Battle-hardened category stands firm amidst stiff competition
March 14/21, 2016; Volume 30, Number 19
By Reginald Tucker
The year 2015 represented a mixed bag for the U.S. laminate flooring market. On one hand, estimates provided by some of the category’s leading players showed the volume of laminate flooring sold in America last year fell somewhere between 3% to 5%, a drop-off mainly due to the large-scale pullback in non-CARB 2-compliant Chinese imports sold through Lumber Liquidators. At the same time, however, revenue estimates attributed to North American Laminate Flooring Association (NALFA) companies representing major U.S. and European manufacturers and marketers were reportedly up by double digits for the year, thereby potentially offsetting the negative impact of the overall decline in volume shipped.
Anecdotally speaking, that put total estimated 2015 U.S. laminate flooring sales in the vicinity of $1.136 billion—essentially flat compared to 2014—with volume estimated to have fallen from 1.066 to 1.034 billion square feet. (Although some of the more generous estimates put that number even higher at about 1.3 billion square feet.) While some of the calculations vary widely, many industry executives are in agreement that the fallout from the oft-referenced “60 Minutes” exposé on laminate flooring imports from Lumber Liquidators had the single-biggest impact on sales activity and shipments during the year.
“It was an interesting year for laminate flooring,” said Dan Natkin, senior director, residential products, Mannington. “I use the word ‘interesting’ because with all the news abo
ut Lumber Liquidators there were some pretty major market shifts going on. We saw a dramatic decline in board shipments, particularly from China, although we believe production overall increased for the year. So when you look at the numbers, you definitely have some offsets in there.”
Jeff Francis, laminate category manager for Shaw Hard Surfaces, agreed. “Obviously the confidence in sourced laminates changed the percentage of domestic demand in 2015,” he said. “We believe most domestic producers were up over the prior year.”
Natkin and Francis are not alone in their assessment of this unusual market activity. NALFA also tracked a sizeable falloff in product coming out of Asia in the weeks and months following the national release of the “60 Minutes” report. “Importation from China dropped immediately, resulting in a 2015 category volume loss of 3% to 5%,” said Bill Dearing, NALFA’s executive director. “This was essentially a purge of bad product and it should be applauded.”
To understand the significance of this development and the subsequent effect on overall category sales requires an examination of the relationship of not only total laminate industry volume to revenues but also the sales of those companies that voluntary report to NALFA. By Dearing’s count, NALFA-member companies actually ended 2015 up double digits in terms of volume and sales. This occurrence, he said, means that “the correct bad elements” were removed from the market.
One of those NALFA-member companies that saw robust growth in its laminate business was Mohawk, which also markets the Quick-Step brand. “Everyone I’ve talked to in the domestic market saw growth last year, including ourselves, and in many cases it was significant growth,” said Roger Farabee, senior vice president of marketing for Unilin North America (parent company of the Quick-Step brand) and Mohawk Hard Surfaces. “So the interesting dynamic is that while we’re all saying the category probably declined, 100% of that decline came from imports, particularly Chinese products. I’m not aware of any major European importer that saw a decline.”
Other industry observers attest to this shifting dynamic, although some admit that the direct impact might be difficult to quantify precisely. “What you have seen is a switch from offending product from China to U.S. and European-produced goods by many retailers fearing a backlash,” Travis Bass, executive vie president of sales and marketing at Swiss Krono, explained. This “smaller overall market,” he believes, has come to represent a “larger opportunity” for U.S. producers.
While many industry participants with a clear vested interest in the viability and health of the U.S. laminate flooring category were no doubt concerned when the critical CBS Network report first aired, some looked to turn an unfortunate development into a rare opportunity to reframe the message. “Certainly we didn’t like to see negative attention brought to our category; however, it has made all players involved focus on the quality of their laminate flooring products,” said Derek Welbourn, CEO of Inhaus. “We believe, in the long-term, that it will ensure that everyone will be held to a higher standard. Anything that elevates the overall quality of the industry is a positive.”
And that’s precisely the point that NALFA—which first began developing standards for the laminate industry nearly 20 years ago—is looking to drive home in today’s media-saturated world. One of its core tenets, Dearing said, is to inform the supply chain of the value of NALFA’s standards so that they may then assist the consumer or end user in understanding that most laminate floors not only meet stringent product performance guidelines but, more important, adhere to current government regulations regarding indoor air quality. “NALFA was very proactive in advising the consumer media of the differences in laminate flooring [relative to our standards], and our association has gained notable traction and recognition from the press,” he stated. “This, in turn, has aided the image and helped tell the truth about quality laminate flooring products.”
At the retail level, specialty dealers seemed thus far unfazed by the coverage. In a random sampling of prominent flooring retailers (FCNews, Feb. 29/March 7), several executives—including Eric Langan, owner and CEO of Carpetland USA, a nine-store chain with branches in Iowa and Illinois; and Sam Chesher, owner of Carpet Wise Flooring America in Longmont, Colo.—have indicated that their laminate sales have actually boomed since the report aired.
While the laminate industry seemed to band together in mounting a unified defense against misperceptions about the category in the wake of the “60 Minutes” exposé, manufacturers also seized the opportunity to educate the trade and end users alike about the advantages of laminate and the strengths of their respective brands in particular. Not only did this demonstrate the resilience of the category in the face of competition from other floating floor products, but it also proved that competition within the laminate flooring itself is still quite fierce.
“Overall, consumer demand for the category is still pretty strong,” Mannington’s Natkin said. “When you think about laminate from the a consumer’s perspective, it’s a great product category—relatively inexpensive, great styling and design, and amazing performance. All of that has helped prop up the category.”
While the U.S. market is not seeing the wild flurry of entrants that it did when the category first landed on American shores more than 20 years ago, what we are witnessing is a brand “evolution” of sorts. As Mohawk/Unilin’s Farabee put it: “We are seeing a proliferation of products from different sources of supply that are basically being locally branded, or just some kind of house brand that the retailer or distributor is using. The big change is that the large national flooring brands are not driving nearly as much of the volume in the market as in years past. You still have some very important trade brands along with a handful of consumer brands, but from a consumer’s standpoint I would say flooring brands are even less well known today than they were 15 years ago.”
Some of this is due to the natural consolidation typically seen as a category matures, combined with the outright exodus of certain brands from the U.S. market (i.e., BHK of America, Formica, Kaindl, Wilsonart and Witex, to name a few). “There has no doubt been some consolidation, as this has been driven by the manufacturing side with the larger producers getting even larger and the smaller ones going away,” Welbourn stated. “But it is still very competitive, particularly among the large producers.”
While some industry observers downplay the consolidation phenomenon (“I’m not sure that there are fewer brands available today,” NALFA’s Dearing posits), there is a general consensus that fewer suppliers overall are needed to fulfill laminate flooring programs at the retail level. “In the independent specialty retail channel we saw a lot of import programs go away,” Natkin explained. “We’ve also seen some consolidation within the home centers; while you might walk into a Home Depot and see the Hampton Bay [name], that line might comprise 6, 8 or 10 different manufacturers under a single brand.”
Other industry executives attest to the changing landscape. “There are less brands from which to choose, but the designs are a lot more sophisticated and the pricing is extremely competitive,” said Doron Gal, owner and CEO of Eternity Floors. “There is no comparison to the laminate industry 15 years ago. The market [has matured].”
Residential replacement vs. builder
Ever since the laminate flooring category came onto the scene in the U.S. in the mid-1990s, it has made its mark as a go-to product for residential replacement applications. While this is still largely the case today, with more than 75% of laminate flooring sales slated for remodel, industry experts have noticed increased (albeit incremental) interest from the builder sector.
“Residential replacement is still the dominant category by far, but we’ve seen solid movement in new home construction,” said Brian Parker, director, product management, residential tile, Armstrong.
Others, including Inhaus’ Welbourn, agree. But it’s important to remember, he stated, that new construction was a relatively slow adopter of laminate. “There is growth potential in this category, especially multi-family housing.”
Indeed, many laminate flooring suppliers have been gauging a growing acceptance of the product category by the builder/new home construction market. Proponents say it just makes sense for that segment. “With laminate you don’t need specialized labor, and it’s harder than hardwood so it’s less prone to indentation and scratching,” Natkin explained.
While many flooring executives don’t expect to see the residential replacement sector cede any significant market share to new construction anytime soon (remodel accounts for roughly 90% of laminate sales, estimates show), they are aware of the builder sector’s potential. “What we’ve seen is more interest from the builder community, and that’s been the fastest growing segment in the last two to three years,” Farabee said. “It’s still a relatively small piece of the market but by far the fastest growing.”
The same can’t be said for laminate’s potential in the contract market, unfortunately. “Commercial has never really been a big factor [in laminate],” he added. “It never was and is not likely to be in the future.”
Home center vs. specialty retail
Research conducted by FCNews confirms that home centers and mass merchants still account for more than 70% of laminate flooring sales in the U.S. Reason being: Laminate flooring’s entry-level price points make it an attractive option for the bargain-minded consumer who typically shops that channel. In addition, laminate’s bulk packaging format naturally conforms with the warehouse-stocking structure inherent in major home center chains.
“Home centers, by a wide measure, are driving the bulk of laminate flooring sales,” Farabee stated, but he added that flooring “category killers” such as Lumber Liquidators, Floor & Décor and the like represent a “decent amount” of the market as well. “When you combine the home centers, Lumber Liquidators, Floor & Décor and warehouse clubs, this represented more than 70% of the market in 2014. Specialty retail, in terms of the independent dealer, is by far the smallest segment selling laminate today representing about 25% to 30%.”
The good news for specialty retailers, however, is that there are still tremendous profit opportunities available to dealers through step-up products. What’s more, in many cases these upper-tier laminate options come with additional features and benefits (i.e., thicker cores, enhanced surface textures, etc.) that warrant higher prices at retail.
“Given the fact that laminate was a remodel-focused category for so long—because it comes in a box and is so easy to install—it kind of gravitated toward the home center side,” Natkin explained. “But now we’re seeing more growth on the other side, namely specialty retail, because of increased penetration into the new home construction sector.”
Technological advances in laminate in particular have translated into exclusive opportunities for the specialty retailer. “While the home center channel continues to drive volume with low-cost laminate,” Armstrong’s Parker said, “specialty retail had a strong year by focusing on durable performance and realistic visuals that are differentiated from the home centers.”
Focus on technology, innovation
Laminate flooring manufacturers are counting on continued innovations in the way of performance and design to not only help the category keep pace with competing hard surfaces but also to give specialty retailers more products that can’t be shopped at the big boxes.
Many of these advances and developments, which span new 12mm to 14mm boards featuring improved cores and more realistic wood visuals, were on full display at the recent Surfaces show in Las Vegas in January (FCNews, Feb. 1/8). Vendors showcased new capabilities in both color renderings and depth of textures with floors designed to authentically replicate varied techniques from light surface treatments and subtle wire brushing to heavy hand scraping.
“We’re making things today that experts cannot distinguish from high-end hardwood that’s much more expensive,” Farabee said. “We’re just getting unbelievable acceptance of products today by customers who would not have even considered it five or 10 years ago. It’s important that we continue to leverage that.”
Other manufacturers are also banking on continued consumer acceptance of laminate. “Realistic wood images and a shift away from base-grade laminates will continue to impact product offerings as customer preference changes,” Shaw’s Francis said. “Sound abatement and water-resistance improvements and innovations are also continuing to heighten the overall performance of the category.”
That rising tide, experts believe, will lift all ships. Despite some reports of the “death of laminate, this is still a billion-plus-square-foot product category that is extremely viable,” Natkin said. “So while there are other categories nibbling at laminate’s heels, it’s still one of the largest flooring categories and remains a viable customer choice.”