Contract State of the Industry: Market improving, albeit with some rough patches

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May 26/June 2, 2014; Volume 27/Number 28

By Ken Ryan

The contract/specified market continues to shake off the effects of the recession as it returns to a more favorable pattern of slow, steady growth. Flooring executives who estimated last year’s growth in the low single digits expect 2014 to surpass 2013 levels, despite a terrible winter that hindered first-quarter activity for much of the country.

Many commercial projects that were on hold—some for several years—are now being released as a better economic picture, coupled with pent-up demand, stirs the market.

“We see the state of the contract market improving,” said Ralph Grogan, chief executive officer, Bentley Mills.

Michel Vermette, senior vice president of commercial and international business for Mohawk Industries, said those commercial customers that did not want to spend major dollars during the downturn suddenly have to compete for talent and customers, and have to present the right image. “They have to update their spaces to be relevant. Three years ago everyone was holding back.”

Still, others are more cautious about what they are predicting for the market. “Some corporations will spend money but they will tighten their budgets,” said Harold Chapman, president and CEO of Bonitz Flooring Group. “We had a good backlog going into 2013, but 2014 is a little different. Our backlog is not quite as strong and the first quarter was really slow. However, I do see the third and fourth quarters as having the potential to be very good.”

Jack Ganley, president, Mannington Commercial, added, “Economic conditions remain relatively uncertain and we see some hesitation to release capital for large projects. However, like last year, we are seeing growth in the commercial market—albeit at a slower rate than anticipated.”

Most executives told FCNews that government spending is still lagging behind on both the state and federal levels. However, the corporate market and higher education that is privately funded are among the sectors thriving.

“It is very much a tale of two cities contrasting commercial vs. institutional,” said Dominic Rice, who on May 15 assumed manufacturing responsibility for North American commercial resilient products at Armstrong.

Growth segments

Bill Blackstock, regional vice president of sales in the Americas for Milliken’s global floor covering division, said a variety of factors have influenced the contract market, including the desire for end users to stay current, recruit top talent and remain competitive. “Workplaces see the value in creating a uniquely designed space that reflects their brand and corporate culture,” he noted.

Vermette said Fortune 500 companies in particular are looking for expertise, reliability, simplicity, and, most important, they are looking for a solution—not just a product. “It’s about who can hit the mark best for some of them, but more of them are looking for one go-to [supplier],” he explained. “One solution is to make their lives easier. Our approach has been resonating with them. They know they will get great value, great service; they know we can make the process easier. You have major end users that have 20 million square feet. They have projects going all the time. They get done quicker, get done with a common standard everyone is happy with, and get done more cost effectively. They also have a level of trust, a credible partner that can resolve an issue quickly and efficiently. And they don’t have to explain what they are trying to do every time. They know performance, sustainability and price point standards.”

In the hospitality sector, a brighter job picture, improved consumer confidence and a general desire to travel more have boosted the hospitality sector for both recreational and business travel, executives said. “Hospitality is in a significant state of rebound, and seems to be the top growing segment for the industry,” Blackstock said. “Our hospitality clients want to remain competitive. They’ve placed a priority on keeping their spaces updated, relevant, and welcoming to visitors, guests and employees.”

Peter Greene, vice president of marketing at Interface, also said hospitality has rebounded strongly since the recession. “There is plenty of pent-up demand, with a lot of conversion opportunities. Hospitality is showing very strong activity right now.”

The retail segment has also benefited from the improving economic climate; business owners that had tabled projects are now putting them on the front burner. The majority of the work is renovations and expansions.

For education, while state-funded programs continue to be constrained to some degree, the pace of activity at the university level—especially higher-end private institutions with large endowments—is picking up. “Higher education institutions are competing with one another to attract top-tier students, and space is a key component in how they differentiate themselves,” Blackstock explained.

Some executives said the healthcare segment came out of the downturn better than any other, as an aging population is creating a need for care facilities. However, the uncertainty of the Affordable Care Act and how it will impact capital expenditures has held down activity. Rice noted that there is a degree of caution around significant investment until there is better understanding of “what this is going to look like.”

Chapman noted that he has seen cuts to healthcare projects recently. “The budgets are not what they were in the past and the only work that will be done is out of necessity. Again, work will be out there but within smaller or tighter budgets. The uncertainty in how Obamacare is going to shake out has facilities managers in an indecision mode as well.”

Overall, 2014 is shaping up to be stronger than 2013, with the expectation of a fairly robust second half. Rob Cushman, vice president of marketing at Beaulieu Commercial, said that while the harsh weather in January and February constricted activity, the market has since rebounded. “We are seeing a lot of activity right now,” he said. “It feels like it is picking up all over, every segment.”

Rice said a return to “more normal growth” might not be realized until 2015 and 2016. “It is simply a matter of timing. Companies deciding to do work now have to go through the process of finding designers, specifiers … the flooring part comes in later.”

Product trends

To no one’s surprise, LVT and modular carpet are the products most likely to be specified for commercial projects. However, higher-end broadloom “seems to have gained some momentum,” Chapman said, “especially with companies like Bentley and Atlas.”

He praised several other companies and products, including Tandus Centiva, which Chapman said “is doing a very good job with styling and performance backings. LVT continues to gain some market share and more companies are introducing new products in this category. The 28 mil products are the ones performing the best. FloorFolio and Tandus Centiva seem to be leading the way here. Hard surface continues to gain momentum and more people are going to hard tile, in some cases over carpet.”

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