Carpet: State of the industry—Soft surface cedes share as hard goods climb

Home Categories Carpet Carpet: State of the industry—Soft surface cedes share as hard goods climb

October 14/21, 2019: Volume 35/Issue 8

By Ken Ryan

Shaw’s Bellera High Performance Carpet features R2X soil/stain resistance with LifeGuard Spill-Proof backing. It is designed for use in active households.

Hard surfaces’ unrelenting march into most areas of the home continues to push carpet to the margins in the residential segment, a trend that grew stronger in 2019 as both sales and unit volume declined compared with the year-ago period.

The general consensus among leading flooring executives is the residential carpet segment is down 6%-8% in the first nine months of 2019 in sales, while units have fallen 8%-9%. That sales are faring slightly better than units is due in part to price increases.

The latest dip for residential carpet began in earnest last September when a hike in interest rates—the third of four in 2018—was announced. Mill executives said the rate hike deflated whatever momentum carpet had going for it and resulted in an underwhelming end to 2018. After a lackluster start, activity picked up in the second and third quarters of 2019, albeit not enough to make up for lost ground.

The culprit in carpet’s descent is the continued encroachment of the LVT segment. The dominance of hard surfaces has also factored into how carpet is used in the home. “Whereas in the past carpet was more likely to be used wall-to-wall throughout the entire home, today it’s more likely to be used as an integral design element of the specific space or room within the home that’s being decorated,” said Mark Clayton, CEO of Phenix Flooring.

According to industry data, fewer than 40% of homes today have carpet, with most of that in the bedrooms—an area where soft surface still maintains a stronghold. However, not so long-ago carpet represented about 64% of the flooring surface in homes. “I think carpet is going to [go lower] before it starts to tick back up, but won’t get back to the 60% mark,” said Jamie Welborn, vice president of residential carpet product development for Mohawk.

While mill observers acknowledge that the ascent of WPC/SPC has impacted soft surfaces the most, so has a slowing economy, which has mostly affected the single-family residential replacement segment. “Our retailers are definitely telling us foot traffic is slower and consumers are not spending on flooring today even with a fairly good economy,” Welborn said. “The majority of our dealers tell us three to four people out of 10 come into their store asking for carpet, which is a change from past decades when it was a much higher number.”

Brian Warren, executive vice president of Foss Floors, agreed that the economy is hurting the category to the degree that—at least in some situations—it is influencing how consumers shop. “We are seeing rapid growth in products designed for the DIY channel. Many consumers are looking for flooring options that can be a simple home project and not break the bank.”

The fibers contained in Mohawk SmartStrand are engineered to maintain their softness while resisting crushing and matting

Challenges/opportunities
While the strength and popularity of the LVT segment has had a deleterious effect on carpet, there are other factors at play, which include higher raw material and labor costs and even a volatile political climate ahead of what will surely be an eventful presidential election. These caution signs are butting up against what is still, in general, a pretty strong economy—with the unemployment rate having declined to 3.5% in September, according to the U.S. Bureau of Labor Statistics, the lowest level since 1969 when it was also 3.5%.

“The economy is divergent at the moment with a seemingly strong backdrop in employment, stock market and inflation [in check] while simultaneously the Fed is cutting interest rates, existing home sales are soft and trade wars are dragging on,” said Jonathan Cohen, CEO of Stanton. “Capturing growth now requires more aggressive approaches coupled with extremely careful planning.”

While more favorable eco- nomic triggers may help carpet down the line, including further rate cuts (the Federal Reserve lowered interest rates by a quarter of a percentage point in September and suggested it was prepared to move aggressively if the U.S. economy showed additional signs of weakening), mill executives say the industry must do a better job of exciting consumers on the look and merits of the product.

More recently, mills have taken a page from hard surface trends by developing carpet that replicates distressed looks or even stone visuals—all meant as a complementary piece to hard surface in the home. “We have to make carpet more appealing and exciting to the consumer,” Mohawk’s Welborn said. “We can do this with better performing carpets such as ease of maintenance and more durability. We also need to make it more fashionable, as we see consumers buying more patterns and requesting more colors.”

Teresa Tran, director of soft surface portfolio management, residential for Shaw Floors, said she sees encouraging signs in the form of advancements in technology that are providing innovative solutions for homeowners. “There is significant growth and excitement in modular soft surface flooring,” she said. “Consumers may see hard sur- face products answering their performance needs. However, recent soft surface developments are taking on these challenges directly, proving that innovation in soft surface can defy and reshape consumer expectations. Our opportunity as manufacturers is to reimagine what soft flooring can be and do.”

One recipe for recovery involves product innovation along with fair pricing and consumer education, according to Foss’ Warren. “The consumer is smarter than ever before as the internet provides a wealth of knowledge,” he added. “Most shoppers are very educated on what they are looking for by the time they enter the store. The key is to differentiate features and benefits in a sea of sameness while emphasizing the performance and value of soft surfaces.”

Outlook

Modern Contours from Phenix includes styles that mimic luxury fabrics, materials and knitting techniques

With little to change the current market dynamic, the residential market is expected to stay flat to slightly down for the remainder of 2019 and into 2020. “Hard surface growth will continue to impact soft surface sales and carpet floor share within retail stores,” said T.M. Nuckols, president of the residential division of The Dixie Group. “2020 is an election year. That coupled with our volatile political environment will make it very difficult to predict how the flooring market will play out.”

In a strong economy, mills can somewhat offset declines through additional volume and growth in new housing and renovations. “But, if we have a recession in six to 18 months, the decline will be exacerbated,” said Christian Kuswita, director product management soft surface, Tarkett North America.

Commercial
The commercial carpet market in 2019 has faced many of the same constraints as its residential brethren, as broadloom continues to be cannibalized by tile and hard surfaces, especially LVT, ceramic and concrete. That has led to a slightly down first nine months for commercial in both sales and volume. The one saving grace for commercial is carpet tile, which has grown at the expense of broadloom. “[Carpet] tile is also affected by hard surfaces, but not as significantly as broadloom,” Tarkett’s Kuswita said. “The commercial market will continue to move toward hard surfaces at the expense of carpet, especially broadloom. The current economy will also have some effect on the growth or decline of the industry. If economic conditions worsen in the next six to 18 months, expect prices to decline as manufacturers try to maintain share.”

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October 14/21, 2019: Volume 35/Issue 8

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