State of the industry: Area rug segment moving in right direction

Home Inside FCNews State of the industry: Area rug segment moving in right direction

June 9/16, 2014; Volume 27/Number 29

By Louis Iannaco

There’s no doubt the area rug category has experienced a tough go of it the past several years with overall flat to low single digit top-line sales. But it seems that, while difficult times may still play a role in the area rugs’ present and immediate future, things are seemingly beginning to shape up in a positive way regarding the segment’s sustainable growth for the second half of the year and beyond.

Jeff Seagle, director, marketing and product merchandising, Mohawk, noted the cash-strapped consumer and an overall sluggish economy, along with the shift to online purchases, have been the major inhibitors to overall category growth. “As 2013 came to an end, we the category as a whole showed signs of a recovery with a 3%-5% year-over-year projected growth for 2014. The inclement weather throughout the first quarter created a delay in the rebound, but we still feel the category will increase over the back half of 2014 with the annual number being closer to 2%-3%.”

Challenges center around the conservative approach at retail, he said, both with overall inventory levels, static price points—which inhibit the ability to infuse “newness” into the category—and with lower discretionary income levels for a majority of consumers. “The propensity for the supplier base and at retail is to drive to lower price points without top-end assortment rejuvenation to enrich the product mix,” Seagle added. “This is unsustainable over time for the category.”

Allen Robertson, vice president of sales, Capel Rugs, said the slow housing market recovery continues to impact flooring sales. As a result, many mills have had to source or create lower price points.

“Consumers are also settling for smaller-size rugs, using 5 x 8 and 6 x 9 offerings instead of 8 x 10 and 9 x 12,” he explained. “Of course, the smaller sizes are one half the price of larger rugs. Fortunately, the $249 to $299 products are good sellers.”

Robertson said the company’s research indicates area rug sales would remain flat this year in dollars and are trending at below $4 billion in retail sales. So far in 2014, much like Seagle, he sees the weather playing a major role in delaying growth.

To counteract this, he noted, Capel expanded its branded programs with all its partners “to enhance our rugs with the unique styling they bring. Our Genevieve Gorder and Kevin O’Brien programs are creating buzz in the marketplace. We’ve also increased our efforts in social media and are seeing strong results from Twitter, Facebook, Pinterest and Houzz.”

Others predicted some positive developments in the near future. For example, Alex Peykar, principal at Nourison, said the segment has been experiencing a “bounce back” year thus far in 2014. “During the first six months of this year we’re experiencing an estimated 15% increase over the same period last year.”

Economic indicators

Imports of carpets and rugs to the U.S. grew 10.6% in the first quarter of 2014, according to figures recently released by the U.S. Department of Commerce, Office of Textile & Apparel. Including both wool and manmade fiber products, first-quarter 2014 shipments amounted to $463.8 million compared to $419.2 million in first-quarter 2013.

Business continues to thrive at AmericasMart, according to Kevin Malkiewicz, vice president, area rug leasing and sales. Since January 2014, AmericasMart has leased, expanded or renewed over 45,000 square feet of integrated home and rug showrooms.

As the economy improves, he explained, “we are able to bring more new showrooms to our marketplace. Additionally, our current exhibitors continue to grow their businesses by expanding both their showrooms and product.”

According to Malkiewicz, AmericasMart also has some major home vendors who have already committed to new showrooms for the January 2015 market. “These additions will continue to draw resources and buyers to the home and rug floors,” he said. “There will also be further capital investments in the facility to enhance our vendor and buyer experience. As the housing market continues to improve, we anticipate a bright future ahead.”

Some retailers are also experiencing an increase in sales and optimism. Sam Presnell, owner of The Rug Gallery in Cincinnati, said business has been on an upswing for the last 18 months, and that growth can be attributed in large part to area rugs. “It started right after the 2012 election. Most people, who were reasonably positive about their financial situation and felt they had job security, were tired of living on hold. In 2013, we experienced a 15% growth in revenue over 2012, and so far in the first five months of 2014 we’re up another 15% over the same period last year. The majority of that growth comes from area rugs.”

Buying, design trends

As Presnell noted, consumers have definitely changed their buying habits. Where they were once buying one rug as a replacement, they are now buying for the whole house, or at least multiple rooms.

Accordingly, The Rug Gallery has hired extra operations personnel as “the demand on the staff became too great for the number of associates we had been comfortable with during the downturn.”

As Ryan Beauchamp, creative director for custom rug producer Creative Accents noted, when it comes to buying trends, a consumer will pay more for a Made in America product as compared to one made overseas, such as China, India, etc. “I only know about the material that goes into our rugs and it is among the finest in the world, from Wools of New Zealand and the like. Complaints I get from consumers and dealers are often about low-end imported rugs that shed profusely and end up falling apart.”

However, Robertson believes the middle-income consumer is still reluctant to buy higher quality products. “She is settling for average quality versus long lasting. Our mid- to upper-income customers are asking for the latest color stories and transitional and soft contemporary designs. We see this trend continuing, and it has been embraced and expanded upon by online retailers. We are an industry that still needs our distribution channels to take our message to consumers through in-store promotion.”

Peykar is seeing the same trend. While a good portion of homes within the U.S. are still very traditional, he noted, “we do see an increase in demand of transitional and contemporaries. Most of our debuts were concentrated toward this change in consumer demand. Overall, simple looks continue to grow, proving that more is not always better.”

Seagle agreed, saying lower-end, simple and easy-to-decorate offerings are working well in the market. “We see more solid and two- to three-color offerings than in the past. Product value and fiber attributes are increasingly important.”

Presnell said most of the increase in his store has been in high-end handwoven products, but he has also observed exponential growth in machine-made business over the last year. “Our carpet business is up as well, with probably half the carpet sold being fabricated into rugs.

“2014 is the year of blue, although we still see gray as the leader in our showroom,” he added. “Stronger colors seem to be emerging in both rugs and carpet, with orange being the front-runner. These bold colors will work well with the neutrals we’ve seen sell over the past few years. Less traditional, more transitional and contemporary designs are selling well. This is also a big year for geometrics.”

Looking ahead

While thoughts were mixed on the current state of the rug industry, there seemed to be an optimistic consensus among those who talked about the future.

“I foresee our company finishing strong for 2014,” Beauchamp said. “Our sales and marketing approach is customer-service based and I see a huge lack of this in the area rug business. I believe 2015 has further potential as long as our economy can at least remain static to positive.”

Robertson’s inclination for the next six to nine months is that while sales would be sluggish through July, they will begin to accelerate beginning in August. “I anticipate fall sales to increase by at least 5%, rejuvenating to a growth pattern.”

Seagle also foresees growth in the category for the back half of 2014 and into 2015. “Continued product newness, increases in consumer confidence and the retail focus to drive sales through brick and mortar as well as ecommerce will be keys to the growth.”

Peykar has noticed consumers spending more money than they have been on upgrading to better qualities, and he is hoping that the trend will continue for the balance of the year. “While not all retailers have felt the improvements, financial reports that relate to the U.S. future, as well as the housing rebound, should continue.”

And, according to Presnell, prices are going up at retail. “The major players are increasing their pricing to dealers. This is a good sign things are moving in a positive direction.

“I’m very positive about 2014,” he concluded. “Barring something catastrophic, the mood of the consumer will continue to be positive. People are ready to enjoy life again.”

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