Resilient: State of the industry – LVT maintains growth curve as sheet slides

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August 4/11, 2014; Volume 28/Number 4

By Jenna Lippin

Resilient flooring has been all the rage for nearly a decade now, and the category shows no signs of cooling down. After dollar growth of 8.5% in 2013 and 5.4% in 2012 (FCNews, June 30)—industry experts believe the category is up between 5% and 8% in 2014, this despite a very difficult first quarter and sluggish residential sheet vinyl segment.

Much of resilient’s growth in recent years can be attributed to LVT, which in 2013 claimed 43% of the category’s volume, an estimated $949 million in revenue, up from $733 million in 2012, a gain of 29.4%. That growth is continuing into 2014, with insiders estimating the segment to be up between 12% and 15%. On the flip side, these same people believe residential sheet is flat at best for the first six months of the year, with the more likely scenario being a low single-digit decline.

“LVT is growing at a very fast rate,” noted Jonathan Train, vice president, EarthWerks. “The good news for all [LVT producers] is that the LVT market will continue to gain market share from other categories.”

Russ Rogg, president and CEO of Metroflor, said business in the first half of 2014 was similar to the second half of 2013, however, it varied by platform. “Our floating business was steady, but it did not grow at the pace which we had experienced in the second half of last year. Conversely, our dryback LVT business was up considerably.”

He added that multi-family and commercial business in the retail and healthcare sectors have been the strongest thus far in 2014. “Residential replacement through traditional floor covering retailers is stable, but it’s the Main Street business that appears to be driving most of our growth through this channel.”

Bringing it home

Domestic manufacturing is becoming all the rage. In late 2013, a number of major players—Armstrong, Mannington, Shaw and IVC in particular— announced expansions or the construction of U.S. facilities. These initiatives are designed to yield better service thanks to shorter lead times.

“[Domestic expansion] is not necessarily going to increase competition,” said Yon Hinkle, product manager, Armstrong. “Those that have announced domestic plants are already supplying LVT to the market. The biggest advantage to domestic supply is just that—supply turnaround for our customers will be better so our ability to meet their needs will be improved.”

Rogg said importers can compete in a number of ways, most notably having a strong distribution network that can carry deep inventories, supported by the importer’s distribution center on U.S. soil for backup.

Armstrong recently started an expansion of its Lancaster, Pa., LVT plant to replace product made by a manufacturer in China. The site will also house a production line for CushionStep, Armstrong’s fiberglass-backed residential sheet.

IVC US is another player firmly planting its feet in domestic soil. The company recently broke ground on its LVT manufacturing facility in Dalton, a projected $100 million investment into the local community. “With domestic manufacturing coming upstream, everyone is thinking about a product line that will enable success in the marketplace,” said Paul Murfin, co-CEO. “It’s only going to make the category even more appealing as people take a good product and make it better, not only with quality but maybe more with creativity.”

Shaw, which earlier this year announced plans to convert an existing facility in Ringgold, Ga., into an LVT plant, expects the move to further enhance its product development, service and overall customer satisfaction. However, according to Clark Hodgkins, resilient category manager, the company will continue its relationships with existing manufacturing partners to fill the demand for LVT.

Influence of imports

Increased domestic production, particularly LVT, does not mean the end of imports. Rather, products from overseas are expected to continue to hold a portion of the market.

“With imports you get the good and the bad,” Hinkle said. “Competition is a good thing as it drives changes and innovation, which advance the category.”

However, imports also inspire end users to choose products of lesser quality, mainly because of a focus on price. The key is staying informed about the type of product importers are really making.

“You tend to have a fair number of suppliers that don’t really know what they’re doing,” Hinkle explained. “They’ve gotten into the category because they hear about growth or because their business is suffering. The product coming over isn’t always what it’s cracked up to be, and that can hurt the category. There are major differences between suppliers. If you make a low-price decision you’re going to get burned.”

Train believes while domestic LVT production is, in fact, increasing in importance, there is still a need for imports. “There is a huge infrastructure available in Asia that makes it easier to manage the supply chain of LVT,” he explained. “There are good reasons for U.S. suppliers to build in the U.S.; it will help with certain products for certain customers, but they will still rely on many components to come from overseas.”

Rogg believes importers have advantages in terms of manufacturing experience, flexibility and capacity. “Our factories have been manufacturing LVT for decades, and during this time a certain expertise and know-how has been developed. We believe there is both an art and a science to the creation of beautiful, high-performing LVT, and the most advanced manufacturing capabilities reside throughout Asia.”

Rogg also cited the fact that nearly all Metroflor products are manufactured via the hot-press methodology, which gives the company the ability to produce a divergent product assortment with varying gauges, textures and formats. “We can be nimble and quick to market with new technologies.”

Fiberglass stays strong

The second fastest growing category is fiberglass sheet, which continues to take market share from felt. In fact, many executives see a solid place for all sheet products despite LVT’s stunning growth.

Jeff Krejsa, senior vice president, marketing, Tarkett North America, noted the strength of the company’s fiberglass sheet business. “We’re up considerably in sheet vinyl this year. With the onslaught of LVT, everybody thought there would be this big shift from sheet and that’s not true. LVT is taking share from other categories and not cannibalizing sheet.

“If you were to go back 20 years, the square-yard consumption of sheet vinyl is not what it was then,” Krejsa continued. “The domestic producers all have unused capacity. Add IVC US and Beauflor, and there is going to be a ton of capacity coming online.”

Rachel Lombardo, general manager of residential vinyl sheet for Armstrong, agreed that Beauflor’s imminent presence in Dalton will affect the sheet market (FCNews, July 21/28).

Lombardo also expects to see some movement in product design. “There is a significant shift in the level of design across retail and property management/builder. There is an elevation in what property managers and builders are recommending for clientele. Things are getting more beautiful across all pallets.”

IVC US has maintained an allegiance to sheet as the category’s second largest supplier to the U.S. market. “IVC has invested a lot of time and energy into revamping programs this year,” Murfin said. “If there is a challenge for [sheet] it’s going to be at the upper end, where price points run into entry-level LVT price points.”

Hodgkins agreed there is pressure at the high end due to the growing popularity of LVT, “which also occupies a portion of the sheet good space. We do see that value price points are holding their own.”

Murfin believes IVC’s success, coupled with Beauflor’s decision to manufacture domestically, illustrates the demand for residential sheet. “I still see a healthy future for sheet vinyl, although it may be tailored to certain markets, like commercial.”

R&D developments

Innovations in LVT installation continue to be top of mind for most producers. With gluedown maintaining popularity in certain regions and applications, a number of companies are seizing the opportunity to create fresh, time-saving installation methods, whether they be click or loose lay.

Armstrong, for example, recently launched its proprietary FasTak installation system onto its Luxe line. “A number of players are innovating around installations that go beyond the typical locking systems,” Hinkel said. “I think you’ll continue to see that piece evolve.”

Beyond installation systems, enhanced visuals remain important for the resilient category across the board, particularly sheet, which is becoming more advanced to appeal to a new, younger market, and to move beyond commercial applications.

“Improved printing fidelity with improved inks and ink systems allow for sharper, clearer images,” said Mike Sansone, senior vice president of sales at Congoleum. “There are also new surface textures and embossing for improved aesthetics. These are all areas of improvement.”

Lombardo also noted a focus on improved design with vinyl sheet. “We’re going to be spending a lot of time on visual enhancements because design elevation is taking place, not just with the image you’re trying to mimic, but also with how to make the image look more real.”

Price pressure

Many executives are noticing price pressure on lower- and upper-end LVT products—particularly in residential applications—as growth continues in the mid price points.

According to Hinkle, two things are happening with LVT pricing. The first is with base-grade LVT. “There doesn’t seem to be a bottom to which certain suppliers won’t go. It’s making it less attractive for all to participate in that particular area.”

However, the second trend related to pricing is helping to “prop up” the category and, therefore, price: innovation. “Innovation is what’s continuing to drive relatively static prices [for products that aren’t base grade], particularly innovation with installation. This will continue in the short term. Domestic suppliers want to fill plants, but doing it responsibly is key.”

While some believe there is a bit of a shift toward resilient sheet usage, most executives see a static trend for sheet prices. “When you look at what people pay for [sheet] it’s a lower cost per square foot than any other product you can buy in hard surface,” Sansone said. “It’s that value proposition that makes sheet vinyl so popular. The idea of high-end sheet vinyl today is kind of an oxymoron because the days of $40-per-square-yard designer product are gone. Today’s high-end price points are yesterday’s middle price points. That’s happened over the last four or five years, and that high end has gone away. A retail price point of $20 to $25 a yard is about the top end of retail for sheet vinyl.”

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