June 29; Volume 30/Number 1
By Ken Ryan
What some executives had hoped would be a breakout year for the hardwood segment—following double-digit growth in 2013—2014 instead turned out to be a solid year of steady progress.
The most significant positive factor in 2014 was continued recovery in the overall economy, which created consumer confidence and an uptick in housing starts, executives said. Housing starts for both single- and multi-family units were instrumental in driving gains in square footage sold. Meanwhile, higher lumber costs resulted in higher selling prices of solid wood, helping to drive dollar gains. Engineered hardwood sales outpaced total solid wood.
“Overall, 2014 was not a bad year,” said Dan Natkin, senior director of hard surface products for Mannington. “I will take slow, steady growth any day of the week.”
All told, 2014 proved better than any year following the recession, with the exception of 2013. FCNews found hardwood sales in 2014 increased 7% to roughly $1.943 billion while units increased 6.1% to about 770 million square feet.
That translates to 9.9% of the overall flooring industry market share in terms of dollars and 4.3% in volume, up from 9.6% and 4.1%, respectively. This marks the fourth consecutive year of dollar growth for the hardwood segment and its highest amount since 2008, when FCNews research revealed a dollar volume of $2.101 billion. However, since the category dipped to a low of $1.539 billion in 2010, it is up 26.3% over these last four years.
Most executives said it took until the second half of 2014 for the hardwood business to regain its footing. In addition to the weather that hurt first-quarter sales, raw material cost increases continued to impact the selling prices.
“Raw material costs and the unpredictability of pricing continued to impact the industry in 2014,” said Drew Hash, vice president of hardwood for Shaw Industries. “In the second half of the year the industry saw increased demand in new home construction, which contributed to category growth.”
Natkin said general improvement in home building was the biggest driver in 2014. “We’ve been under-building for years, and now it is starting to catch up. Wood very closely follows new construction. You can lag new home starts for eight months and wood will almost exactly parallel that.”
Don Finkell, founder and CEO of American OEM, said that while new home construction and remodeling driven by existing home sales have fueled demand, obtaining credit remains an issue for many consumers. “There is still some drag on home sales from excessive banking regulations making it harder to not just get approved for new home loans but also simply getting through the process. Red tape galore.”
Domestic vs. imports
The industry has seen a shift on both the manufacturing side and the consumption side regarding imported products. The Made in the USA movement is continuing to gain strength among retailers and consumers who are looking for products they are certain will meet federal regulations and are sourced from sustainable practices.
Neil Poland, CEO of Mullican Flooring, said consumers in general are placing a greater emphasis on buying American-made products. “This is due to increased awareness about the potential for health issues associated with imported products that do not meet the stringent standards we require in the U.S. From a manufacturing standpoint, overseas [production] is no longer the cost-saving measure it had been for so many years. We have seen an increase in the wages of overseas workers, while energy costs have skyrocketed at the same time. The savings historically seen at overseas plants disappear when you begin factoring in the fuel costs for transporting raw materials and finished products back and forth between Asia and the U.S. The domestic facilities also tend to have better automation technology available, allowing them to produce higher volumes more efficiently.”
Finkell said the potential increase in antidumping duty has many importers worried about their long-term exposure. “Many will move to domestic sources if they can still be competitive. Consumers trust American-made products and they are more skeptical of foreign-made goods. CEOs are also becoming skeptical.”
According to Natkin, domestic vs. import “has been a tale of two cities. On the solid hardwood side, domestic production is king and is fairly healthy. On the engineered side, one out of every two square feet is imported.” In engineered, China is the largest importer at 60%, followed by Southeast Asia, Canada and Europe.
Michael Martin, president and CEO of the National Wood Flooring Association (NWFA), said domestic is the clear leader and is capturing more market share due in large part to enforcement of The Lacey Act, along with the general desire for products made in the U.S. “In addition, the growing middle class in other countries has a desire for U.S. products, including U.S. wood flooring species. U.S. manufacturers have strict regulations they must adhere to, so consumers are gravitating toward domestic products as opposed to those that don’t fall under U.S. manufacturing laws.”
Some executives say price remains the primary driver of imports, which allows foreign products to continue to represent a large portion of overall sales. On the other hand, Bill Schollmeyer, CEO of Johnson Hardwood, an importer, explained that while manufacturing and distributing imported floors continues to be a challenge, it’s no longer just about price. “If the consumer or dealer doesn’t feel safe or comfortable with the importer, they’ll select another product.”
Ultimately, all signs point to domestic grabbing more of the market share. “There is a definite move to domestic-made product,” Finkell said. “Some of this is a market preference for Made in America and some of it is driven by fear of unknown consequences of buying overseas.”
Engineered vs. solid
One of the biggest trends that shaped 2014 was the continued, steady rise in the percentage of engineered sales, which is predicted to carry on. Engineered now commands about 54% of the hardwood market, up 1% over 2013. “The growth of engineered is still closely related to new construction and remodeling growth in the Sunbelt areas, a greater percentage of new homes using concrete slab foundations, high-rise apartments and basement remodeling,” Poland said. “Installations of engineered hardwood over concrete slabs are really the driver of overall engineered growth.”
Finkell added the trend of wider and longer boards also favors engineered. “Solids don’t do wide well.”
According to Hash, engineered hardwood is growing in demand largely because it offers numerous options at affordable prices with a design aesthetic that consumers appreciate, including those particularly wide planks and a tremendous variety of visuals.
Trends
2014 saw a continuation of wider planks, longer board lengths, more character in wood based on species, gray stains and finishes, and darker options.
Natkin said the trend toward wider/longer would continue for a little while longer and then likely end, with more diversification in the board lengths. “While there are companies that come out with 14-foot boards, those boards can be difficult to maneuver inside a home and are niche oriented,” he explained. “The wheelhouse is the 7.5- to 8-inch wide by 8-foot long planks.”
Colors can vary by region; some markets like dark browns, while others prefer a move back to naturals or toned naturals and a lot of smoky options. Overall, however, true grays are red hot. “I was amazed at how many grays we have in the top 10,” Natkin noted.
Luc Robitaille, vice president of marketing at Boa-Franc, makers of the Mirage brand, said wood floors with character marks, texture and color variations are among the biggest trends. “Wide widths of 6½ inches and more, and light colors with a very rustic grading are also very popular.”
Finkell said character over clear and lower gloss over shiny trended in 2014. In colors, grays, muted and visually rich tones, and combinations were in play. “Texture is still king, but [specifically] sophisticated texture. The market is not going back to smooth any time soon but the handscraped looks are more subtle and less dramatic. And you can’t help but notice all the herringbone showing up on social media. It’s coming.”