Carpet Tile: Emerging Markets - February 2014

By Darius Helm and Jessica Chevalier

Having spent the last couple of decades devouring marketshare in the flooring business, carpet tile is now transitioning into the next stage of its existence. In most commercial sectors, carpet tile dominates broadloom, and consequently the shift in marketshare has stopped accelerating. These days, with the category no longer able to rely on the sheer momentum of client demand, strategies with more finesse are required to mop up share in sectors where carpet tile is already dominant, and also to target markets where carpet tile is more of a newcomer, like hospitality, mainstreet, multi-family and single-family residential.

In the most recent Floor Focus annual survey of the A&D community, for the first time ever carpet tile did not rank as the fastest growing category—that distinction now belongs to luxury vinyl (LVT), and will likely remain with LVT for many years to come. (For more on developments in the luxury vinyl business, see Resilient Report: Domestic LVT Production, starting on page 51.)

Another significant finding from the survey is that, out of every product category, the only one specified by 100% of surveyed designers was carpet tile. By contrast, 10% of designers said they don’t use broadloom, and the same percentage said that they don’t use LVT. In other words, carpet tile is the number one go-to product among design firms. LVT may be growing at a faster rate, but the carpet tile market is more than twice its size—$727 million in 2013, compared to about $1.5 billion for carpet tile, according to Market Insights LLC. And considering that about 60% of LVT goes to the residential sector, that leaves $300 million for commercial LVT sales, making it about a fifth the size of the commercial carpet tile market.

In 2013, the domestic carpet tile market was up 4% in volume—and marginally less in dollars—outpacing the overall commercial floorcovering market, which barely grew last year. Many manufacturers report that business didn’t really pick up until the third quarter, and the fourth quarter, which is traditionally slow, maintained the momentum.

POLYESTER TILES

In the last couple of years, a new category of flooring has simultaneously been created by two mills, Beaulieu and J+J Flooring. At NeoCon 2012, J+J Flooring came out with Kinetex, which has a polyester (PET) felt backing and a warp knitted polyester face. The firm started making Kinetex at a joint venture facility near Richmond, Virginia, but production is now being shifted to its Dalton facilities. The product has a very high tolerance for moisture and can handle up to 95% relative humidity, so it can be specified where traditional carpet tile and broadloom cannot perform. The product features at least 50% recycled content, most of that from PET drink bottles.

J+J was surprised that much of the demand for the product has been driven by its aesthetics. Interestingly, one of the hottest early markets for Kinetex has been in European corporate work places.

Bolyu, the contract division of Beaulieu, came out with Svelte, the first product from its new Level line, at NeoCon 2013. Level features the same polyester based backing as Boylu's commercial carpet tile, but it's married to a needlepunched felted polyester face. The product's post-consumer recycled content is certified at no less than 70%, also from drink bottles.

The Svelte line features solid color tiles, but the firm is coming out with new designs, which will be showcased at this year's NeoCon. So far, demand for Level products has come from corporate and retail, and even education.

Both firms emphasize that they don't consider their products to be carpet tile, since the faces don't feature traditional woven and tufted constructions. However, Kinetex and Level are priced comparable to carpet tile, and they're being specified in many of the same applications.

While these products have a good green profile when they roll out of the mills, the reclamation profile is, for now, fairly grim. Currently, the glut of polyester carpet being reclaimed by recyclers is threatening to bring down the whole carpet reclamation infrastructure, because there are not sufficient viable end-use markets for polyester that has been treated and dyed. While the industry scrambles for solutions, collectors all across the country are not only paying to dispose of all that PET, which is at least 30% of the carpet they reclaim, but are also trying to stay afloat with smaller volumes of profitable material.

The good news for Kinetex and Level is that, if these reclamation problems are resolved, their value as end-use materials will go up. And the products will require little processing, since they're almost entirely polyester, which will further lower their environmental footprints.

COMMERCIAL SECTOR UPDATE
The corporate sector, comprised of owner-occupied and leased office space, accounts for nearly half of all commercial carpet tile sales. Most manufacturers report that corporate was the most active sector last year, though business was still unsteady.

In general, projects with private funding led those funded with public money. However, some mills reported that jobs with state and local funding, as opposed to federally funded jobs, have been fairly active. For instance, higher education, which relies mostly on private funding and uses a lot of carpet tile, has been fairly stagnant over the last year, while K-12, largely publicly funded, has been picking up. Higher education was an early adopter of carpet tile, but more recently the K-12 market has been specifying tile, driven in part by its high performance as well as some features specific to carpet tile, like the ability to switch out damaged tiles.

There has also been activity in public space projects, like airports, museums and libraries, which are also funded by local and state governments.

The higher education market, which is in the middle of a long-term growth cycle, is likely to ramp up again soon. Much of it is driven by competition between colleges, as well as upgrades to facilities. The bulk of the funding at the university level is private, coming from endowments from wealthy alumni, and those at the top of the food chain continue to attain wealth at a far faster rate than the general population, so that sector should remain robust for the foreseeable future.

The sector with the best prospects for long-term growth remains healthcare, which includes acute care facilities, medical offices and clinics, and senior living. Growth is driven by new models for healthcare replacing obsolescent facilities, as well as baby boomers reaching retirement age. It will be another 20 years before the trailing edge of baby boomers reaches 70 years old. By then, the U.S. will have the highest proportion of seniors in its history.

Carpet tile is used in non-sterile areas in acute care settings, like doctors’ offices, public spaces and even corridors. The low pile height lends itself to rollability, so it’s suitable in places that see a lot of activity from wheelchairs, gurneys and heavy wheeled equipment. Again, the ability to swap out individual tiles is another selling point.

Carpet tile use is growing in the senior living sector. What’s interesting about today’s senior living environments is that they’re designed to avoid that institutional feel and instead focus on creating a feeling of home combined with a high service hotel atmosphere. However, hospitality and residential looks are generally broadloom, so carpet tile’s entry into the senior living sector has been more focused on the corporate and institutional elements of senior living, like back of house functions, administrative areas and corridors. Ultimately, carpet tile is a good fit for senior living for the same reasons that it works well in acute care—high performance, rollability, swapping of damaged tiles, etc.—as well as for the aesthetics it can bring to built environments, so in the long run that sector is likely to be a significant market for the category.

HOTEL BRANDS TAKE A CLOSER LOOK AT CARPET TILE

Historically, carpet tile has faced some resistance in the hospitality market. But the market is changing, and many hotel brands are starting to specify carpet tile, both for its performance attributes and its aesthetics.

The category recently became an accepted product in some of Hilton Worldwide's Focused Service Brands: Hilton Garden Inn, Hampton Inn & Suites, Homewood Suites and Home 2 Suites. Applications for the flooring differ by brand, but, among these, it is approved for use in guestrooms, corridors, public areas and back of house applications. Hilton's Focused Service Brands typically have smaller public space than Full Service brands and a more intimate, relaxed, residential atmosphere. In the company's full service brands—Hilton, Doubletree and Embassy Suites—carpet tile is approved for exhibit hall and fitness area use, as well as for executive lounge and food service areas, in some cases.

Each brand has different parameters for what type of carpet tile must be specified. For instance, Home 2 requires a minimum percentage of post-industrial recycled content or at least one that maintains a negative carbon footprint in its manufacturing. And with regard to aesthetics, Hilton Garden Inn requires patterns and colors inspired by nature, to align with the brand's principles. In addition, each brand has its own requirements relating to construction methods, weight, machine gauge, thickness, yarn type and backing materials.

Sarah Lipman, global corporate communications specialist at Hilton Worldwide, says, "While the price point of carpet tile may be higher initially, much less waste is generated, and the storage of attic stock for spot replacement down the road is easier. The ability for the hotel facilities engineer to swap out stained or damaged tiles himself certainly makes it more affordable over the long term for guestrooms because specialized labor is not required."

Lipman says that the challenges for the category with regard to specification in hospitality have to do with pile height and product weight. Hotel patrons are accustomed to a thick, plush feel underfoot, which carpet tile doesn't provide. In addition, the weight of the material makes it costly to ship.

However, her outlook for the category in Hilton brands is bright. "I see the use of carpet tile as a growing trend for our Focused Service brands, especially as the manufacturers focus more energy and R&D on advancing the design of this carpet niche." She cites the product's sustainable profile as its most compelling trait.

GROWTH SECTORS FOR TILE
Then there are the sectors where carpet tile still has plenty of room to grow—hospitality, mainstreet, multi-family and residential (single-family). All of these markets present barriers to carpet tile, largely due to the cost of the product. That’s the main barrier in the multi-family, mainstreet and hospitality sectors, though in hospitality the design capabilities for producing traditional hospitality looks in public space areas can also present a barrier.

In some of these sectors, like mainstreet and multi-family, carpet tile sales have been rapidly accelerating. Sales are also growing in hospitality, though broadloom still makes up the vast majority of specifications in that sector. In the residential sector, the market is in transition. Currently, there are maybe three mills with products dedicated to the residential market, and only one, Interface’s Flor, has made a comprehensive and sizeable commitment to the sector.

Carpet tile mills have been after hospitality business for years, but it’s been a hard road. The problem on the guest room side of the business is price points. Guest room broadloom is priced at the low end of the market, and traditionally hotels are looking for 32 ounce face weights, though they’ll go as low as 24 ounces these days. However, because of the high cost of carpet tile backing systems, any carpet tile that can come close to competing on price is going to have a lower face weights.

Nevertheless, the arguments for guest room carpet tile are compelling. First of all, guest room carpets are frequently damaged. That’s why they’re cheap in the first place. But it’s even cheaper to just replace the damaged tile. Some industry insiders claim that in reality there’s not a lot of carpet tile swapping going on—there can be issues relating to color matching, and some full spread adhesives make pulling up the tile a real nightmare—but today’s high performance solution-dyed yarns and tiles designed for random installation certainly provide the tools to address those problems. Also, it’s a more workable feature when the installation is done without full spread adhesive, using systems like Interface’s TacTiles and Shaw’s LokDots.

Another selling feature of guest room carpet tile is that there’s less waste from all the trimming. And, for rooms where there’s little or no gap between the bottom of the bed and the floor, carpet tile installations save even more material by not installing carpet under the bed. It’s also worth noting that hard surface flooring, like LVT and porcelain, are increasingly being used in parts of guest rooms, like the foyer, reducing the percentage of the footprint installed with carpet, and the smaller area reduces the significance of the price difference between broadloom and carpet tile.

Then there’s sustainability. Many carpet tiles offer sustainability profiles far beyond what most broadloom can attain. For hotel brands that market their environmental sensitivity, and for those seeking LEED certifications, carpet tiles can help them toward their goals.

In fact, while carpet tile has not had as much success penetrating the guest room side compared to the public space side, it has made some gains at higher end brands, where the price is not as much of an issue and the environmental story of the product adds value.

SELLING MAINSTREET CARPET TILE

Cindy Leone, commercial carpet product manager at Avalon Flooring, reports that interest in carpet tile is growing with her mainstreet customers. Leone believes that part of that growth is fueled by the customer's increased familiarity due to its use on home improvement shows and networks like HGTV. She also attributes the category's increasing success at Avalon to increased training of the sales associates.

Says Leone, "We are installing modular tile in offices where they have cubicles because it greatly reduces downtime for the customer. We are seeing it used more in restaurants because the customer no longer has to 'live with the stain'—just change out the tile. Also, with the fun styles and colors being offered by some mills, we are installing them in childcare facilities—especially with the new adhesive tabs that eliminate the need for full spread adhesives." Typically, mainstreet customers are installing the product wall-to-wall, reports Leone.

Leone sees carpet tile being sold for residential use as well. "Now that our sales associates are excited by all that modular tiles have to offer, and have a better understanding of the product, they are showing them to residential customers all the time." The product is being installed in basements, playrooms and home offices, and Leone adds that the adhesive tab installation systems make it an easy DIY project for homeowners.

Initially, reports Leone, the greatest hurdle with selling carpet tile to the mainstreet and residential market was price. However, now that Avalon's sales associates have a good understanding of how much overage can be reduced and how simple it is to change out a single damaged tile, they understand the real value of the product and communicate that to customers.

Leone believes that the future of the category is bright in the mainstreet and residential markets. "As long as the mills continue to come out with up-to-date styles and color palettes, at affordable prices, I don't see many challenges. The mills have come a long way in ensuring that everything doesn't look like it belongs in an office."

The rate of adoption of carpet tile has been faster in corridors and public space, and these days it’s not uncommon to see carpet tile as an alternate spec. Again, most of the traction is at the upper end. But for utilitarian applications, like back of house or fitness centers, it’s a viable option for more than just the high-end brands.

Public space carpet is typically characterized by large-scale designs. A lot of what’s out there is Axminster carpet, along with Tapistron and ColorPoint constructions, along with printed carpet. Carpet tile can’t match those visuals. Fortunately, tastes are changing, and the aesthetic that has emerged from modular tile seems well suited to the younger generations. Also, as the public space in hotels become increasingly multi-functional, the ease with which carpet tile installations can be customized has helped delineate zones in lobbies and other public areas.

The biggest barrier for carpet tile in the mainstreet sector has been price. Just a few years ago, mainstreet carpet was mostly olefin (polypropylene), but it has since transitioned to nylon. And in the last couple of years, the biggest shift has been from broadloom to carpet tile. This traction in the mainstreet market is the result of mills coming out with lower face weight products, which has helped bring the wholesale cost down from $18 to $22 per yard about five years ago to more like $12 to $15.

One of carpet tile’s key selling points, reduced downtime during installation and less moving of furniture and interior elements, has been a real advantage in the mainstreet market, where downtime means less time to do business and make money in an era where budgets are tighter than ever.

Broadloom will likely maintain a strong position in mainstreet, due to its price point advantage. Also, a lot of mainstreet carpet going into leased spaces must meet the building standard, which generally requires the use of broadloom. Until it becomes more common for carpet tile inclusion in building standards, broadloom will likely remain the go-to choice for a lot of mainstreet carpet business.

One of the most robust markets in the U.S. right now is multi-family, which has grown enormously in the last few years, as homeowners have lost their properties or found themselves unable to buy a home. The trend has been one of the main engines for growth in polyester carpet, and it turns out that carpet tile has also been doing well in the sector.

The flooring that goes into rental units is generally entry level until you start getting into high-end apartments. That’s why polyester has done so well, and it can be difficult for carpet tile to compete there. However, the same arguments carpet tile producers make for guest room carpet also apply to multi-family units but, in multi-family, higher priced hard surface is taking share of the floor at an even faster rate, making the price difference between carpet tile and broadloom even less significant. And in higher end condos and apartments, where carpet costs are not as significant, the category is gaining faster traction.

The only issue with the multi-family market is that it’s poised to slow down. With the single-family market fitfully gaining steam, and with a lot of room to grow before it hits a healthy level, it’s not feasible for multi-family to continue at the same pace. However, in part because of all the overcrowding in living spaces over the last seven years, as the economy improves, the slowdown in multi-family housing may be buffered by people seeking out more elbowroom.

CARPET TILE TO THE CONSUMER
The other market where carpet tile is underrepresented is residential. In 2002 Milliken started targeting the residential market with Legato, followed by Tesserae. The one that survived, Legato, is used in both residential and mainstreet applications, and it features fairly straightforward visuals in residential earth tones. A year later, Interface started selling carpet tile to the residential market under the Flor brand. It started off doing business through catalogs and the Internet. In 2009, the firm opened its first brick and mortar store in Chicago. Since then it has opened 20 more in metro markets all across the country, and sales for 2013 were up over 30% to an estimated $41 million.

CUSTOMIZED RUGS FOR RESIDENTIAL USE

Tiffany Brooks, Chicago area interior designer and winner of HGTV Design Star season eight, frequently uses Flor carpet tile in her residential designs and did so on several of the challenges that won her the Design Star title. Most typically, she uses the product to create area rugs in living and children's areas, though she recalls one application in a dining area that was particularly successful. To make a visual impact in the small 4'x6' bump-out, she cut the carpet tile into 9"x9" squares and created an ombre patterned rug.

Brooks appreciates that carpet tile allows her to create semi-custom pieces affordably, as do her clients, who, she reports, are inquiring about carpet tile area rugs with greater frequency. Brooks always purchases a few extra tiles to serve as attic stock. However, she notes that the ability to pop out a tile for more effective cleaning or repair means greater longevity for the product. The only challenge she sees with the product pertains to moving: unlike traditional area rugs, carpet tile area rugs must be disassembled, rather than roled, for transport. And, in some cases, reassembling the design can be challenging for the client.

Several mills report that their mainstreet carpet tile is also being used in residential applications, generally for basements and other areas more concerned with function than design. Also, commercial carpet tile, which is ordinarily specified for contract applications, is going into upper end urban residences, like high rise condos, that are often decorated by interior designers.

It makes some sense to look at residential carpet tile demand as two streams. One is purchased for performance applications and the other is chosen for design. Both are growing categories. When it’s chosen for its functionality, it’s often installed by professionals and adhered to the floor. And for design applications, a market currently dominated by Flor, it goes down with a floating floor installation. These new installation systems, offered by most of the big mills, are opening the door for residential DIY projects, and they will undoubtedly play a big role in the growth of carpet tile to the homeowner.

While carpet tile for utility applications is likely to continue to gain traction in the residential market, the real opportunity lies in carpet tile as a decorative element. That’s what Flor focuses on, and it has had huge success in urban markets. And it’s worth noting that over 80% of the U.S. population is urbanized, either living in cities or the suburbs that surround them. So if a strategy that works in an urban market, that means it works, whether or not the product ever finds its way into, for instance, small towns or farming communities.

What’s so interesting about residential carpet tile is that it presents the homeowner with a unique design opportunity that never existed before. First of all, for those who are unenthusiastic about the residential broadloom market, with its slowly sinking share, it’s important to realize that carpet tile doesn’t really compete with broadloom. Nor does it compete with hard surface flooring. It’s essentially a customized area rug, in whatever pattern and shape the homeowner desires, a new canvas for experimentation and self-expression that simply did not exist before.

That’s the reason that Flor customers are so bold with their designs. Carpet tile is not a background element that’s better suited to soft patterns and subtle earth tones. It’s in the foreground, as accent pieces, runners, small rugs under coffee tables or as large space-defining area rugs. And the element that really frees the designer inside every homeowner is the fact that designs can be easily rearranged and updated.

While price points are a barrier in the other emerging markets for carpet tile, it’s a different story when sold to homeowners as a decorative element. It can’t compete with entry level broadloom, but it’s extremely competitive with area rug pricing. For instance, Flor has tiles starting at prices that translate to $125 for a 5’x8’. At the higher end, it’s closer to $500 for a 5’x8’. Those are very compelling price points.

It’s likely that in the near future, carpet tile displays will start to appear in retail stores. Some mills will probably approach the market by tweaking their mainstreet carpet tile offerings, while others will come out with lines designed for the homeowner. Either way, carpet tile manufacturers are going to be experimenting with this market, as they continue in their search for more share.

MILL ROUND-UP
Last month, Shaw Industries announced the grand opening of its carpet tile plant in Nantong, China, which offers Asian markets cradle-to-cradle certified EcoWorx carpet tile. The 210,000 square foot facility was built to LEED Gold standards, with the certification still pending review. The firm is also spending $85 million to build a large carpet tile facility in Adairsville, Georgia, to add up to 30% additional capacity to its current domestic carpet tile production, which comes out of Plant X in Cartersville, Georgia. With over 600,000 square feet of manufacturing and warehouse space, it’s expected to create about 500 new jobs. The firm has also converted one of its broadloom facilities to use 60% of its capacity for carpet tile.

Last year, corporate was the most active commercial segment for Shaw’s carpet tile business. Carpet tile also posted its highest growth ever in hospitality. Some of Shaw’s tile gets used residentially, and the firm is looking into tile designed specifically for the residential market.

Interface posted high single digit growth in 2013. In 2012, the firm’s Australian facility was destroyed in a fire. A new facility was built nearby, and it started producing carpet at the beginning of this year.

The firm’s Interface Hospitality division offers carpet tile for both the guest room and public space sides of the business. Most of its success has been in select service into upper service. The firm believes that its manufacturing presence in four continents will help it serve the global hospitality brands.

The firm’s Flor business was up about 35% last year. Flor offers everything from fashion forward tiles to sisal looks to high performance “hairy” tiles for basements and garages. In addition to its standard 20”x20” tiles, Flor offers rectangles, triangles and half or quarter tiles, and now the firm is also offering pre-designed area rugs made of its carpet tile.

Mohawk’s carpet tile business has been growing strongly, according to the firm, led by the corporate sector. The firm’s Durkan hospitality business, which is largely broadloom, has seen success in both guest rooms and public space with its carpet tile offering, which is generally specified as an alternate.

Carpet tile is also the fastest growing part of the firm’s Aladdin mainstreet division, with most of the activity at mid to lower price points. Mohawk offers both PVC and polyolefin backed tile, with EPDs in place for both.

Tandus, which was acquired by Tarkett in September 2012, goes to market with LVT producer Centiva, another Tarkett acquisition—both businesses go direct, while Tarkett’s Johnsonite goes through distribution. The joint operation is called Tandus-Centiva.

The firm is on a mission to build a multi-surface business, and this year should see a lot more coordination between its carpet and LVT offering. As the firm launches carpet products, it will show coordinated hard surface products and accessories.

Milliken, which was the first U.S. firm to produce carpet tile, is more focused on cushioned carpet tile than most of its competitors, and its TractionBack goes down on the floor without adhesive. The firm’s residential and mainstreet carpet tile line, called Legato, has been on the market for over a decade.

Bolyu, the commercial division of Beaulieu of America, makes both broadloom and tile. Its tile business was up 10% last year, and it currently makes up about 40% of the firm’s commercial carpet business. Last year, the firm came out with its Level line of felted polyester tiles.

The firm’s Hollytex mainstreet division came out with two carpet tile collections last year, and this year it’ll add another nine—some are made with solution-dyed nylon and some with polypropylene.

J+J Flooring, a commercial mill, makes both carpet tile and broadloom in about equal amounts, though carpet tile is growing faster and will probably account for over half the firm’s sales this year. The firm’s Kinetex polyester tile has been a surprise hit in the design community, and the firm is adding to its Kinetex line this year.

Mannington, which makes its carpet tiles in a joint venture with J+J, now generates the bulk of its commercial carpet sales through its carpet tile business. The firm also offers a vast range of residential and commercial hard surface products. Last year, Mannington’s carpet tile business was up by double digits.

The firm also does some mainstreet business through its distribution channel, and that includes a line of carpet tiles.

The big tile producer on the West Coast is Bentley Mills, whose CEO and president, Ralph Grogan, was formerly COO of Tandus. Until 2012, Bentley was part of Interface, but now it’s owned by Dominus Capital. The firm does about $100 million in annual revenues, with approximately 43% of that coming from carpet tiles. Bentley’s hard-backed and cushioned carpet tiles come with environmental product declarations, and, since last November, cradle-to-cradle certifications.

Universal Textile Technologies (UTT) is also getting into the carpet tile business. The firm’s commercial tile program, which is PVC backed, is available to the carpet industry on a commission basis, and UTT is currently working with several mills. Also, the firm has developed a residential tile with an attached polyester cushion. The product was shown at Surfaces by Dalton Carpet Mart.

Another significant player is Masland Contract, which is part of the Dixie Group. About 30% of Masland Contract is carpet tile, which goes mostly to the corporate, retail, hospitality and senior living markets. Last year, Masland came out with a line of more affordably priced carpet tile, called Speak.

Canada’s Venture Carpets is traditionally a broadloom mill, but in 2009 the firm opened a carpet tile mill in Ontario, near where Interface used to produce tile, and it hired back the same people who had worked for Interface. The 20”x20” PVC backed tile is very similar to what Interface produces, and it’s sold in both the U.S. and Canada.

While the firm’s products go to both the commercial and residential market, its strength is multi-family, and that’s where its carpet tile offering has been taking off. In its mainstreet line, Venture includes products designed and colored for the residential market, and has also placed some displays with buying groups.

One carpet player that deserves special attention in the residential market is Stanton Carpet, a Long Island based firm that both produces and sources broadloom and serged and bound rugs, mostly targeting the higher end of the market. Last month, Stanton came out with a new program called Rug Revolution with the tagline: Think Outside the Square. Rug Revolution is 16” squares of solution-dyed micropolyester shag that attach to each other with a very straightforward Velcro system to create area rugs of any size and shape. It offers the homeowner essentially the same design opportunities as Flor.

The introductory collection, called Shaggy Lavish, is a dense and soft offering made up of 12 different colorways, mostly solid color. Stanton has introduced dealer displays that come with 12 squares in each of the 12 colors. The display also features a screen that plays a stylish, captivating ad Stanton produced that showcases the product. In terms of the price, it’s about $399 for the equivalent of a 5’x8’.

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