State of the industry- Contract: Finally fit for sustained growth, prosperity

Home Inside FCNews State of the industry- Contract: Finally fit for sustained growth, prosperity

May 25/June 1, 2015; Volume 29/Number 4

By Ken Ryan

The contract/specified market is at its healthiest state in several years as gradual economic improvement and pent-up demand drive growth across most commercial segments, notably education, hospitality and corporate.

The consensus among flooring executives is that the contract market year-to-date vs. 2014 is up 5% to 7%; further encouragement is evidenced by company investment in the two leading product categories: modular carpet and luxury vinyl tile.

“The good news is that I am unable to identify any one particular [commercial] segment as challenging at this time,” said Michel Vermette, president of Mohawk Commercial. “We are seeing the most growth in hospitality, corporate and education.”

John Wells, president and CEO of Interface Americas, said, “Indicators are universally positive for the first time in six or seven years.” He pointed to rising employment numbers and lowering vacancy rates as positive signs for corporate. “[Several] months into 2015 we are feeling good. The office market had been spotty and choppy in recent years but what we saw last year was a general improvement across the board. We are seeing the CEO confidence in corporate America and that is driving capital expenditures for this kind of work. You have a lot more people looking for space, and when they do they are looking to update their spaces to attract new employees.”

Brenda Knowles, vice president of commercial marketing and product development, Shaw Industries, said the contract market continues to grow. The first quarter points to a promising year ahead, with commercial hard surface market—fueled by LVT— growing more rapidly than soft surface.

Active segments

While market conditions continue to favor growth for corporate and hospitality, not all corners of commercial are equal. Health care is still recovering after a somewhat slow 2014, and education is a mixed bag dependent on funding in different areas. Government spending is likely to remain challenging through the remainder of 2015, although many executives are optimistic about the education market, predicting this year will exceed 2014 numbers and 2016 will be even brighter.

“It very much depends on the segment and to some extent which products you are involved in,” said Dominic Rice, vice president, commercial flooring, Armstrong World Industries. “Overall the privately funded commercial segments are stronger than the publicly funded institutional segments, primarily education and health care, directly related to government—federal, state and local levels—which hasn’t had the money to invest in infrastructure for a number of years now. The general economy picking up and the rise of consumer confidence help segments such as office and retail. We are starting to see a turnaround in education, particularly K-12, which has been challenged for years. You are seeing more bond activity and more new construction starting.”

Knowles said the senior living segment of health care shows great promise for soft and hard surface categories. “Additionally, hospitality has had strong growth in the U.S. for both soft and hard surface markets as a result of post-recession pent-up demand and rebranding efforts underway for multiple hospitality flags.”

Executives said the improving employment market has contributed to stronger growth in corporate, which bodes particularly well for carpet tile. Education growth is slower relative to the rest of the market, especially in K-12 where there has been constricted funding at the state and local level. “Higher education business is stronger as colleges continue to leverage facilities to compete for students,” Knowles noted. “High performance, durable flooring is particularly important for those properties.”

Product trends

To no one’s surprise LVT continues to make further inroads into commercial; at the same time, however, it comes with volatility as more players are trying to enter an already crowded space. Because LVT continues to grow, executives report it is taking share from other categories, including VCT, laminate and to some extent carpet and commercial sheet.

Carpet tile and LVT are experiencing double-digit growth in the contract/specified market. Within those segments, “new cushion-backed, rectangular and plank carpet tile, along with new corporate design collections for both carpet tile and LVT, are areas that are seeing growth,” said Rob Cushman, executive vice president, Bolyu Contract.

Modular carpet continues to be a sought-after product throughout all segments for its functionality, ease of maintenance and expanded design capabilities. “Variations in tile sizes are allowing designers to take more creative liberties with tile placement,” said Jack McCallum, president of the Milliken floor covering division. “Additionally, customizing floor covering continues to be a huge trend. Whether it’s adding a custom accent into an existing collection or creating an entirely new design, designers are looking for ways to tailor floor covering for each unique space.”

In response to the increasing popularity of both carpet tile and LVT, many companies have released products from the categories that can be used together, creating fresh designs for each unique installation. Patcraft’s Mixed Materials, for example, combines Experience carpet tile and Metallix resilient flooring without the need for a transition. Mixed Materials is engineered so that the carpet and resilient are the same height, hence the lack of transition strips between materials. The added thickness also adds weight to the products to help keep them in place, thus greatly reducing the need for adhesive.

Similarly, Mohawk Group offers Mass Appeal, a 5mm thick LVT that works seamlessly with the company’s carpet tile, also eliminating the need for transitional strips. Vermette said he expects this “cross product segmentation” trend to grow. “Right now it is mostly carpet tile and LVT, but I can see some sheet and other surfaces getting used. This creates more opportunities for installers. Five years ago it was pretty much one product. Now it is multiple products in one—planks and squares, a lot of different looks. This bodes well for the sophisticated installer.”

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