Resilient: LVT, WPC continue to seize market share

July 05, 2017

June 26: Volume 32, Issue 1
By Lindsay Baillie

 

Screen Shot 2017-07-05 at 9.21.00 AMThe resilient category continues to assert itself as a force to be reckoned with as it continues to generate substantial growth. FCNews research shows resilient sales in 2016 climbed to $3.499 billion (not including rubber), an increase of 19.7% over 2015’s $2.924 billion. This rise is almost four times the growth of the entire industry, which gained 5.1% last year. In terms of volume, the resilient category grew 6.5% to 3.537 billion square feet—the highest percentage of volume growth of all the other categories.

Resilient’s dominance is even more evident when viewed through the prism of market share. In 2016, the segment accounted for 16.5% of the total flooring industry in dollars and 18.8% in volume—the highest among all hard surface categories, FCNews research shows.

The main driver behind this dominant performance, industry observers say, is the continuous growth of LVT and its sister category, WPC/rigid core. Statistics show LVT, WPC and rigid core products made up more than half the dollars generated by the residential sector in 2016, capturing 48.1% and 19.52% of the sector, respectively. These percentages are key when taking into account residential resilient sales made up 63.9% of total resilient sales.

Resilient’s astonishing growth in sales in 2016 is even more significant when looking at the category’s performance over the past few years. FCNews research shows 2016’s sales represent a 40.4% increase from 2014’s $2.492 billion and a 58.6% increase from 2013. To put resilient’s growth into greater perspective, the category is up over $1.5 billion in the last five years (total resilient sales in 2011 were $1.931 billion).

In terms of volume, resilient saw an increase of 6.5% from 2015’s 3.321 billion square feet. While not as aggressive as its percent of sales, this increase was nearly double the industry’s increase, which clocked in at 3.8%. Last year’s volume also saw a 22.5% increase from 2014. A look back five years ago shows resilient’s volume has increased by 49.9% from 2011, a year in which 2.36 billion square feet was sold.

Industry observers believe there are several factors that contributed to LVT’s growth in 2016. “Compared to other flooring categories the LVT category has seen many design changes from additional looks, durability, availability and product makeup,” said John Wu, CEO, Novalis Innovative Flooring. “LVT has the perfect appearance and strength that allows a specific look at a less expensive price than upgrading to more expensive products.”

Michael Raskin, president and CEO, Raskin Industries, cited the product’s ability to be used in multiple applications as a primary selling factor. “The product is suitable for both commercial and residential, which offers sheer volume in square footage. In addition, the product can be mass-produced, which keeps the supply stable. The category is now available in many subcategories, such as dry back, loose lay, WPC, rigid, etc., which organically increases market share.”

Indeed, resilient’s ability to take market share from other flooring categories, such as laminate, hardwood and carpet, is well documented at the retail level. What’s more, the disproportionate increase of sales vs. volume within the resilient category reflects the fact that LVT and WPC have been able to maintain strong average selling prices—a phenomenon not usually seen in many competing categories.

“These numbers are indicative of the increase in average selling price of resilient products due to the rapid increase in WPC sales,” said Clark Hodgkins, director of resilient category, Shaw Floors. “The continued strong growth of WPC and the various rigid-core products are responsible for the large gains within the resilient category.”

Screen Shot 2017-07-05 at 9.21.37 AMThe product’s performance compared to competing hard surface categories is another factor driving category sales. “The fall of laminate flooring due to water and noise issues created a market for WPC and rigid-core products,” said Larry Browder, CEO, Karndean Designflooring. “The LVT industry has done a good job capitalizing on this.”

Other experts agree LVT is growing at the expense of other categories. “In the flexible category the majority of it is in the multi-family channel with a decent amount in the residential replacement in the smaller areas,” said David Holt, senior vice president of builder and multi-family retail and hard surface for Mohawk Industries. “But with the new intake of the new rigid vinyl products you have a lot of that going into residential replacement, and it’s going in at the expense of engineered wood and laminate.”

The design flexibility of LVT, which is marketed as a multi-purpose product for a variety of applications, is also driving consumers away from traditional hard surface products. “The versatility of LVT—tile or plank—makes it an ideal solution for any number of residential, commercial and project-oriented applications,” said Amanda O’Neil, product manager, Armstrong. “This multi-tasking ability has allowed LVT to migrate into builder, multi-family and residential-remodeling applications. The large space in which LVT operates, in turn, has afforded manufacturers the means to introduce differentiated product across a wider front, ebbing the march toward commoditization.”

Residential report
With respect to end-use markets, residential resilient accounted for the bulk of activity in the category. FCNews research show residential resilient sales reached $2.236 billion, a whopping increase of 28.9% over the prior year. Most executives found the greatest growth within this category to come from replacement/ redesign in both multi- and single-family homes. However, some executives also cited an increase in the new home construction segment.

Jonathan Klinger, chief marketing officer, Tarkett North America, explained the residential market is roughly an 80/20 split between replacement and new construction, respectively. “Within new construction we believe most of the volume is in single-family homes. The reason for that is there is roughly double the number of homes being built relative to multi-family units, and homes have larger floor space.”

Karndean’s Browder also attributed growth in the residential sector to replacement and redesign business, but he also highlighted a shift of LVT into builder applications. “Recently, LVT in the builder sector has started to show great promise, especially as the builder market for single-family homes has started to improve.”

Broken down by category, resilient sheet was down 0.2%; however, fiberglass was up 4.8% and felt was down 6%. Residential LVT and WPC (including rigid products) made up a large portion of residential sales (totaling $1.512 billion). Meanwhile, suppliers say residential tile was flat in 2016, simply maintaining itself against the bigger LVT, WPC and sheet products.

While LVT and WPC took home a larger piece of sales, sheet still dominated the residential sector in terms of volume. For 2016 sheet accounted for 1.156 billion square feet, or 47% of the category. Part of sheet’s appeal, experts suggest, is the cost as well as the aesthetic attributes.

“Sheet vinyl is still a tremendous value and brings a lot of features and benefits to the end user,” said Eric Erikson, vice president sales and marketing, North America, Beauflor USA. “For the price point it’s hard to find a better value.”

Screen Shot 2017-07-05 at 9.21.23 AMSome observers see a value proposition between LVT and sheet vinyl. “The glass sheet products have some of the same positive characteristics as LVT; they are waterproof and very durable,” said Jimmy Tuley, vice president of residential resilient for Mannington. “The other nice thing about sheet is you can [achieve] some looks that you cannot do with LVT. I think that there has been a nice improvement in the visuals of sheet vinyl. [Sheet] really has beautiful visuals and you can get it at a decent price.”

Functionality and affordability are two factors keeping sheet relevant in the residential sector. “It’s viewed as very functional and probably the most affordable category,” said David Sheehan, senior vice president of product management, IVC US. “For that reason it still commands a pretty large share of the marketplace in both the home center and specialty retail channel. Sheet is a great value proposition to the customer.”

LVT and WPC are not too far behind, however, with a combined 42.3% of residential volume. In fact, research shows WPC (which includes rigid core products) more than tripled in volume from 2015. Executives cite WPC’s features, ease of installation and various innovations as three of the product’s main selling points.

“The features and benefits of WPC are hard to dispute: waterproof, kid-proof and pet-proof, to name three,” said Jamann Stepp, director of marketing and product management, USFloors. “The ease of installation including no acclimation required and the ability to install over most any hard surface substrate are properties that dry back and sheet vinyl cannot offer. Minimal subfloor prep is yet another factor along with greater dimensional stability. The innovation within the WPC category is second to none: high-definition visuals, mixed widths and planks along with enhanced/deep beveled edges are properties and attributes not found in sheet or dry back products.”

Executies such as Piet Dossche, CEO of USFloors, view rigid core as “a step up from solid LVT.”

LVT is gaining more ground as it now finds itself in all areas of the home. “Originally, LVT became popular as a water-resistant, hard surface product ideal for mainly kitchens and sometimes spaces such as a laundry room,” Armstrong’s O’Neil explained. “In the past, LVT would not be considered for bedrooms or other larger living spaces throughout the home. However, this perception has changed in recent years.”

With respect to installation type, residential dry back LVT is down slightly from 2015, with a large portion of the market containing click and grip-strip, research shows. Again, experts say this shift is likely due to an increase in WPC sales, along with the ease of installation often offered by click and grip-strip products. Loose lay products had a small impact on the category.

“Floating LVT—solid click and now rigid core—is becoming the preferred format in residential applications due to the ease of installation,” said Gary Keeble, director of marketing, Metroflor. “The advent of rigid-core products has enhanced the ease-of- installation proposition by reducing or eliminating costs related to subfloor prep and disposal of the existing floor in many cases.”

While click is seen as a favorite, Lindsey Nisbet, head of product marketing and development, EarthWerks, explained both click and glue-down options have their positions in the market. “While there is clearly some overlap in the marketplace, the fact remains that no matter the specification, performance needs or style, there is an LVT/P to fit any requirement. As development continues to be more advanced and styling gets better—and more realistic—LVT/P will [hold] the leader position in industry growth. There is literally a style for any need.”

Some executives believe the glue-down market is still growing. “There are still several reasons to use a glue-back floor, especially when you’re going in to do new construction,” Mannington’s Tuley explained. “Things like being able to put cabinets over the top of the product or permanently attach it to the floor without moldings or transitions—and being able to do longer runs—all make glue-down a continued attractive product.”

Screen Shot 2017-07-05 at 9.21.14 AMMohawk Industries’ Holt acknowledged dry back has seen a decrease in the residential segment, but he adds: “There will always be a place for the product in two categories: multi-family and commercial.”

Some executives also view dry back as the optimal performing product, as it does not have to deal with certain issues after installation. “The best-preforming LVT, without a doubt, is a glue-down installation,” IVC’s Sheehan said. “In fact that’s why the commercial channel will always have dry-back.”

Speaking of commercial, observers believe dry back accounted for 73.3% of LVT/WPC business in 2016—3.6% increase from two years ago. According to David Thoreson, senior vice president of commercial hard surfaces, Mohawk Group, dry back is viewed as a tried-and-true product for the commercial market. He also sees promise in loose lay. “Difficulties with click systems from various manufacturers have pushed the market consistently toward dry back but also loose lay. We feel loose lay will grab a noticeable share by the end of 2017.”

Observers believe dry back will always remain king. “When you get into commercial applications, it’s a lot different from the residential side; you have things such as rolling heavy loads, foot traffic,” said Al Boulogne, vice president of commercial resilient, Mannington. “When you have something that isn’t glued down in those applications you’re opening yourself up to problems with gapping or peaking, or the floor just not performing as well.”

Tarkett’s Klinger shared a similar sentiment and explained that dry back sales are mainly driven by the commercial environment’s strict needs. “It’s primarily driven by the fact that in a commercial environment the need for both the installer and the end customer is that the installation is as robust as possible and that it’s going to be able to withstand heavy traffic.”

Commercial activity
Not including rubber, commercial resilient saw a 6.3% increase in sales, according to FCNews research. While commercial sheet was down 1.2%, commercial LVT—including a small share of WPC—increased by 16.7%. Commercial executives attribute the category’s overall growth to several factors including an increase in demand from key end-use market sectors.

“Healthcare was a pretty strong growth segment for us here,” Boulogne said. “It continues to pull through some serious volume on the resilient side. Two other segments for 2016: Hospitality is a segment that traditionally hasn’t really looked to resilient as a category but is starting to more and more. That was an emerging segment growth for us. The other similar story is corporate. That has become a growth segment as well.”

In perhaps direct relation to LVT and WPC’s percentage increase, VCT was down 5% in 2016. While some companies are concerned about VCT losing market share to LVT and other resilient products in the commercial space, others continue to see VCT as an opportunity. One of those companies is Armstrong, which recently completed a transaction to purchase Mannington’s VCT business.

Screen Shot 2017-07-05 at 9.21.07 AM“[The recent purchase] gives us a good opportunity to increase revenue within the VCT category, which has historically generated above-average profitability within our product portfolio,” O’Neil explained. “VCT is a very important product for our commercial customers, and it is a significant category within the hard surface flooring industry. We expect this transaction will enable us to increase our VCT volume and make more efficient use of our production capacity and go-to-market structure.”

Even though VCT claimed 515.7 million square feet in volume, some industry executives believe it will continue to face intense pressure from alternatives. “I think VCT is a category that is getting pinched by others,” Mannington’s Boulogne said. “LVT has a lot of performance attributes and price benefit vs. VCT. It’s getting harder for VCT to find its market position. LVT wins pretty easily in terms of style and design. VCT still has its places, but its getting pinched out as the market on the LVT side becomes more competitive.”

Other executives agree. “Due to the durability, appearance, ease of maintenance and price, we believe that VCT will continue on a downward trend for now,” Novalis’ Wu said. “Building owners are getting a premium product for pennies more a foot in comparison to a floor that requires more maintenance and usually costs 15 times more than the original price paid on VCT at the end of its life cycle.”

Rubber bounces up
FCNews research shows rubber generated $176.2 million in sales in 2016, a 4% uptick over 2015. In terms of volume the category accounted for 39.2 million square feet. Some flooring executives attribute the rise in rubber to commercial flooring’s shift away from soft surfaces. Others suggest rubber’s durability and sound control make it an ideal product for education and other highly populated/trafficked areas.

“We’re seeing universities putting them in corridors and student unions,” said Mark Tickle, director of marketing, American Biltrite. “[University] libraries are the traditional place for rubber.” He explained that while rubber has traditionally been used in post-secondary schools, it is now making moves in primary schools. He cited rubber’s recent restyling—which includes newer organic visuals and colors within patterns—as a top influencer.

Mark Bischoff, vice president of commercial sales, Tarkett North America, sees rubber being used in multi-use spaces because of its many benefits, including sound control, slip resistance, durability, flexiblility and easy maintenance, as well as thousands of texture, color and design options. “Another appealing attribute is the long-term performance record. Traditionally rubber flooring had been used in the most difficult and dangerous traffic areas of a building—the stairwells. Today, with updated visuals, that level of performance is welcome in many spaces across all segments.”

Part of rubber’s charm, proponents say, is it is suited to those end users that own their own buildings and are looking for long-term performance with minimal disruption. “Because of the unique sizes and shapes, vibrant saturated color and depth of surface texture options, we also see rubber used in retail and hospitality applications looking for branded experiences or outstanding visual impact,” Bischoff added.

Domestic vs. imports
FCNews research revealed 85.2% of the $1.724 billion LVT market is imported—a number that stood at 78.7% in 2015 and 78.1% in 2014. VCT, on the other hand, continues to be manufactured in the United States. As was the case in prior years, many executives believe U.S. production has yet to affect the market shift in domestic vs. imported products. In addition, some observers explained that even if a large shift toward domestic products did happen, imported materials and flooring would still be necessary to meet global demands.

“The bulk of LVT continues to be manufactured in Asia, and with the current LVT demand in the U.S. and worldwide, the additional domestic capacity still wouldn’t satisfy it.” Novalis’ Wu said.

Manufacturers with domestic facilities view any increase in domestic production as an opportunity to create price competition and drive innovation. “The more domestic manufacturers there are the less people will be looking to those imported products—which are really noisy in the marketplace right now,” Mannington’s Boulogne said. “Those that are making products domestically, it’s going to force us to be smarter about how we make [them] and be more cost competitive, but it’s also going to force innovation and I think we’re going to have to find ways to differentiate in a meaningful way to make sure we’re getting that share of the market.”

Domestic production also provides a great product story as well as faster delivery times, proponents say. “Having a ‘Made in the USA’ print on the carton means high quality,” Raskin said. “In addition, once a product is selected, time and place become critical. Domestic production can cut lead times down by two-thirds.”

Mohawk’s Thoreson explained that while LVT growth only offsets U.S. production, at some point the U.S. market will catch up and place pressure on manufacturers overseas. “As a result, the pricing will face significant downward pressure. Today Mohawk blends sourcing our commercial resilient collections with U.S. and believe in time U.S. production will take over all but the most specialized parts of our business.”

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