floor; the wider-width options and variety of colors, species, surface textures and colors makes engineered a compelling choice to the target consumer.

Distressed, rustic looks are trending as consumers move away from the flat-surfaced, shiny finished floors that were popular a decade ago. “Today’s ‘new’ floors are distressed—they look antiqued, worn and old,” Martin explained. “This look also helps to mask minor imperfections that can appear in the flooring over time, like small scratches or dents.”

Martin added that species are now selected based on character, with a growing preference for wood that exhibits knotholes, mineral streaks and other character marks unique to wood.

Non-linear installations are also growing in popularity. Wood is being installed on curves, in custom parquet patterns and often follows other architectural elements in a room, like coffered ceilings, spiral staircases or other focal points.

In terms of color, Natkin said there has been “an interesting and rather sudden evolution” in the number of lighter, muted hues entering the marketplace. “There is a definite migration to softer, lighter colors.”

Gray stains and finishes are very popular right now as well, while metallic finishes are being sold on the coasts. In line with the popularity of rustic looks, hickory is a hot species, selling more briskly than oak and maple in some markets, while exotics like Brazilian cherry have cooled off considerably. At Surfaces, a number of suppliers showcased acacia and, to a lesser extent, sapele, both African species.

Impact of Lacey Act, imports

The Department of Justice and the U.S. Fish & Wildlife Administration have moved forward with two official investigations of potential violations of the Lacey Act since the law was amended. While that does not seem to be a significant number, Martin said the two investigations are having an impact on the market. “The U.S. is seeing an increase in lumber imports to Chinese manufacturers, and there are several Chinese companies looking at not only sourcing from the U.S., but also considering manufacturing options for some product lines that are too expensive to produce in China and ship to the U.S.”

While a growing amount of U.S. manufacturers have started to bring their manufacturing processes back into the U.S., China will remain the largest producer of wood flooring in the U.S. for the foreseeable future. Martin, who attended Domotex Asia/Chinafloor, said there seems to be more of a focus on the quality of Chinese manufacturing today as opposed to 10 years ago.

“Some estimate that there were as many as 4,000 Chinese manufacturers making some type of wood flooring a decade ago,” he said. “Today, estimates are that there are fewer than 100 sizable operations. The lack of demand throughout the recession, U.S. legislation changes and diminished Chinese governmental funding for manufacturers have all contributed to the contraction.”

Overall, the market has shifted in such a way by these factors that there is significantly more U.S.-grown lumber going into China to be made into flooring and then returning back to North America or sold domestically in Asia.

Mullican operates four U.S. manufacturing facilities, and Poland said there is a large opportunity with U.S.-manufactured hardwood flooring products  “as the American consumer is moving purchases to U.S. companies. Many of the national home builders are also utilizing U.S. hardwood flooring products for their projects.”

Raw material supplies

There is considerable concern regarding raw material supplies throughout the industry. For several years now, there has been a shortage of available domestic lumber due to the downturn in the economy; during that time, sawmills either reduced their production or closed their doors completely as demand for lumber decreased.

Now that demand for quality wood flooring is increasing, the severe shortage of lumber has resulted in rising costs for raw materials, forcing several manufacturers to hike prices.

The harsh winter hindered harvesting even further, leading to speculation that further price increases will take place at least through the remainder of 2014.

Poland said green lumber costs have increased approximately 70% since 2012, severely pressuring gross margins for hardwood flooring manufacturers. “Although the industry has implemented three to five prefinished solid price increases since that time, they have not been adequate to keep pace with rapidly rising lumber costs, which deteriorates the industry gross profit margins,” he explained. “There also are shortages on certain species of lumber that are creating extended lead times on flooring shipments.”

Natkin added that while the raw material issue is still a problem, “it would appear that the situation is a little better than last year; that said, there is not great stability on pricing at the moment.”

However, neither the harsh winter nor the ongoing angst with raw materials will keep the hardwood segment from posting what most industry pundits say will be sales and volume growth that exceeds 2013’s numbers.

“The shape of the curve is going to be different because of the cold winter,” Natkin said, “but we will continue to see recovery.”

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