Laminate Report - Aug/Sep 2011
By Jessica Chevalier
While most expected moderate growth in the laminate market (and in the flooring industry in general) in 2011, that growth has been stymied by an economy that just won’t rebound with any real fervor. Lack of consumer confidence, low discretionary income levels and the lack of new home construction all contribute to slow flooring sales. This is compounded by the fact that existing homes aren’t selling, so less is being spent to spruce up the flooring for resale, generally a strong niche for laminates since they provide the ability for a seller to create a fresh, polished look for a reasonable investment.
Numbers wise, the laminate market, which accounts for 6% of all U.S. flooring sales, was only down half a point last year, but nearly every manufacturer that we spoke with reports feeling significant price pressure, which means that the same amount of sales probably doesn’t amount to the same amount of profits. According to Mohawk’s Roger Farabee, “We have seen an unprecedented drop in average selling price over the last year.” And many the manufacturers that we spoke with are wondering when the bottom is going to hit in terms of price points.
THE CURRENT MARKET
It is no real surprise that a lot of the pricing pressure on the laminate category comes from the big boxes. To pull customers in the door, the mega retailers have started a price war, which puts pressure on the supply chain to cut their margins. Naturally, much of this pressure falls on manufacturers.
Big box business now accounts for over half (54%) of laminate category sales, so few manufacturers who have a position in the big boxes can afford to lose it by refusing to meet pricing demands. And, in fact, the manufacturers have little room to haggle, since there is always another manufacturer waiting in line to take their place on the big box shelf. In the last year, Tarkett has reduced prices on its laminate products by up to 45%.
Price pressure is most evident at the low price points—the door-buster $0.69 per square foot products that big boxes advertise to lure customers in—but moves up the chain as well. There is now no laminate flooring in Home Depot’s line-up that sells for over $3.50 per square foot. As of few years ago, it wasn’t uncommon for high end laminates to fetch $5.00 per square foot.
At the high end, laminates meet another challenge. The price of engineered hardwood (especially product imported from China) has dropped so significantly that it often costs around the same amount as high-end laminate. Though there are certainly good reasons for choosing laminate flooring over engineered hardwood, the act of educating the consumer on these advantages remains challenging—especially in the big box environment, where it is dependent on point-of-sale materials and the customer flagging down someone wearing an apron who usually knows very little about flooring.
Luxury vinyl is giving laminate a run for its money as well, regaining ground that the vinyl category lost to laminate when the laminate manufacturers began offering realistic wood visuals. Though it doesn’t have the scratch resistance of laminate, it performs better when exposed to water and continues to nibble away at the laminate market.
It comes down to the fact that there is over capacity in the market. Even with plants being shuttered and Wilsonart exiting the laminate flooring business completely, there is still more laminate flooring manufacturing capacity than the market demands. This, too, contributes to price erosion, as manufacturers become willing to accept a lower margin simply to move product from their warehouse.
A few manufacturers that we spoke with believe that price erosion may be bottoming out because manufacturers simply can’t go any lower, which might necessitate a ceasefire in the price war and focus consumers back on quality and performance.
Along with that, regardless of all the headaches, laminate flooring is actually in a good position with the big boxes, since it is exactly the type of product it likes to sell: anything in a box, on a skid. The big boxes have trouble with rolls and sheet goods because they don’t fit in with their business model and need to be professionally installed, but laminate flooring, with its stack-ability and appeal to the DIY buyer, is a big box dream.
Laminate flooring is an important part of the product mix for large retailers like Lumber Liquidators and Floor and Décor as well. In its 2010 annual report, Lumber Liquidators reported that laminate flooring accounted for 21% of its annual sales. Once again, because laminate flooring is easy to buy (boxed) and easy to install (with few tools needed), it is a good fit for this type of retailer.
There is a place for laminate flooring in the specialty retail store as well. And specialty retailers have a trump card in the competition for laminate sales: a specialized staff. When DIY customers plunk down several hundred dollars and attempt to install a floor themselves, there is nothing more valuable then having a willing and informed support system behind them, ready to answer questions and offer tips—specialty retailers can provide that small business type service.
The market for realism in laminate flooring continues to grow. As the price for engineered hardwood drops and LVT gains in popularity, laminate manufacturers must strive to make ever more realistic faces and bevels, and sell the product’s value proposition, to compete. And the laminate market is stepping up to the challenge, experimenting with surface properties, bevels, overlays and treating methods in search of the next best product.
The piano finishes in high demand over the last few years have given way to high clarity finishes—a more livable, muted shine that still possesses a bit of sparkle.
|WILL VÄLINGE'S POWDER TECHNOLOGY MAKE AN IMPACT?
|When Välinge introduced its enhanced powder technology this year, many were of the opinion that the process was a game changer, resulting in a product with greater realism and amazing wearability. The process replaces the paper wearlayers with a wood dust amalgam, and the finished wear surface is reported to perform better than glazed porcelain in Taber tests. However, in the months after the launch, the buzz seemed to quiet some. And, as of yet, none of the U.S. manufacturers have invested in Välinge's innovation.
But it may not be so much a lack of interest as poor timing that is stymieing Välinge's innovation. Several of the manufacturers that we spoke with said that they believe that powder technology will, at some point, play a significant role in changing the laminate category. However, few are willing to invest capital in a new manufacturing technology, when there is already an over abundance of capacity in the market. Though the cost for a complete system, including digital inkjet technology, is under a million dollars, and some producers will be able to switch to powder technology for less than $100,000, many manufacturers still perceive it as a costly endeavor, and that perception is likely to limit adoption of the technology until the market becomes more fluid.
Rustics have been toned down as well. Customers are seeking more refined visuals than there were a year ago—natural looks with subtle distressing. Beveled edge products are selling particularly well in the current market; these are no longer exclusive to high end products but available in mid-range price points as well.
Following the trends in hardwood, board widths are getting wider, with 5” boards now commonly available, and reclaimed looks are popular choices.
Of course, one of laminate’s greatest strengths is its ability to mimic exotic woods without putting any pressure on a species or ecosystem, so there will always be a niche market for these looks in laminates.
In mid July, Pergo’s parent company Pfleiderer, which has been enmeshed in financial problems, announced that shareholders approved a debt restructuring and subsequent capital increase of up to $144 million; this move allows the company to proceed with its reorganization of operations. In addition to the financial difficulties that Pfleiderer has had over the last years, Pergo, the brand that is synonymous with laminate flooring, has suffered because of its channel strategy, aligning itself with the big boxes and, therefore, losing status with independent retailers.
Over the course of the last year, Pergo has introduced several new technologies and products. Its patented Perfect Fold glueless technology was introduced on the company’s higher end products last year. The company will continue to roll it into new products as it refreshes its lines. In addition, the company launched Titan X, an advanced surface technology that provides superior scratch protection and enhanced clarity.
On the product side, Pergo launched Pergo Max products at Lowe’s. Pergo Max has enhanced wear and appearance retention properties. All the Pergo Max products are wood visuals.
Pergo makes a wide variety of products, at all price points, but only puts the Pergo brand name on its better goods. The company sells to specialty retailers and has significant business with the big boxes as well. The company believes that, though laminate products fit well into the big box model, there are good opportunities for specialty retail to add value and sell differentiated products.
Mohawk hopes to rise above the downward spiral of reduced margins in the laminate category by changing the game with a hybrid product. The company will begin selling its Décor Wood by Quick-Step late this month or in early September. The product is a hybrid of engineered wood and laminate; it has no overlay, décor paper or backer. The company believes Décor Wood improves upon both categories, addressing complaints associated with each. Mohawk has also expanded its GenuEdge platform with new decors, including oil finished and rustic looks.
Mohawk has three laminate brands—Quick-Step, Mohawk and Columbia—and also private labels laminate flooring. The company sells through all channels and currently sees the most volume in the home center channel. Mohawk’s laminate flooring retails for $1.29 to $4.99 per square foot.
Kronotex recently completed its factory expansion in Barnwell, South Carolina (adding 225,000 square feet) and has both a new flooring line and a new laminator up and running. The company has done preliminary hiring for the new positions that the expansion will necessitate and will hire for the remaining positions incrementally. In total, the expansion is expected to create 45 new jobs.
At Surfaces, Kronotex showed preliminary versions of six new products under its Kronotex brand and six new products under its Formica brand. In total, the company has 25 to 30 new products running on the new line, including new handscraped looks that it couldn’t produce previously. The company’s new line will run 60% faster than its older lines.
Neither Kronotex nor Formica sell branded products to big boxes or large independent retailers, but they do private label for these organizations. It is this private label business that has shown the most activity as of late. Branded product is channeled through distribution to specialty retailers. Kronotex products retail for between $0.79 and $3.00 per square foot.
The Kronotex and Formica brands have had different underlayments in the past, but now both arms are transitioning to a 100% recycled product.
Shaw’s decision to reposition its inventory closer to its customers through redistribution centers has been beneficial for the company. Previously, the company shipped everything out of Dalton. With its new redistribution centers, Shaw is able to provide more localized service and get products to the market faster. Shaw sells its laminate products to specialty retailers and home centers—both of which seem to be gaining momentum right now, in the company’s opinion.
Shaw is having continued success with its Timberline collection of hickory looks, as well as with its Plaza (12mm, 5”) and Ritz (8mm, 3”) that feature the high gloss OptiGuard finish. All of these products were introduced in January. The company works with Anderson to create realistic hardwood visuals. The company has also had success with its beveled edge products and has seen growth with its 12mm lines.
Shaw’s products sell for between $1.00 and $3.99 per square foot. But the company notes that the value a customer gets at those price points has changed. At lower price points, products have gotten thicker, and features like handscraping have steadily moved down the chain to mid-priced products.
Clarion came onto the laminate scene in 2009 with two clients, one being Tarkett from whom it purchased its factory. In only two years, it has become a significant player in the market. The company reports that it has continued to grow and expand its overall capabilities, becoming a credible source of supply for the industry. And that is exactly how the company sees its role—as a supply company. It does not sell any products under the Clarion name, and it does not try to compete as a design house.
Tarkett is in the process of updating the locking systems on its 2011 collections. The company’s Solutions and Cross Country products (8” width) now install with an angle-tap locking system, and its Trends, Journeys and New Frontiers products (4” to 5” widths) use the angle-drop method. These new systems make for an easier installation that is completed plank by plank rather than row by row—in other words, a one man job, which is important for the DIYer. This is significant because Tarkett’s research shows that 60% of its volume through independent retailers is DIY.
In addition, Tarkett has reduced the cost of its entire product range up to 45%. The company’s Solutions line, its opening price point, sells for as low as $1.60 a square foot. The balance of the company’s line sells for between $1.99 and $2.99 a square foot at retail.
Tarkett services independent and aligned dealers as well as home centers. Tarkett believes that independent dealers that address the needs of the DIY customer will continue to grow their business. The company seeks to maintain a balance between its home center and independent retailer business.
Mannington’s Restoration collection, introduced at Surfaces, has proven to be the company’s biggest laminate success in over five years. Restoration comes in two visuals—Black Forest Oak and Historic Oak—and is 12 mm thick.
Both of the Restoration looks were created using technologies new to Mannington. The Black Forest Oak visual is made using Heliochrome, a new embossing technique that creates differential gloss levels and a higher level of realism. And production of Historic Oak utilizes a variable bevel technology—the bevel cutters fade in and out, creating a look akin to an old floor.
Mannington laminates sell through independent distribution to specialty retail channels. The company’s next wave of introductions is slated for January.
Armstrong launched its Coastal Living line of whitewashed looks a little under a year ago and has seen the line achieve success beyond what the company projected. Initially, the company believed that the product would be popular in coastal communities primarily, but the line’s appeal has spread beyond that. The company also launched a line of new stone looks, Weathered Way, which has seen success, and now has a broad range of tile and stone visuals. New products are in the hopper for early 2012.
Armstrong also has a significant commercial market laminate offering and is having success in that arena. The company believes it was able to pick up business with Wilsonart’s departure and sees more opportunity moving forward.
Armstrong laminate products are represented in every channel and get to market through distribution. The company’s laminate product prices range from $1.00 per square foot for an entry level 7mm to $5.00 per square foot. The company does not private label products currently, but it would consider that approach, given the right situation.
Alloc will introduce a new high pressure line called Prestige in September. Prestige will feature a new aluminum drop lock, the G5S, on its short side. The G5S will simplify installation and eliminate the need to tap a board into place. The introduction of Prestige will include 12 SKUs and will be the first group of Alloc decors that come in narrow widths.
Both Alloc and sister-company Berry’s products sell through distribution to the specialty retail, contractor and builder markets. The company saw significant growth last year when Wilsonart—the only other high pressure laminate manufacturer that sold in the U.S.—exited the market. The company expects this growth to continue, especially in the commercial market.
Alloc has perceived a shift toward people choosing higher quality products over the past few years (most of the manufacturers that we spoke with did not report this trend). The company believes that this shift is due to the fact that, when the housing market was good, many homeowners would choose an inexpensive laminate floor to fix up their home before a sale. Now, with home sales stagnant, Alloc believes that homeowners are more discerning, choosing quality options that they can live with long term.
Alloc’s laminate products retail for between $1.29 and $4.99 per square foot.
Faus is hoping to fill some of the gap left by Wilsonart’s departure with its new AC4 rated line. The company has decided to launch its Cosmopolitan and Masterpieces decors in a commercially rated form. It believes there is a style and design hole, which its products will fill.
Building on what it started in 2010, Faus is continuing to grow its distributor network. It has signed four new partners in 2011, for a total of eight, and expects to add two more this August. The company sells product to independent retailers and home centers. It also private labels products for several other manufacturers and distributors. Faus laminate flooring sells for between $1.00 and $4.50 per square foot at retail.
The company is employing new Convex Surface technology, which creates designs that are the opposite of embossed in register. With convex technology the printed design is raised, while everything around it is pressed. The result is a more rustic, worn looking floor.
The company plans to launch 12 new decors at Surfaces 2012, including multi-width wood looks on one plank and multi-size stone visuals.
Robina Flooring, a part of the Robin Group out of Malaysia, goes to market via distribution, though it is considering a direct model for areas to which it does not currently have distribution, if it cannot find the right distribution partner. Robina sells to both the retail and commercial channels. On the retail side, the company’s embossed and handscraped products are its strongest sellers, and, on the commercial side, the company has recently seen success with its Heavyweight product, which sells at a mid-range price point. Heavyweight has been used primarily in retail and office installations.
Robina’s products sell for $1.29 to $3.99 per square foot at retail. The company hasn’t made any new product introductions this year, but it is finalizing some new products now.
During this spring and summer Home Legend launched a new price category, which retails at $0.89 to $1.29 per square foot. This launch comprises ten SKUs, including 8” wide products with two or three strip visuals as well as 5” wide handscraped looks. Decors include oak, maple and hickory looks.
Home Legend sells direct to specialty retailers. The company has 22 individuals on its sales force and ships all products out of distribution centers in Adairsville, Georgia and Fontana, California. In addition to its specialty retailer program, the company has a well-established big box business. Home Legend’s products retail for $0.99 to $3.79 per square foot.
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