|The U.S. floor coverings market surged in 2013 as the housing market finally began to experience a significant recovery. Dollar floor coverings sales are estimated to have increased by 6.7 percent in 2013 to $20 billion, according to Catalina Research, while quantity sales could have climbed by 4.7 percent to 18.9 billion square feet. This is the strongest industry growth since 2004.|
The acceleration in industry growth over the past year was primarily due to the sharp increase in new and existing home sales as consumers took advantage of historic low interest rates. Builder flooring spending led the way with an estimated 24.4 percent increase as new residential square footage constructed rose by almost 22 percent. At the same time, a nearly 12 percent increase in existing home sales contributed to an estimated 6.3 percent gain in residential replacement spending.
In the fourth quarter of 2013, the contribution to industry growth by non-moving households seems to have increased along with the boost to consumer confidence provided by a rising stock market. This offset a cooling in the builder market as interest rates rose. The growing role of non-movers can be seen in the strengthening growth of building material retailer sales in recent quarters. Consumers are increasingly turning to the value retailers as they take on an increasing number of do-it-yourself flooring replacement projects.
U.S. floor coverings sales growth would have been even sharper if not for the sluggishness in commercial market sales. Commercial market floor covering spending is estimated to have increased by only 2.9 percent in 2013. This reflects only a 3 percent to 3.5 percent gain in private nonresidential building construction spending and a nearly 10 percent drop in public building construction spending.
In any case, hard surface flooring continued to make additional inroads in 2013. Hard surface flooring is estimated to account for 49.2 percent of total dollar sales and 44.5 percent of total square foot sales in 2013. This is up from 47.9 percent and 43.6 percent, respectively, in 2012. In 2013, hard surface flooring sales are estimated to have increased by 9.5 percent in dollars and 6.8 percent in square feet. For soft surface flooring, the figures were 4.2 percent and 3.1 percent, respectively.
Hard surface sales growth benefited from its higher dependence on the builder market. This is especially true in the strong growing ceramic tile, wood flooring and resilient flooring sectors. Homeowners are also increasingly turning to hard surface flooring when undertaking flooring replacement jobs.
U.S. floor coverings sales are forecast to slow somewhat during 2014 as interest rates continue to rise. The slowdown, however, is expected to bring growth down to only the industry’s long term rate of 4 percent to 5 percent. At that rate, it will take another four to six years to get sales levels back to pre-recession levels.
Carpet margins rise despite losing share
In 2013, U.S. carpet and area rug manufacturer sales experienced its first significant increase since 2004. Dollar sales are estimated to have increased by 4.2 percent and square foot sales by 3.1 percent. Sales could have climbed to $10.2 billion and 10.5 billion square feet. Manufacturer sales are estimated to have increased at even sharper rates in the fourth quarter, rising 5 percent and 4 percent, respectively.
The rebound reflects the recovery in the residential replacement market. Consumers are estimated to have increased soft surface flooring spending by 5.4 percent in 2013, up from a 2.4 percent gain in 2012 and a sharp drop between 2007 and 2011. This is a key trend since the residential replacement market represents some two-thirds of total carpet and area rug sales.
Carpet and area rugs, already the lowest cost flooring on an installed basis, saw average manufacturer prices increase by only an estimated 1 percent in 2013, while average hard surface flooring manufacturer prices rose by some 2.6 percent.
Carpet and area rug price increases were held down by relatively moderate material costs. This compares to sharper input cost increases in the ceramic tile, wood flooring and resilient flooring sectors. Despite competitive pricing, carpet and area rugs continue to lose ground to these stronger growing hard surface flooring sectors. In 2013, carpet and area rugs are estimated to have accounted for 50.8 percent of total U.S. floor coverings sales in dollars and 55.5 percent in square feet. This is down from 52.1 percent and 56.4 percent, respectively, in 2012. Carpet and area rugs’ share could have dropped to as low as 49.7 percent in dollars and 54 percent in square feet in the fourth quarter of 2013.
Despite the loss of share, U.S. carpet and area rug manufacturers have seen margins grow along with rising sales. Operating income for three publicly-listed carpet and area rug companies — Dixie, Interface, and Mohawk — increased by 43.7 percent over the first three quarters of 2013, while sales increased by 4.3 percent.
As margins rose, manufacturers gained confidence to once again invest in new production facilities after years of consolidation. The emphasis has been on increasing capacity to manufacture soft carpet products. Shaw, Mohawk, and Engineered Floors have all announced investments in soft carpet products in 2013.
Ceramic tile and stone thrive on surging builder market
The ceramic tile sector is estimated to have experienced some of the strongest industry growth in 2013. Dollar manufacturer sales are estimated to have increased by 11.2 percent and square foot sales by 7.9 percent. As a result, sales could have reached $2.6 billion and 2.4 billion square feet. These sharp increases benefited from the ceramic tile sector’s relatively heavy dependence on the surging builder market.
Demand also received a boost from the introduction of new products utilizing high definition printing technology. This technology allows manufacturers to offer enhanced stone and wood looks that are popular with residential and commercial users.
As a result, ceramic tile is estimated to have accounted for 13 percent of total floor coverings dollar sales and 12.6 percent of total industry square foot sales in 2013. This is up from 12.5 percent and 12.2 percent, respectively, in 2013.
Ceramic tile has made these inroads despite above average selling price increase in 2013. In 2013, average U.S. ceramic tile selling prices are estimated to have increased by 2.8 percent. This compares to a 1.9 percent gain for all floor coverings products. Some of the increase in average manufacturer selling prices could be due to the growing popularity of higher-priced porcelain tile with stone and wood looks. Ceramic tile prices also strengthened due to rising material costs.
To offset rising prices, U.S. consumers have increased their purchases of lower-cost foreign-sourced tile. In 2013, imports could have represented 70.9 percent of total square foot sales. This is up from 67.4 percent in 2012. Foreign-sourced products have made these inroads since average import prices are currently about 25.0 percent lower than U.S.-made ceramic tile. In 2013, the sharpest square foot import gains were from tile shipments originating from China, Italy, Spain, Turkey, and Portugal.
Stone flooring manufacturers and marketers have also benefited from the recovery in the housing market and increased demand for higher-end flooring products. In 2013, stone flooring dollar sales are estimated to have increased by 6.8 percent, and square foot sales could have increased by 6 percent.
However, ceramic tile sales increases have been almost double those for stone since ceramic tile prices are significantly lower. The average ceramic tile manufacturer selling price is estimated to have been $1.09 per square foot in 2013 versus $4.04 per square foot for stone flooring.
Wood market impacted by raw material cost
Wood flooring manufacturer sales are estimated to have experienced the strongest industry gains on a dollar basis due to sharp price increases. Wood flooring prices are increasing as lumber prices soar along with the surge in domestic home building and rising foreign demand. Rising wood flooring prices, however, have dampened the increase in square foot demand.
Dollar wood flooring sales are estimated to have increased by 12 percent in 2013 to $2.2 billion. As a result, wood flooring is estimated to have accounted for 10.9 percent of total U.S. floor coverings dollar sales in 2013, up from 10.4 percent in 2012. Average wood flooring manufacturer selling prices are estimated to have increased by 7 percent in 2013. This sharp gain was due to soaring lumber prices, which rose about 15 percent. Wood flooring prices will continue to rise in the first quarter of 2014 based on the price increase announcements by Armstrong and Mannington in the 6 percent to 12 percent range. Manufacturers are increasing prices as lumber price increases continue to cut into their bottom line performance.
Higher wood flooring prices, however, have dampened square foot sales gains. Wood flooring quantity sales are estimated to have increased by only 4.9 percent in 2013 to 1 billion square feet. This kept wood flooring’s share of total floor coverings square foot sales at 5.4 percent.
The gains in square foot sales were concentrated in lower-cost foreign-sourced products. Growth of square foot wood flooring import shipments is estimated to have been about 22 percent in 2013.
Consumers turned to foreign-sourced products since average import prices were $1.90 over the first three quarters of 2013, compared to $2.36 per square foot for U.S. made wood flooring. Average import prices also could have declined by 3.6 percent in 2013, versus a 15.7 percent increase for domestically-made wood flooring.
Resilient sees sharp gains
The resilient flooring sector has seen some of the sharpest gains in the U.S. floor coverings market in 2013. Gains were led by the sharp growth of luxury vinyl tile (LVT) product lines. Sluggish commercial demand, however, has held down overall resilient flooring sales increases.
In 2013, resilient flooring manufacturer dollar sales are estimated to have increased by 10.6 percent and square foot sales by 8.3 percent. These gains could have pushed sales to almost $3 billion and 3.7 billion square feet. These strong gains caused resilient flooring to increase in importance, rising to 14.8 percent of total dollar floor coverings sales and 19.7 percent of total square foot sales. This is up from 14.2 percent and 19.1 percent, respectively, in 2012.
Sector sales growth benefited from the introduction and consumer acceptance of innovative LVT and fiberglass-backed sheet vinyl products. These products have significantly increased sales to the residential replacement market. However, this sector’s heavy reliance on commercial markets has held down overall resilient flooring sales gains.
Armstrong, Mannington and Tarkett recently announced price increases in their commercial lines to offset rising costs.
Sector sales gains were led by sharp increases in shipments of foreign-sourced product in the first half of 2013; however sourcing began to move back to U.S. plants in the second half. Square foot resilient flooring imports increased by 32 percent in the first half, while imports could increase by only 2 percent in the second half. This trend is expected to continue as Armstrong, IVC and Mohawk announced plans to build U.S. LVT facilities over the next few years.
Laminate experiences sluggish growth
Laminate flooring is the only industry sector to experience sluggish growth in 2013. Laminate, which primarily sells in the residential replacement market, is seeing increased competition from the ceramic tile, resilient flooring and wood flooring as consumers move upmarket to satisfy their wood look preferences. As a result, laminate flooring dollar sales are estimated to have declined by 0.6 percent in 2013, while square foot sales are estimated to have increased by 1.5 percent. Dollar sales were also hurt by an estimated 2.1 percent decrease in average manufacturer selling prices.
Either way, laminate flooring is losing share in the U.S. market. In 2013, laminate flooring is estimated to have accounted for 4.5 percent of total U.S. dollar floor coverings sales and 5.2 percent of total square foot sales. These figures are down from 4.8 percent and 5.3 percent, respectively, in 2012.
This sector’s share loss was primarily among U.S. manufacturers as imports gained share. This situation, however, may reverse during 2014 as U.S. manufacturers begin to onshore production. For example, Mohawk’s Unilin subsidiary increased production in the United States at its Thomasville, N.C., plant and reopened another facility. The goal of these moves was to cut costs and reduce reliance on supplies being shipped from its European plants.
Consumer spending and retail sales
Consumer floor covering spending has been strengthening along with the recovery in U.S. floor coverings sales. Growth rates, however, have been somewhat below overall industry trends since the rebound has been led by the builder market. Consumer floor covering spending is estimated to have increased by 6.3 percent in 2013. This compares to 6.7 percent for overall manufacturer sales.
Sluggish employment and income growth, however, has kept consumers in a value-conscious state of mind. This has benefited the home centers and the value-priced hard surface flooring chains. As a result, the home center channel is estimated to have gained additional share in 2013. Home centers are estimated to have accounted for 30.4 percent of total floor coverings retail sales in the third quarter of 2013, up from 30.3 percent in the same period of the previous year.
As home centers and niche hard surface flooring chains increased share, specialty floor coverings stores lost some ground. Catalina estimates that specialty floor coverings stores accounted for 43.3 percent of total U.S. floor coverings retail sales in the third quarter of 2013. This is down from 43.9 percent in the third quarter of 2012.
Dollar and square foot floor coverings sales are estimated to slow somewhat from the relatively sharp gains in 2013 as rising mortgage rates cool the surging builder market.
In the first quarter of 2014, U.S. dollar floor coverings sales are forecast to increase by 6 percent and square foot sales by 4 percent. The cooling of the builder market will be partially offset by broader gains in the residential remodeling market and somewhat stronger gains in commercial markets. The residential replacement market will continue to see a positive impact from the 2013 increase in existing home sales and feel an even stronger benefit from rising employment and income gains of non-movers. Commercial market sales could receive a boost from stronger U.S. economic growth as businesses increase their investment in new and expanded facilities.
U.S. floor coverings manufacturers have already begun to invest in new plant and equipment to expand domestic production over the next few years.