Flooring Market Steps Up

Although vinyl is still the most popular flooring material overall, laminate and wood flooring show the most gains in demand through 2013. Source: The Freedonia Group

By Karen M. Koenig

There’s good news on the horizon for the hard surface flooring industry. According to a recent study by The Freedonia Group, a Cleveland-based research group, U.S. demand for hard surface flooring products — wood, laminate, ceramic tile and vinyl — is projected to increase 4.6% annually through 2013, reaching 9.6 billion square feet, for an estimated value of $12 billion. Demand includes domestic as well as imported products.
That news is especially heartening in view of the decline the last few years of laminate and wood flooring.

According to Freedonia’s Hard Surface Flooring study, laminate flooring will show the greatest growth opportunities, with 11.3% annual growth projected between 2008 and 2013, followed by wood at 5.6% and ceramic tile at 4.5%.

“The primary factor driving growth in demand for laminate flooring, and for other types of flooring as well, is the expected recovery of new residential construction from its very weak 2008 levels,” says William Baumgartner, industry analyst at Freedonia. “New housing is a huge market for flooring, although somewhat less so for laminates, since the bulk of laminate flooring sales are to the replacement market. Nevertheless, an improving economic situation will not only spark higher home construction, but will also expand consumers’ disposable income and allow existing home renovations, such as floor replacement. Laminates will continue to take market share from other products, in large part because their design makes them usable by do-it-yourselfers.”

Pricing is also a factor. The cost of laminate flooring has declined over the last 10 years, Baumgartner says. “We are at a point now where one would expect laminate prices to level off and settle into a more typical growth pattern, with inflation and gradual increases in raw material costs pushing up prices. However, high oil costs in 2008 added to the price of everything, including laminates, and moderation of that trend will keep [overall] prices flat for a few years before they start to rise gradually.”

Designs Spur Growth
Increased style options are another driver of laminate flooring’s increase in popularity. With improvements in printing technology, such as embossed registration and texturing, laminate flooring can offer a cost-effective product with the look and feel of real wood or tiles.

“As you know, the majority of the laminates sold in the past have been wood patterns, and these are still an important base of demand for laminates,” said Baumgartner. “However, one of the advantages of laminates is that they can be made with virtually any design or color palette, and a number of laminate producers are increasingly expanding their roster of designs and styles. This trend will likely continue as laminate producers attempt to make inroads into the commercial flooring market, which has previously used laminates only sparingly.”

But although laminates can mimic the look of most species, many homeowners still prefer hardwood flooring. According to information on home remodeling from the U.S. Census Bureau, in 2007, 1.7 million homes spent more than $3,000 each on wood flooring remodeling projects, while 508,000 homes spent that same amount installing laminate flooring.

The Green Movement Impact
The green movement is showing a slight impact on flooring choice. According to the Freedonia study, products such as bamboo, cork and eucalyptus are gaining popularity in residential and commercial projects looking to gain points for their sustainable product choices.

“The demand for ‘green flooring’ products is hard to predict,” Baumgartner says. “While these products receive a lot of attention in the press and among environmentalists, it is unclear whether the market is really willing to support them.

“To the extent that the flooring looks good, feels good and can be produced at a competitive price, it will be successful, whether it is ‘green’ or not. We did not put any numbers on any of these products, but we did say that we expect them to be growth niches,” he adds.

Lacey Act & Wood Supply
The Lacey Act, which includes trees that are illegally harvested, makes it illegal to “import, export, transport, sell, receive, acquire or purchase” these products. Phase III of the Lacey Act, which took effect on Oct. 1, requires a declaration of products including wood and composite panels listed under the Harmonized Tariff Schedule (HTS).

While this will undoubtedly impact the use of exotic woods in hardwood flooring, Baumgartner says, “In terms of the overall wood supply, the forest products industries of the U.S. and Canada are of sufficient size and modernity to ensure adequate supplies at a reasonable cost. The limitations [and the price increases that result] will be in exotic woods, such as mahogany.”

Laminate Looks to Improve
By Wade Vonasek

According to the July 2009 market study Floor Coverings Industry by Catalina Research, the decline in the U.S. floor coverings market as a whole accelerated in the second half of 2008, and sales dropped at even sharper rates in the second half of 2009, which was greatly attributed to the domestic economic downturn and recession. The drop in 2009 will be the fourth consecutive year of declining sales. For laminate flooring companies, times have also been tough, but many in the industry remain optimistic.

“All building material products have been challenged by the economy and especially home sales,” says E.C. “Bill” Dearing, president of the North American Laminate Flooring Assn. (NALFA). “Even if they are not dependent on new home construction, the lack of sales has a dampening effect on remodel projects. The good news is that laminate flooring has been estimated to have enlarged its share of market slightly. Our members are respected and savvy companies that continue to market their NALFA certified laminate floors as a good value, with consistency and well engineered products.”

“We have fully recovered from the major slowdown we experienced in the fourth quarter of 2008,” says Norm Voss, president and CEO of Kronotex USA. “We will continue to push down our costs by improving our productivity and quality and grow our volume with new products and improved marketing programs.”

Green building and sustainable practices are becoming more prevalent in a host of industries, and laminate flooring is seeing growing effects from this. Voss says this leaves a positive impact.

“The effects have been minimal, but consumer interest is growing as advertising of these product features and benefits is increasing,” he says.

“LEED projects are approached by the membership as they see fit in their marketing,” adds Dearing. “Laminate flooring itself is an ideal flooring candidate for most LEED projects for various reasons, again depending on the actual product.”

In addition to opportunities in regards to LEED, laminate flooring manufacturers see other opportunities — as well as challenges — ahead.

“[One challenge is] we expect raw material cost to increase if the U.S. dollar remains weak,” says Voss. “But it is an excellent environment to continue to grow our business. The consumer is more interested than ever before in the ‘value equation’ and is taking time to look at new products and fully evaluate the relative cost and benefit of the various flooring alternatives now readily available in the marketplace.”

“The biggest challenge and opportunity for our membership is ensuring that flooring retailers and distributors recognize the significance of the NALFA Certification Seal and understand how it can simplify their selling process,” adds Dearing. “Also, members will need to be ready for the eventual rebound in housing.”

Hardwood Still Popular Choice
By Michaelle Bradford

The Great Recession has had an impact across many industries and the hardwood flooring sector is no different. Many companies have taken a survival posture and are reevaluating their business plans to identify ways to strategically reposition themselves for the upcoming year.

Although a recent study by The Freedonia Group projects positive gains for hardwood flooring in the next few years, the current situation is still sobering. According to the Floor Coverings Report, unemployment rates and a decrease in household wealth led to an increase in consumer demand for lower-priced products, such as carpet and vinyl flooring. The report continues by stating, “The above trends are causing industry profit margins to decline sharply. As a result, manufacturers are cutting capacity, employment levels and capital expenditures to reduce costs.”

According to Ed Korczak, C.A.E., National Wood Flooring Assn. (NWFA), hardwood flooring is down 14.1 percent from 2007. “NWFA and its members seem to have fared better than the industry average, down only 12 percent. The downturn did get our members to analyze their operations to eliminate weaknesses and build on their strengths.”

Korczak adds that economists are predicting an economic recovery by the middle of 2010. “All consumer surveys show pent-up demand for wood flooring,” he says. “This will serve us well as the recovery occurs and the housing market rebounds. There is still business out there to be had with the existing home market, but we can expect a larger impact when new home construction hits its stride again.”

Steve Contois, CEO of Schumacher & Co. and vice president of sales for KW Flooring, agrees that the recession has put a strain on profit margins and sees another year of many challenges and few opportunities, yet he remains optimistic. “I think we will see business come back, but it will come back at a very slow growth rate,” he says. “We’ve been trying very hard to get our margins back to where they should be.”

Don Finkell, CR, Anderson Hardwood Floors and secretary of NWFA also acknowledges the difficult economic environment. “Our business is doing okay, and we are maintaining profitability, but it is a struggle,” he says. “Sales levels and pricepoints have experienced downward pressure and trends. “I don’t see it getting better for a year or so. We are making strategic moves and investments to gain market share during the recovery.”

Finkell says that his company can use this period of realignment to gain a greater edge on competitors who “are frozen, and we are free to move. Our biggest opportunities come from leveraging key relationships with suppliers and customers,” he continues. “You can’t support everyone, so [we] carefully pick out who will be the most meaningful…in the future and move their way.”

Barefoot Flooring Co. also says it is looking at ways to expand and grow during the recovery. “We are adding more distributors,” says Dick Morgan, shipping and sales manager. “We sell all over the country and into Canada, which makes us pretty unique. Of course, everyone wants to be busier, but we have our distributors that order from us weekly. We have seen some downturn and we were busier last year before all of this happened, but we stayed pretty steady. Pretty much everything we make goes out of the door.”

Morgan says that there are always challenges, but he thinks that the company’s growing network of distributors, adding a prefinished flooring product to its line and the company’s state-of-the-art machinery will position it to take advantage of the economic rebound.

An Influx of Imports?
Also having an impact on the hardwood flooring industry and providing additional pressure for some flooring manufacturers is the increase in Chinese imports. According to a study by the U.S. International Trade Commission released in 2008, Chinese imports account for nearly half of the U.S. market.

Finkell acknowledges the impact of the increase in imports. “Almost 50 percent of the U.S. market for wood floors has been taken over by imports, most coming from China,” he says. “After the recent Chinese stimulus package, prices of Chinese wood floors dropped by 20 percent.” He says that the playing field is not level and that it will be a problem for U.S. manufacturers.

“The Lacey Act should reduce the price advantage resulting from illegally logged material,” he adds, “but it is slow to take hold. Someone is going to have to get prosecuted for a violation for importers to really believe that things need to change.”

(To learn how the The Floor Covering Institute says The Lacey Act will affect the floor covering and wood products industres, click here.)

Despite the challenges perceived by some from the increased number of imports, other companies downplay the impact.

“Chinese imports don’t affect us,” says Morgan. “A lot of the material from overseas is exotic stuff. That usually doesn’t hurt us.”

Contois says he even sees imports as a benefit, from a retail standpoint. KW Flooring, a diversified flooring retailer, acquired Schumacher in 2007. With a dual role as a distributor, the imports have given the company more products to market in its retail stores, he says. “They allow us to be competitive,” he says. “The biggest challenge is getting containers out of China. From a timing standpoint that is a disadvantage.”

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Flooring Market Steps Up

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