Vol. 64
No. 14
A Hearst Business Publication
July 27, 2015
$4
Expect construction activity to strengthen
FLOOR COVERING WEEKLY
— Kermit Baker, Joint Center of Housing Studies at Harvard University
The Industry’s Business News & Information Resource
STATISTICAL REPORT 2014 Slow, steady growth continues
A
Chart 1
2014 U.S. Floor Covering Sales: $21.83 billion
ccording to Catalina Research, 2014 due to the increase in mortgage interU.S. floor coverings manufacturer est rates and sluggish gains in employment dollar sales (shipments minus and personal income. As a result, consumer exports plus imports) are estimated to have floor coverings spending increased by only increased by 5.6 percent in 2014 to $21.83 2.9 percent in 2014. billion. Quantity sales On the other hand, the (in millions of manufacturers’ dollars) could have climbed recovery in commercial by 3 percent to 19.6 floor coverings purchases Cork, rubber, other plastics & linoleum (Other Resilient) billion square feet. strengthened in 2014. In News................................... 4 These gains continued 2014, nonresidential build2014 Industry Statistics ...... 5 the recovery in floor ing construction spending marketWise ......................... 6 coverings over the past increased by 5.6 percent after three years. Between declining by 0.6 percent in Imports/Exports .................. 8 2011 and 2014, dollar 2013. Stronger gains in 2014 Wood................................... 9 floor coverings sales were led by an 11.4 percent Tile & Stone ...................... 16 are estimated to have increase in private nonresiResilient............................ 22 increased at a 6.9 dential building construction percent compound spending. Meanwhile, govCarpet............................... 26 annual rate and square ernment building construcLaminate........................... 30 foot sales could have tion spending continued The Last Word.................... 34 increased by 4.3 perto decrease, which dragged cent annually. These down the increase in comare the strongest industry growth trends mercial demand. since the 2002 to 2005 housing boom. The stronger recoveries in the builder and The recovery in U.S. floor coverings sales, commercial markets contributed to addireported Catalina, has been driven by the 18.1 tional share gains for hard surface flooring. percent compound annual growth in housing Soft surface flooring now accounts for less starts over the 2001 to 2014 period. In 2014, than 50 percent of total dollar floor coverhousing starts increased only 8.4 percent, ings sales. This is down from some 70 perhowever, housing completions by square feet cent two decades ago. Soft surface flooring’s rose by 12.7 percent. share remains above 50 percent on a square The recovery in the residential replace- foot basis since wall-to-wall carpet generally ment market was stimulated by a 5 percent sells for less than hard surface flooring. compound annual increase in existing home In 2014, the shift to hard surface flooring sales between 2011 and 2014. This led to a was led by gains in wood flooring, luxury vinyl 4.8 percent annual growth rate in consumer tile and ceramic tile. Consumers increased floor coverings spending over this period. their preference for these hard surface floors However, existing home sales declined in Continued on page 5
On the inside
1.2%
$267 million 6.0% from 2013
4.3%
Laminate
$935 million
5.7%
Stone
$1.24 billion
1.4% from 2013
5.3% from 2013
12.1% Vinyl Sheet & Floor Tile
$2.65 billion 10.7% from 2013
15.3% Hardwood
$3.35 billion 14.7% from 2013
12.2% Ceramic Floor & Wall Tile
$2.67 billion 6.6% from 2013
P e r i o d i c a l
49.2% Carpet & Area Rugs
$10.73 billion 2.1% from 2013
UP 5.6% For breaking news updated each business day, visit us online at www.fcw1.com
Source: Catalina Research
from 2013
5 Table 1
Chart 2
U.S. floor covering market sales value
2014 floor covering square foot sales
(in millions of manufacturers’ dollars) Product sector 2010 Carpet & area rugs Hardwood flooring Ceramic floor & wall tile Laminate flooring Vinyl sheet & floor tile Other resilient flooring Stone flooring
1
2
2011
2012R
2013R
2014
$9,393 1,784 2,084 893 2,000
$9,505 2,051 2,210 894 1,938
$10,041 2,331 2,241 908 2,185
$10,505 2,918 2,507 922 2,390
$10,729 3,346 2,672 935 2,645
2.1% 14.7% 6.6% 1.4% 10.7%
256
229
241
252
267
6.0%
1,062
1,064
1,110
1,175
1,237
5.3%
% change
Total: 19.64 billion square feet
7.3% 5.1%
16.8% 55.7%
Source: Catalina Research 1 Other resilient includes cork, rubber, other plastics and linoleum. 2 Natural stone. Excludes manufactured and engineered stone.
Note: R= Revised
1.1%
1.5%
12.5%
Table 2
U.S. floor covering market sales volume (in millions of square feet) Product sector
2010
2011
2012R
2013R
2014
Carpet & area rugs Hardwood flooring Ceramic floor & wall tile
10,686 901 1,992
10,221 1,031 2,078
10,460 1,160 2,166
10,861 1,322 2,366
10,948 1,430 2,456
0.8% 8.2% 3.8%
Laminate flooring Vinyl sheet & floor tile
958 2,860 250
950 2,579 205
964 2,726 196
996 3,034 199
1,002 3,300 208
0.6% 8.8% 4.5%
260
262
271
286
295
3.1%
Other resilient flooring Stone flooring
1
2
Slow, steady
Continued from page 1
as manufacturers introduced innovative products such as easy-to-install engineered wood floors, click-installed luxury vinyl tile, and wood-plank porcelain tile. Consumers also turned to competitively priced foreign-sourced flooring while employment and personal income gains remained sluggish. The dollar value of foreign-sourced products sold in the United States increased by 11.5 percent in 2014 in dollars and by 10.6 percent in square feet. In fact, import shipments have been increasing at double-digit rates over the current recovery period. In 2014, foreign-sourced products captured 34.2 percent of total U.S. dollar floor coverings sales and 39.3 percent of total square foot sales. This is up from 30 percent and 32.4 percent, respectively, in 2011. Foreign sourced products made these inroads since average import prices are estimated to be some 13 percent below average U.S. floor coverings selling prices. Over the past decade, competitively priced flooring has increasingly been sourced from Chinese manufacturers. Chinese-produced flooring accounted for 40.6 percent of total dollar imports in 2014 and an estimated 13.9 percent of total U.S. sales. Other leading foreign-sourced producers are located in India, Italy, Mexico, Turkey and South Korea. FCW WWW.FCW1.COM
Laminate flooring 1.00 billion
Carpet & area rugs 10.95 billion
Hardwood flooring 1.43 billion
Ceramic floor & wall tile 2.46 billion
Stone flooring 295 million
Vinyl sheet & floor tile 3.30 billion
Source: Catalina Research 1 Other resilient includes cork, rubber, other plastics and linoleum. 2 Natural stone. Excludes manufactured and engineered stone.
Note: R= Revised
July 27, 2015
% change
Other resilient* 208 million Source: Catalina Research *Cork, other plastics, rubber and linoleum
2014 numbers, however, are preliminary (except exports and imports) and are subject to revision. U.S. market sales are in manufacturers’ dollars and exclude installation costs. Note also that numbers in Tables 1 and 2 have been rounded. More detailed calculations appear in each product section. All retail information is courtesy of Jonathan Trivers’ exclusive marketWise report. Product sales are derived from Catalina’s numbers. Numbers for “Who sells it: Who the customer pays” come from the Economic Census of Retail report.
Methodology Floor Covering Weekly collaborated with Catalina Research for this 23rd annual statistical analysis of the U.S. floor covering market. Catalina compiled and analyzed data from the U.S. Department of Commerce, the Bureau of Labor Statistics and proprietary sources to provide the flooring market trends in this issue. In this year’s Statistical Report, sales for 2012 and 2013 were revised based on new shipment data from the U.S. Department of Commerce. All
Graph 1
20 years of floor covering sales value
R=Revised Source: Catalina Research
(in billions) $26.0 $24.0 $22.0 $20.0 $18.0 $16.0 $14.0 $12.0 ’95
’96
’97
’98
’99
’00
’01
$14.60 $15.20 $15.95 $17.40 $18.80 $19.90 $20.20
·
FLOOR COVERING WEEKLY
·
’02R
’03R
’04R
’05R
’06R
’07R
’08R
’09R
$21.29
$22.25
$24.66
$25.44
$25.38
$23.63
$22.29
$17.05 $17.47
’10R
’11R
‘12R ‘13R
‘14
$17.89 $19.06 $20.67 $21.83
6
marketWise
Tomorrow is only a day away Jonathan Trivers Remember the famous song from Annie, “Tomorrow”? The sun will come out tomorrow So you gotta hang on til tomorrow, come what may Tomorrow, tomorrow, I love ya, tomorrow You’re only a day away. That’s the song we sang at the end of 2012. Certainly 2013 would really be different and the flooring industry would be operating on all cylinders. Didn’t quite happen. So again, at the end of 2013 we sang that song with greater gusto, bringing in 2014. Again, tomorrow was slightly better than 2013 but nowhere near where it should be considering pent up demand at residential replacement, resurgence of commercial toward the end of the year and new homes are larger than ever. (This is being written in June 2015; maybe the song will ring true for 2015. But not so for 2014.) Again the impact of home sales (new and existing) to our flooring industry can be seen for 2014. Sadly, we mean negative impact. Existing home sales were down by 3.1 percent compared to 2013 and new homes were up only 1.6 percent. Existing home sales of 4,930,000 is very respectable — that is within 20 percent of the best years ever. But new home sales of 435,000 are awful; that number is 750,000 short of the best year ever. From 2011, it had been growing by 40,000 new homes each year and then in 2014 we sold only 3,500 more new homes than in 2013. In
Table 3
regular years, builder business (flooring sold Table 4 to new homes) represents about 25 percent of industry sales. For 2014, it was a dismal 14.1 2014 product sales growth (Sales in billions; product + labor) percent of total industry sales. (See table 7.) Anecdotally, we hear of nightmares trying to get a home loan; and we are talking about 2009 2010 2011 folks who have excellent credit and the $15.0 $15.3 $15.6 down payment needed. The pendulum has Carpet swung from the go-go days of anyone with Vinyl $5.0 $5.4 $5.7 $10 in their pocket could get a $300,000 Ceramic tile $9.5 $10.3 $10.9 home loan with no down payment. So they $2.7 $2.7 still had their $10. Now, even an excellent Stone/marble $2.7 credit worthy customer has so many hoops Wood $5.0 $5.4 $5.6 to jump through — Fannie, Freddie, state Laminate $2.8 $2.7 $2.7 regulators or even Obamacare. Why not? There are more excuses for the delays and dif- Installation $2.0 $1.9 $2.1 ficulty. For five months in 2014 fully 40 per- supplies cent of all existing home sales were cash. And Rugs $3.0 $3.0 $3.0 many new home buyers are first time home Total $45.0 $46.7 $48.3 buyers and you can imagine how painful the process was and is for them. Full service flooring retailers have upped their game and their share of market for total flooring dollars is 48.3 percent. It is only slightly down from 2013 but all signs are that they are adapting well to new market realities. They are leading the way by selling better goods and better service. A Starting in August 2014 the Census Bureau great profitable combination. began to roll out its Economic Census for 2012 with comparative data for 2007. Key chapters of 2014 marketWise report are: Responsible research companies correct their ▶ Census of Retail (2012) sets benchmark for 2012 data if it’s different from Census numbers. Those numbers become the benchmark retail sector. for an industry; companies estimate the next ▶ Boomers are spending money again. ▶ Lumber Liquidators and Lowe’s five years and then correct back when the Census issues its latest Economic Census underperform. ▶ Housing trends 2014 and bright star which happens every five years with ending in 2 and 7. multi-family housing. We did exactly that as you will see in data for sales by businesses. Our 2012 numbers are now spot on to the 2012 Economic Census and we adjusted 2013 against those numbers and have done so for 2014 (See table 6: Who sells it: Who the customer pays). These are the interesting findings for 2012 Labor Total and in some cases comparison to 2007. The $ Sell GP % $ Sales GP % only category to show sales growth in that $3.3 18.2% $16.7 29.3% period was internet sales of flooring. It went from $400 million to $800 million — 90 $2.4 25.0% $8.0 33.8% percent laminate, hardwood and rugs. Yes, $7.7 30.0% $13.7 32.8% it doubled its sales in a terrible down market but in our estimation, that is more a function $1.8 38.9% $3.1 38.7% of such a low number. Even in 2012, internet sales were 1.3 percent of the entire industry. $2.5 24.0% $7.5 33.3% Direct sellers (Empire Today, et al) had $.9 20.0% $2.7 25.9% the worst decrease in sales from 2007 to 2012. This category had a -61.5 percent N/A N/A $1.0 30.0% decrease in sales. Hard surface specialty flooring retailers (Lumber Liquidators, et al) N/A N/A $1.5 33.3% had a — 39.6 percent decrease for that same time period. Those retailers that sold to con$18.6 26.9% $54.2 31.9% tractors and or used high-pressure sales and created “one and done” customers (probaN/A N/A $3.4 35.2% bly not coming back to buy again) were hit $18.6 26.9% $57.6 32.1% hardest. New home sales collapsed and the Source: marketWise first time flooring buyer and middle-income
Product $ Sell GP % Carpet
$13.4
32.0%
Vinyl
$5.6
37.5%
Ceramic tile
$6.0
36.7%
Stone/marble
$1.3
38.5%
Wood
$5.0
38.0%
Laminate
$1.8
28.0%
Carpet cushion
$1.0
30.0%
Installation materials
$1.5
33.3%
Total installed products
$35.6
34.6%
Area rugs
$3.4
35.2%
Total floor covering $39.0
34.6%
2013
2014
$16.0
$16.7
$16.7
even
$6.5
$7.2
$8.0
+11.1%
$11.6
$12.9
$13.7
+6.2%
$2.8
$3.0
$3.1
+3.3%
$6.0
$6.5
$7.5
+15.4%
$2.7
$2.7
$2.7
even
$2.2
$2.3
$2.5
+8.7%
$3.0
$3.1
$3.4
+9.7%
$50.8
$54.4
$57.6
+5.9%
over last year
Source: marketWise
2014 marketWise commentary
2014 floor covering industry sales (in billions) $57.5
% increase
2012
·
FLOOR COVERING WEEKLY
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customer vanished. (Both are coming back but ever so slowly.) At the same time, full service flooring retailers experienced a 30.2 percent decrease in sales. We see those numbers as good news for full service flooring retailers. Their market share has pretty much bottomed out and they are successfully selling better goods and better service to older baby boomers. 2014 was a case in point. (We discuss in detail later in this commentary.) This is the startling finding from the Census or Retail and Contractor sales: From 2007 to 2012, we lost 5,700 installers — 3,300 fewer ceramic tile and 2,400 fewer carpet, vinyl and wood installers. Many retailers have felt this loss of installers but most didn’t know it was and is a national epidemic. During that time, a whole bunch of installers left their homes in California, Arizona, Nevada and Florida and went to Texas, Wyoming, Montana and North Dakota. Those markets had very robust flooring sales due to the number of people moving to those states for work in energy (gas, oil) and energy related industries. Sadly those installers moved but were surely counted and we still lost 5,700 from the work force. How many have come back is anyone’s guess but since so many installers are now in their late 50’s, we suspect the problem on adequate number of installers to serve the industry, much less quality installers, is going to get much worse. This issue of number of viable installers is a national issue and the very life of our industry is dependent upon finding 10,000 new flooring installers in the next five years. But it will only change if the key players realize that it must be solved state by state. States control
WWW.FCW1.COM
July 27, 2015
marketWise technical and community colleges. This is the key place to create interest in flooring installation as a good, profitable and meaningful job. It is a national problem but the solution will come state by state. The Floor Covering Leadership Council was formed in 2014 by 12 flooring-focused associations to identify the most important issues affecting the industry and develop solutions for the benefit of floor covering businesses and professionals. They established three initiatives: creation of an industry-training portal, improvement of communications between members and the industry and dealing with needs and issues related to installation. Members of FCLC voted to begin work on a campaign designed to showcase and promote the many benefits of being an installer. That won’t get it. We will only attract young folks to our industry if we target each state’s technical and community colleges and installers are offered family wage salaries. Everything else is window dressing and won’t get the industry to where it needs to be. Make no mistake about it, this is a crisis upon us and it will only get worse. Love the boomers So many worry about Millennials; they are coming. But they are now turning 30 so their impact on our flooring industry is very, very small. First, they have to move out of their parents’ home; second, they need to get a real job (better than barista at Starbucks); and, third, they need to turn off their cellphone and find a mate; and so it goes. Listen up: Baby boomers have the money, the inclination, the taste, the home (homes, as more and more buy a second home) and thankfully they are putting new locks on their doors so their Millennial-age children don’t come home. Don’t give up on them; for the time being the smart money is on those over 50 years old. Today there are 100 million people over 50
years old. That’s one third of our total population. They buy two out of three new cars and half of all the computers. They control 70 percent of all the disposable income and rank as the third largest economy in the world after the U.S. and China. Robert Love of AARP says that everyone in car commercials use people who are around 18 to 30 years old. But people over the age of 75 buy five times as many new cars as that age group. (Admittedly, those over 75 shouldn’t be driving at all but they have the newest cars out there.) Forget cars; over 50 is a great demographic for flooring. Trust me, they are the buyer for better, different flooring and they will pay for excellent installation and customer service. In fact, in a recent survey, 56 percent of all those over 60 years old said they plan to stay in their present home after they retire. Aging in place. They will upgrade most amenities including flooring. And they will be the perfect customer for kitchen, bathroom, safety features and flooring. This age group was in large part the reason our industry did as well as it did in 2014. It wasn’t new homes but it sure was buyers who were improving their home because they wanted to. By and large they respect professionalism, excellent service and personal attention to their purchase. That has full service flooring stores written all over it. You can tweet ‘til the cows come home; but if you have first rate sales people and excellent installers, this customer wants to buy from you. And she has 100 million friends who have the money and the desire. And that’s the truth.
Table 5
2014 market share installed products 2009
2010
2011
2012
2013
2014
Carpet
38.2%
37.1%
36.6%
35.4%
34.3%
32.7%
Vinyl
12.1%
12.6%
12.9%
14.0%
14.4%
15.1%
Ceramic tile
24.0%
24.9%
25.5%
25.7%
26.7%
26.7%
Stone/marble
6.7%
6.4%
6.2%
6.0%
6.0%
5.9%
Wood
12.1%
12.6%
12.6%
13.0%
13.1%
14.4%
Laminate
6.9%
6.4%
6.2%
5.9%
5.5%
5.2%
Note: These market share numbers were computed from the sales of product, labor and the installation materials used for that product category. Source: marketWise
both Lowe’s and Lumber Liquidators were experiencing sluggish same store sales. Each had different reasons but the results were the same in 2014 — neither kept up with the industry. (Table 6: Who sells it: Who the customer pays) In the middle of last year, Lumber Liquidators started to stumble. We are not sure if the reason they gave is the real reason but here goes: The sheen on their wood was too bright, too stark, too formal. The new look for wood, according to Lumber Liquidators, is a more casual finish with less luster. That’s it. Apparently they came to this design wisdom a little late as it had a gigantic supply of the shiny stuff. Its open to spend was such they couldn’t afford to replace all the shiny
Lumber Liquidators and Lowe’s Struggle Long before 60 Minutes’ gotcha show on formaldehyde and Lumber Liquidators Table 6 and long after Lowe’s was chosen to be the only home improvement store showcasing Stainmaster carpet instead of our best known flooring felon, Martha Stewart flooring, (in billions)
Who sells to the three end-user markets (in billions) Builder
Commercial
Total
Floor covering stores
$19.3
$2.1
$6.4
$27.8
Home improvement
$7.9
$0.5
$0.5
$8.9
Hard surface stores
$3.4
$0.5
$0.5
$4.4
Internet, non-store
$1.3
$.1
$0.1
$1.5
Other, furniture, department, discounters, home furnishing stores
$2.8
N/A
N/A
$2.8
Contractors
N/A
$4.9
$7.3
$12.2
Total
$34.7
$8.1
$14.8
$57.6
% to total
60.2%
14.1%
25.7%
100.0%
WWW.FCW1.COM
Continued on page 8
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FLOOR COVERING WEEKLY
2009 (%)
2010 (%)
2011 (%)
2012 (%)
2013 (%)
2014 (%)
2014 ($)
Floor covering stores
53.6
49.7
46.4
48.8*
48.6*
48.3%
$27.8
Home improvement
16.0
16.7
17.3
15.7*
15.2*
15.4%
$8.9
- Home Depot
8.8
9.9
9.4
9.4
9.2
9.2
$5.3
- Lowe’s
7.2
7.5
6.0
5.7
5.5
5.4
$3.1
6.9
10.1
10.6
8.3*
7.9*
7.6%
$4.4
1.8
1.7
$1.0
Hard surface stores - Lumber Liquidators
Floor & Decor
0.7
$0.4
The Tile Shop
0.5
$0.3
Internet, non-store
2.1
1.9
2.2
2.2
2.6%
$1.5
Other, Furniture, department, discount, home furnishing stores
4.4
4.3
3.9
5.3*
5.0*
4.9%
$2.8
Contractor
19.0
17.1
19.9
19.7
21.1
21.2%
$12.2
100%
$57.6
Total ($)
*Revised to reflect 2012 Economic Census, Preliminary Product lines Statistics by Industry. Source: marketWise
Source: marketWise
July 27, 2015
stuff post haste; they had to sell some bad stuff to get the new stuff. It took nine months to make the change. That was at a considerable gross profit cost (they deeply discounted the shiny stuff to get rid of it.). Even with their totally silly 100 year wear warranty, even with its new store of the future being implemented, they couldn’t get rid of the old stuff fast enough. And even with new stores opening in the last six months of 2014, Lumber Liquidators sales were stagnate. And then in 2015 the really, really nasty stuff hit the fan. Prior to 2013, large, multi-department retailers did not have to report their sales by product category in the 10-K filing with the SEC. We
Who sells it: Who the customer pays
Table 7
Residential Replacement
7
·
2014 Import/Export Table 8
Table 10
U.S. floor covering imports value
U.S. floor covering exports value
(in millions of dollars)
(in millions of dollars)
Industry Sector Carpet & area rugs1
2010 $1,859.3
2011 $2,032.7
2012 $2,171.6
2013 $2,300.4
2014 $2,598.0
Industry Sector Carpet & area rugs1
2010 $999.2
2011 $1,066.6
2012 $1,095.4
2013 $1,112.1
Hardwood flooring2 Ceramic floor & wall tile Resilient
632.6 1,275.8
702.3 1,325.2
834.3 1,441.2
989.1 1,724.7
1,174.8 1,822.8
Hardwood flooring
130.7
136.9
144.7
128.1
166.0
Ceramic floor & wall tile
50.3
52.5
55.7
52.3
65.5
Vinyl sheet & floor tile
728.8 109.6 476.2 $5,082.3 14.3%
764.4 117.2 419.2 $5,361.0 5.5%
877.3 100.5 495.8 $5,920.7 10.4%
1,055.3 105.4 522.6 $6,697.5 13.1%
1,188.6 108.4 577.0 $7,469.6 11.5%
Vinyl sheet & floor tile
163.8
176.8
153.7
148.3
157.5
Other resilient
40.9
40.4
37.5
37.8
41.1
1,384.9 17.4%
1,473.2 6.4%
1,487.0 0.9%
1,478.6 -0.6%
Other resilient3
Laminates4 Total imports Year-to-year change
U.S. floor covering imports volume
2
Total exports Year-to-year change
1,535.1 3.8%
U.S. floor covering exports volume
(in millions of square feet) Industry Sector Carpet & area rugs1 Hardwood flooring2 Ceramic floor & wall tile Resilient
2010 1,960.7 330.9 1,393.2
2011 1,956.5 371.4 1,408.7
2012 2,075.0 423.3 1,490.3
2013 2,153.3 507.7 1,721.7
2014 2,428.7 633.4 1,709.8
Vinyl sheet & floor tile
1,335.2 213.5 522.7 5,756.2 10.1%
1,251.8 161.9 454.8 5,605.1 -2.6%
1,581.5 153.4 557.5 6,281.0 12.1%
1,826.7 167.2 612.8 6,989.4 11.3%
2,093.9 204.7 657.0 7,727.5 10.6%
Laminates4 Total imports Year-to-year change
Resilient
Table 11
Table 9
Other resilient3
2014 $1,105.0
(in millions of square feet)
2014 marketWise Continued from page 7 relied on public statements or promotions (“We are the largest seller of wood and laminate of any home improvement store”; “Stainmaster has changed our sales in carpet”, etc. etc.). Sadly that was mostly bunkum. Starting in 2013, these companies were obligated to report their sales by category (home improvement had to break out flooring sales). For 2014, Lowe’s had a +3.3 percent increase in flooring but lost market share to Home Depot (its main competitor) and to floor covering specialty stores in total. (Table 6 Who sells it: Who the customer pays) Both Home Depot and Lowe’s used the same snarky whole house installation promotion for carpet. In most minds Stainmaster was a far superior brand for Lowe’s than Martha was for Home Depot. Lowe’s
Housing Market According to the latest Harvard University report on housing (Joint Center for Housing Studies) covering 2014, the key indicator for our housing doldrums is homeownership rate. Right before the economic downturn of 20062011, homeownership was right around 69.4 percent. That was the highest it has ever been. For 2014, homeownership rate was 64.5 percent and sinking even into first quarter 2015. It hasn’t been that low since 1993. Reasons? As we wait breathlessly for Millennials to become the buying gener-
2010 947.3 56.8 50.8
2011 1,009.4 59.1 53.7
2012 980.3 61.0 57.3
2013 1,064.4 54.4 50.8
2014 984.7 59.4 53.6
Vinyl sheet & floor tile
377.6 76.7 1,509.2 18.8%
363.3 74.7 1,560.2 3.4%
335.0 73.4 1,507.0 -3.4%
263.5 70.2 1,503.3 -0.2%
268.5 77.1 1,443.3 -4.0%
Other resilient2
Total exports Year-to-year change
Export Key 1 Includes exports of roll goods, bath mats, area rugs, auto and aircraft carpeting, and artificial grass. 2 Includes exports of flooring made of other plastics, rubber, and other materials. Source: U.S. Department of Commerce; Catalina Research
Import Key 1 Includes imports of roll goods, bath mats, area rugs, auto and aircraft carpeting, and artificial grass. 2 Hardwood flooring data for 2013 is revised. 3 Includes imports of flooring made of other plastics, cork, linoleum, rubber, and other materials. 4 Estimated by Catalina Research Source: U.S. Department of Commerce; Catalina Research
opened more stores than Home Depot and Lowe’s has always been considered more female friendly. And when Home Depot was taking so long to complete the order and get the product installed, Lowe’s gleefully announced that its process was working the best of any in flooring. As the saying goes, Talk is cheap but deeds are dear. For 2014 Lowe’s was all talk.
Industry Sector Carpet & area rugs1 Hardwood flooring Ceramic floor & wall tile Resilient
ation for flooring, we must first deal with Gen X or the baby bust generation. Those folks were born between 1965 and 1983; in 2014 they were between 39 and 49 years old. As it relates to housing, they were hit the worst of any age group and there are far more renters than owners in this age group. This group is the key to housing growth (sale of new and sale of older homes) and to flooring sales in general. Unfortunately, household incomes have stagnated and restricted access to financing has further frustrated this group from purchasing a home. As we noted in our introduction, lenders are reluctant to lend to borrowers with less than stellar credit. We cannot overestimate the issue of tight borrowing. Harvard’s annual report on housing states it this way, “Urban Institute estimates for 2001-2013 indicate a 37 percent drop in home purchase loans among borrower with scores between 660 and 720 compared with a 9 percent decrease among
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FLOOR COVERING WEEKLY
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borrowers with higher scores.” And so households went to the renter market since they couldn’t buy. And the multifamily construction and sales have gone great guns to take care of the new accelerated demand. This makes 2004– 2014 the best 10 year period for rental demand in the last 25 years. Even with this great growth in multifamily housing sales, the rental market remained tight in 2014. Prices have gone up and soon (maybe as early as 2015) the rental price will be such that buying (especially with a more relaxed lending policy) should swing back to owner occupied single family houses. 2014 was a year of transition. At the end of the year, new home sales, existing home sales and most of commercial contract were doing great. Not great enough to make the entire 2014 a stunning success but certainly great enough to hope that their sales and momentum continues for the entire 2015. We shall see.
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— Jonathan Trivers July 27, 2015
16 Tile & Stone
Modest sales, market share gains By Megan Salzano It used to be that realistic visuals like wood grain and stone looks, texture and large format tiles were only available from overseas manufacturers. But today, U.S. manufacturers have invested in new capabilities and are able to offer high quality, high design product, helping to fuel tile’s continued growth.
According to Catalina Research, 2014 ceramic tile sales are estimated to have climbed 6.6 percent to $2.7 billion while square foot sales increased by 3.8 percent, not quite the rate of growth in 2013, according to Catalina. Still, the category continues to grab market share. Ceramic tile accounted for 12.2 percent of total floor covering dollar sales and 12.5 percent of square foot sales.
Rajesh Shah, co-president, MS International (MSI) said that a significant portion of tile consumption in 2013 was related to the “flipper” market for homes, an area that dried up in 2014. A lot of pent up demand coming out of the recession, he said, was executed in 2013. “Home inventory is more in-line with historical norms. Housing starts growth diminished in 2014 primarily related to resource
constraints including labor and raw materials,” Shah said. “This has been rectified in 2015 and we are seeing strong growth in new housing as well as residential remodeling.” Price per foot rises Ceramic tile average square foot price increased from $1.06 in 2013 to $1.09 in 2014. Another factor that effected tile sales in 2014 was increased average selling prices. This increase, according to Catalina, led by a 7 percent increase in average import prices caused imported product to lose ground. Imports, in fact, could have represented 69.6 percent of total square foot sales in 2014, down from 72.8 percent in 2013. Design, technology drive sales According to Jason Roshel, senior director, product strategy at Dal-Tile, domestic producers have invested heavily in advanced decoration technology as well as the capability to produce a wide variety of sizes and surface finishes that were previously only being offered by European suppliers. “This investment has elevated the aesthetic characteristics of the products to the extent that the products from U.S. producers are as visually appealing as the products being imported from Europe,” he said.
Continued on page 18 Chart 8
Ceramic tile purchases by end-use market ($2,672.4 million)
0.2%
Subtle Rhythm, Create a Luxurious No Blues. Oasis
16.0%
19.4%
27.0%
Since 1954, Florida Tile has been an innovator, marking many accomplishments, from building the first floor tile plant in the USA to introducing the first digitally printed products with our HDP – High Definition Porcelain® lines. Throughout our history Florida Tile has been a pioneer, but equally important, we have been a guideline for style. Offering products that are both practical and stylish is what we are all about, and tile never looked so good. Please visit us on the web for more about this product and more at www.floridatile.com.
37.0%
0.4% Residential builders: $518.6 million Residential replacement: $989.8 million Manufactured housing: $10.7 million Commercial new construction: $721.2 million Commercial replacement: $426.9 million Transportation: $5.2 million Source: Catalina Research
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18 Tile & Stone
Modest sales
Chart 9
Ceramic tile market value and volume
Continued from page 16
(in billions) 3.5 3.5
1.0 1.0
2010
2011
2012
Market sales
2013
2.46
$2.67
2.37R
2.17R
$2.24R
2.08
$2.21
1.5 1.5
1.99
$2.08
2.0 2.0
$2.51R
3.0 3.0 2.5 2.5
2014
Square feet Source: Catalina Research
Chart 10
Ceramic tile imports value and volume (in millions)
1,710
$1,823
1,722
1,490
$ 1,441
1,409
$1,325
1,393
800 800
$1,276
1,200 1200
$1,725
2000 2,000 1600 1,600
400 400 0 0
2010
2011
Market sales
2012
Square feet
as well as technological advancements will only fuel tile’s market growth and popularity.
2013
2014 Source: U.S. Department of Commerce; Catalina Research
Lindsey Waldrep, vice president, marketing, Crossville Inc., added that with a positive and growing economy, fashion is taking center stage. Deeply layered visuals and large sizes increase costs, and these are the preferences in the market today. She added that, in addition, customers are willing to add more artistic touches to their projects through mosaics, accents and trims, and this “jewelry,” she said, is not inexpensive, helping to drive up the price of the overall sale and will drive up the overall sales ticket. In addition, domestic production of tile continues to increase. Foreign manufacturers, such as Del Conca and Concorde Atlas, have begun to invest heavily in U.S. production. “Most of the world is going through a period of instability, with the U.S. being the bright spot for demand and overall investment. Most overseas manufacturers are seeing this and investing heavily in the U.S. The future continues to look bright for overall tile demand in the U.S.A.,” Shah at MSI said. As we near the middle of 2015, manufacturers have already seen substantial growth and are confident that increased domestic capacity
80
Stone sticks with it Stone has been challenged by the surge of realistic, replicated natural stone looks on ceramic and porcelain tile, and is experiencing tough competition. According to Catalina Research, stone flooring is less price competitive, with the average selling price per square foot at $4.20. And, stone flooring’s share of total floor coverings dollar sales in 2014 is estimated to be 5.7 percent and only 1.5 percent of total square foot sales. Still, dollar sales of stone are estimated to have increased by 5.3 percent and square foot sales by 3.1 percent. Shah said that MSI sees stone growing in the upcoming years. “New stones are being mined that meet today’s trends, and at the same time, many new applications are happening for both tile and stone. This includes walls, outdoors, garages and basements. With the new applications as well as overall growth in the economy and market, both industries will grow.” Dal-Tile’s Roshel added, “Though we are able to replicate stone with new technology, the inherent beauty and value of natural stone is timeless. We anticipate that the demand for stone will steadily grow, specifically limestone and marble.” FCW
Chart 11
66 52
Ceramic tile average value 1.25 per square foot
38
$1.20 1.20
24
$1.15 1.15
10
2012
2013
$1.09
2011
$1.03R
2010
$1.06R
$0.0 1.00
$1.06
$1.05 1.05
$1.05
$1.10 1.10
2014
R= Revised Source: Catalina Research
Chart 12
Stone average value per square foot
$4.09R
2010
2011
2012
$4.12R
$4.07
$4.00 4.000
$4.08
$4.12 4.125
$4.20
$4.25 4.250
3.875 $3.85 3.750 $0.0
2013
2014
R= Revised Note: Natural stone excludes stone flooring made from manufactured and engineered stone. Source: Catalina Research FCW_7x6-3-8thPG_Qwalk-PW-BrawnBeauty-July2015.indd 1
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20 Tile & Stone
Investments to fuel 2015 growth
Chart 13
Stone market value and volume (in millions)
1600 250 250
0 1200 0
2010
2011
800
2012
Market sales
2013
295.0
500 500
286.0R
260.0
2000
271.0R
750 750
262.0
$1,064
$1,062
1,000 1000
$1,110R
1,250 1250
$1,237
$1,175R
1,500 1500
2014
Square feet
R= Revised Note: Natural stone excludes stone flooring made from manufactured and engineered stone Source: Catalina Research
400
Chart 0 14
Ceramic tile exports value and volume (in millions) 80 80
24 24
10 10
2010
2011
2012
Market sales
2013 Square feet
53.6
$65.5
50.8
$52.3
$55.7
53.7
$52.5
50.8
38 38
$50.3
52 52
57.3
66 66
2014 Source: Catalina Research
After a few years of modest growth, ceramic tile dollar sales increased by 13.1 percent in 2013 — the largest percentage increase of any flooring category that year. But for 2014, the growth pace was cut in half with sales rising just 6.6 percent. Square foot sales for 2014 increased by a modest 3.8 percent, according to Catalina Research. That’s compared to an 11.9 percent increase the previous year. But, according to Catalina, ceramic remains a strong category and there are solid indicators that it will remain a growing segment of the business in 2015. First, investments continue to be made in the category and not just here in the U.S. Most recently, Dal-Tile acquired the North American operations of Cerámica San Lorenzo. The purchase includes a modern manufacturing facility in Mexicali, Mexico, and a product showroom and warehouse in Southern California. The plant is Dal-Tile’s 11th manufacturing facility in North America; it produces tile collections under the San Lorenzo brand for the builder, residential remodeling and commercial segments. Dal-Tile is also build-
ing a ceramic tile manufacturing facility and distribution center in Dickson, Tenn. In addition, U.S. tile producers have been investing in capabilities. Florida Tile, for example, continues to put money into upgrading technology and manufacturing equipment, and increasing its capacity in its Lawrenceburg, Tenn. facility. Supplier investments in the category coupled with gains in the builder and commercial markets are fueling growth this first half of 2015 and indicate continued growth for the remainder of the year. In the first half of 2015, ceramic tile dollar sales are estimated to have increased by 6.5 percent in dollars and 7.4 percent in square feet. Stone flooring too has made gains thus far this year — 5.1 percent in dollars and 3.8 percent in square feet, according to Catalina. Overall floor covering purchases in the builder sector are estimated to have increased by 5. 5 percent in the first half of 2015. This growth bodes well for hard surface. Dollar sales of hard surface flooring in the first half of 2015, in fact, are estimated to have increased by 6.2 percent and 4.6 percent in square foot sales. These gains, reported Catalina, were led by rising sales of ceramic tile, resilient flooring and wood flooring.
— Amy Joyce Rush
2014 key points BEFORE
AFTER
Badly damaged ordinary gypsum in a multi-family housing situation
Floor primed with KH Fix and Schönox APF poured directly over broken gypsum
Tile & Stone ▶ U.S. ceramic
tile sales in dollars are estimated to have increased by 6.6 percent to $2.7 billion and square foot sales could have increased by 3.8 percent to 2.5 billion. Though tile sales continue to increase and grab market share, its fast-paced growth has slowed. ▶ Tile
is estimated to have accounted for 12.2 percent of total sales in dollars and 12.5 percent in square feet in 2014. This is up from 12.1 percent and 12.4 percent, respectively. ▶ Average
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HPS North America, Inc. is a TMT America Company
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square foot pricing for imports increased by 7 percent in 2014 to $4.20. This has caused foreign-sourced product to lose ground. Imports represented 69.6 percent of total square foot sales. This is down from 72.8 percent in 2013. ▶ Stone flooring dollar sales are estimated to have increased by 5.3 percent in 2014 to $1.2 billion and 3.1 percent to 295 million square feet.
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▶ Stone
flooring’s share of total floor coverings dollar sales is estimated to be 5.7 percent and 1.5 percent of total square foot sales. WWW.FCW1.COM
July 27, 2015