Nov. 25/Dec. 2, 2019: Volume 35, Issue 11
By Megan Salzano
As was predicted this time last year, consumption of ceramic tile in 2019 is lower than that of the previous year. The downward trend began in 2018, and the residential ceramic business slowed for the first three quarters of 2019. Many ceramic leaders agree that by the end of 2019 the category will have remained flat or declined by approximately 3% in both volume and dollar sales.
Gianni Mattioli, executive vice president, Dal-Tile Corporation, noted, however, the buildup of inventory, especially from China, during the last quarter of 2018 in anticipation of higher tariffs scheduled for January 1, 2019.
The housing market remains a steady meter against which to gauge the health of ceramic, and numerous factors including housing starts, new home sales/pricing and mortgage rates have impacted consumption.
New construction starts declined 11% in October to a seasonally adjusted annual rate of $696.3 billion, according to Dodge Data & Analytics. This is the third consecutive monthly drop in construction starts. Through the first 10 months of the year, total construction starts were 4% lower than in the same period of 2018. The October statistics pushed the Dodge Index down to 147 compared to 166 in September.
That trend is expected to continue. Dodge Data & Analytics predicts total U.S. construction starts will slip to $776 billion in 2020, a 4% decline from 2019 estimated levels. “The recovery in construction starts that began during 2010 in the aftermath of the Great Recession is coming to an end,” said Richard Branch, chief economist, Dodge Data & Analytics.
Donato Grosser, industry consultant, noted the conservative nature of builders today as a possible influence on starts. “Housing starts went down about 70% in the recession. Fifty percent of the builders went out of business because they were over expended during that time. Today, most of the larger businesses have a much higher percentage of the business than they had before, but they are also much more conservative.”
Raj Shah, president, MSI, noted a slowdown in new home sales as well. “This is directly attributable to an increase in mortgage rates during this time frame,” he explained. “In addition, we have seen a reduction in the size of homes built.”
Greg Mather, president of Crossville, also pointed to the affordability of housing in general. “The high cost of new home building is limiting residential construction and homeownership levels,” he said.
In addition to changes in the housing market, ceramic has been impacted by various other factors—namely ongoing trade wars/ antidumping legislation, installation woes and the encroachment of resilient flooring.
The ongoing volatility caused by the trade wars, section 301 and the anti-dumping case against ceramic tile have significantly impacted demand. “In terms of the political climate when it comes to ceramic tile, one word comes to mind—tariffs,” said Mara Heras, vice president of marketing, Emser Tile. “Clearly, the tariffs and anti-dumping actions have impacted both the suppliers and manufacturers as well as the entire supply chain and final customers.”
In November, after receiving a petition from a coalition of eight U.S. tile producers claiming injury earlier this year, the U.S. Commerce Department made a preliminary determination that Chinese exporters had dumped ceramic tile in the U.S. market at less-than-fair value. The department has imposed preliminary duties ranging from 114.49% to 356.02% but is scheduled to announce its final determination by March 23, 2020. This is on top of the current Section 301 tariffs imposed on ceramic tile. Imports of ceramic tile from China were valued at an estimated $481.3 million in 2018, according to the U.S. Commerce Department.
While some suppliers argue consumers will benefit from the superior quality, design and service domestic manufacturers can provide, others note the impact on consumer, distributor and retailer confidence that could lead to a reduction in investments in marketing and innovation. Regardless, uncertainty is still the name of the game.
The struggle to find qualified labor and the resulting growth of installation costs is, however, the biggest challenge faced by the category to date. And no significant solution has yet to be implemented. What’s more, the rising costs have pushed some consumers to the lower end of the market and toward products such as LVT. “Labor pressure has created an opportunity for ‘easy-to-install’ resilient flooring,” Emser’s Heras explained.
Crossville’s Mather pointed out that ceramic has been impacted less than wood or carpet. “Nonetheless, we have lost placement,” he said. “I would expect tile’s position to improve over time as the growth of LVT slows.”
To combat this shift, Heras said manufacturers are looking at ways to “impact the labor challenges and drive better understanding of the total lifecycle cost of ownership for LVT as compared to tile and stone and the impact tile has on property values vs. the inexpensive substitute.”
MSI’s Shah added that LVT and ceramic can co- exist in today’s market. “There are many opportunities for ceramic tile for which LVT cannot be used. This includes any sort of surface that has a finish (i.e., polished, etc.), the wall and out- doors. It’s a matter of figuring out what works best for the consumers’ need.”
In an effort to combat ongoing difficulties, innovation is slated to grow in 2020, according to suppliers. The technological advancements needed to move that innovation forward have already been implemented. “During the last few years, technological advances in decoration and sizes have totally transformed the ceramic tile industry with the quality and variety of products that are now being offered,” Dal-Tile’s Mattioli explained. “Manufacturers now have the ability to offer greater realism, more sophisticated designs, new sizes, shapes and thicknesses and increased performance.”
The ceramic category has embraced these new possibilities and is experiencing growth outside traditional flooring. Wall products, countertops and outdoor pavers, for example, have served as key growth segments.
Gauged porcelain panels, Crossville’s Mather said, are proving to be a good solution on both walls and floors. “They provide the opportunity for fewer grout joints, tile-over-tile installation, as well an attractive alternative to more expensive large-format natural stones,” he said.
The desire to coordinate visuals and advancements in technology has allowed porcelain countertops to grow in demand as well. “With more fabricators able to install porcelain slabs it is becoming more accessible for consumers,” MSI’s Shah said. “There is a huge market for porcelain slabs. Over 80% of consumers would like to have a white marble countertop, but due to technical characteristics and price are not able to have it in their homes. Porcelain slabs solve this problem.”
There is also a multi-billion-dollar market for decks and pavers, according to Shah. “It’s a matter of marketing this product to consumers,” he said.
When it comes to opportunity, it’s not always about starting from scratch, Heras added. “It is always good to have tried-and-true styles in the line, but constant evolution and advancements can make even the classic looks more updated with unique textures and finishes.”