Rug Market Update - December 2011
By Jessica Chevalier
Many of the area rug manufacturers we interviewed reported good things in the works: busy, lucrative markets; optimistic retailers; the reestablishment of permanent showrooms at High Point; increasing business online. Progress is being made and, just as importantly, the mood is changing; as Karastan’s Steve Roan says, “I’m focused on thinking about how to drive business rather than talking about how things are in comparison to how they were.” Indeed, the rug community seems to be ready to accept reality and move forward, and that promises to bring energy in the category.
Of course, challenges persist. As of yet, price points are low, even though raw material and labor costs are high. This is for two reasons. First, retailers are stocking lower priced goods in an effort to attract customers who want to refresh their home’s look on a budget. In addition, labor problems in China and India mean fewer handmade, expensive rugs are coming out of those markets, which has shifted the overall price point downward. In fact, according to Jonathan Witt of Oriental Weavers, the hand-making of rugs is becoming a lost art, “Chinese factories that once produced hand-made products are now purchasing machinery and making machine-made rugs with hand-tufted accents.”
In the area rug market, it’s common knowledge that channels are shifting, and the most significant shift is toward Internet sales. Though Internet buying does have limitations—since buyers may not get a true feel for the colors or texture—today’s customers seem to be more willing to take a risk for the sake of convenience. They are used to buying clothes and books online, after all; home furnishings are a natural next step. According to Marlys Giordano at Momeni, “At the lower price points, customers may be willing to take this risk. At the higher end, customers may first seek out the rug or rugs within the same collection within a brick-and-mortar store to get a true feel of the colors and design.”
The catalog channel is another surging avenue. Giordano, who was in the catalog business previous to joining Momeni, points out that, “in the catalog business, we would send the same catalog multiple times. Often, we didn’t make a sale until the third or fourth mailing, even though the third catalog contained the same items as the first. Customers want to see an item multiple times, they want to like it, then they want to fall in love with it.” With catalogs, customers can rip out a page that pictures a rug they like, post it on the fridge, and really get comfortable with the design before they take the plunge. Customers appreciate this type of pressure-freeing shopping.
With regard to the traditional channels, nearly all manufacturers we spoke with have expanded their scope, and many report that they serve every channel with a combination of branded and private labeled rugs. The department store sector, once an important channel for higher end goods, has contracted due to consolidation—the bulk of department stores are affiliated with Macy’s or Bloomingdale’s now—so there are simply fewer retailers to sell to in that market.
Mass merchants and home centers are holding their own, since buyers like the convenience of buying a can of paint and a rug at the same time. But the price point drop in this channel is more defined since most of the shoppers in this channel are looking for a bargain.
The full-line specialty retailers were once considered the growth sector for rugs but many of these dealers have reduced the size of their rug departments due to the inventory costs and the lack of turns, so the recession has negatively impacted this once-viable channel. A successful rug department requires a healthy selection and an experienced fashion-oriented salesperson, which many flooring-centric retailers have cut back on as they’ve reduced their overhead to survive the downturn. This sector could rebound for rugs, but probably won’t until the housing market improves.
Furniture stores are a good fit for area rug sales, since employees at these locations are often more savvy about matching design and pattern. Of all brick and mortar sectors, this channel has shown the most growth in the past year.
Rug-only stores are holding their own for higher end goods, and the price points have shifted downward in these locations since the most expensive handmade goods are harder to come by. This presumably creates a need, allowing more U.S. manufacturers to get their foot in the door in these locations.
While many rug producers forfeited permanent showrooms at the High Point, North Carolina market for a few years, all but one of the manufacturers we consulted have now returned. “High Point was traditionally a furniture show,” Witt says, “so when the Las Vegas market opened, many manufacturers moved there, in part because Las Vegas is more accessible and a more desirable travel destination. When the economy stumbled, East Coast retailers didn’t want to travel the whole way to Las Vegas, so they started attending High Point again. There are now fewer customers in each of those locations, but it’s mandatory for manufacturers to be represented at both.” Since the furniture store channel is strong for rug sales and High Point is a furniture show, this may also play a part attracting area rug manufacturers to the show.
The New York show attracts larger retail chain buyers. Las Vegas pulls in West Coast retailers, and Atlanta is the country’s one true rug show. Several retailers report that the Atlanta show is the most important show of the year, since it allows buyers to focus solely on making rug selections.
The majority of the manufacturers with whom we spoke have permanent showrooms at all four of the major U.S. exhibitions—High Point, Las Vegas, Atlanta, and New York City—which amounts to a significant cost. Showrooms lease for between $18 and $50 per square foot; this price does not include construction costs, transportation of products, utilities or staffing. Alex Peykar of Nourison says, “The nature of various product lines that we carry somehow dictate the need for us to participate in most of these shows.”
“Rugs are not a necessity. You have to find ways to incentivize people to buy them with excellent quality, a stylish look or a great price point,” says Giordano. To that end, manufacturers have a host of different tools that they use to support their retailers; catalogs, point of purchase materials, hang tags and sales training are standard. But manufacturers are seeking new ways to support the retailer as well, especially since many stores don’t have the staff that they used to.
Momeni offers its dealers a number of resources for increasing their online marketing. The company creates templates for email blasts, newsletters and trend pieces, which it can customize with the dealer’s logo.
Last month, Oriental Weavers launched an iPad app for rug dealers that features an indepth catalog and allows dealers to mark rugs that are more attractive to today’s consumer, then email a PDF of those selections to their target customers.
Since customers often feel uncomfortable matching patterns, Karastan offers hang tags that indicate which other pieces the rug cross-coordinates with in the collection, while Capel feeds its retailers proprietary information, like a list of what rug styles sold well in their part of the country in the last quarter.
Peykar says, “Our renowned selling tool, which we refer to as our Rug Boutique, has been very instrumental in creating the best turnover per square foot in many of our customers’ stores. This display system takes a footprint of less than 20 square feet and represents 92 various choices, each available in multiple sizes.” This type of program—whereby the retailer is able to order the rug for the consumer to meet their specific size requirements—drastically reduces the costs associated with keeping inventory.
For those retailers wondering how the best retailers do what they do, our research indicates that it’s a combination of confidence and timeliness. Educate yourself about trends. Stay ahead of the curve. Utilize vignettes. Offer a broad assortment of styles, not just rugs that you like. Don’t just sit in your store and worry.
“The ones who are the most successful are the ones who are able to morph with the times,” Giordano says. “A lot of them stay tried and true to their model ten years ago. Customers want instant gratification. If you only have brick and mortar, and you aren’t willing to change, it can really do damage. The ones who embrace the changes do best.”
FIBER & STYLE
With regard to face fiber, the story hasn’t changed much. Price continues to fluctuate. The price of polypropylene spiked and settled, but nylon has remained elevated.
Because of the fast-rising price of wool, some manufacturers are now blending it or choosing a lesser quality wool. “A lot of the Indian and Chinese wools look really good when blended with polyester or nylon,” says Giordano. Oriental Weavers notes that it is seeing more handcrafted rugs in polyester due to the price of wool.
At Shaw, polypropylene is the best seller because of its affordable price point; woven nylon comes in second.
In terms of style, transitional and contemporary designs are increasing in demand. And palettes are getting more colorful, moving away from the drab tones. In the more affordable price points which are more common today—5’x8’s for $199 and $299—manufacturers believe that customers are willing to take more of a style risk, choosing something more daring with color and pattern, since they aren’t making a lifelong investment.
Nourison covers a broad range of price points, selling 5’x8’ rugs that retail for between $99 and $2,000 under the Nourison name. The company considers the $500 to $1,200 range its sweet spot. All the company’s rugs are imported; most are made in Nourison-owned facilities.
Furniture stores, full-line flooring retailers, specialty rug retailers and carpet stores are the target channels for Nourison. The company also private labels for home centers and wholesale clubs. The company has had its Calvin Klein Collection for the past seven years, and introduced the Joseph Abboud rug collection in October.
Though the company was formerly a frequent advertiser in consumer publications, it has cut its advertising due to the changes in the publications’ readerships. To replace this, the company is looking at increasing its web presence and adding a dealer locator section.
Nourison has permanent showrooms in New York, High Point, Atlanta and Las Vegas. It also has a showroom in Zurich, Switzerland. When 2011 closes, Nourison believes that it will see a modest gain for the year, and it anticipates that 2012 will be an up year for the rug industry.
Momeni also has permanent showrooms at all four major U.S. venues. Like many other rug manufacturers, Momeni gave up its permanent High Point showroom for a while and exhibited in a temporary space, using the space to gauge if the show warranted a permanent exhibit. The firm re-established a permanent showroom in spring of 2010. Still, the company reports that Atlanta is the most important show of the year for Momeni, since it’s a true rug market. The company believes customers like the opportunity to focus only on rugs.
Momeni reports that the recession and its aftermath have changed the rug business significantly. Whereas Momeni’s entry level price on a 5’x8’ was $499 previously, it is now $199. Prices range up to $3,999 in that size, with the sweet spot at $399 to $499. The majority of Momeni’s rugs are made overseas, in India, China and Turkey.
Momeni’s rugs are generally sold in department stores and in some smaller furniture stores as well. However, the company reports that a majority of its rugs are now sold online. Before the recession, roughly 25% to 30% of its rugs reached the end user via online sales. Now, 40% to 55% do. While this is due, in part, to the fact that some brick-and-mortar stores have shut their doors or trimmed their inventory, it is mostly because online shopping is the preferred way to shop for many consumers.
Oriental Weavers area rugs go to market under two names, Sphinx by Oriental Weavers and Oriental Weavers USA. Sphinx by Oriental Weavers sells its rugs through specialty flooring retailers, furniture stores, catalog houses and rug retailers. Sphinx is seeing its biggest growth in the Internet and catalog channels, for which it often private labels.
A 5’x8’ Sphinx rugs sells for $99 to $1,299, with the bulk of business between $299 and $399. Over the last few years, the company has made more introductions in the $149 to $199 price range to accommodate the consumer’s demand for lower price points, but retailers are now ready to bring price points back up, believing that if traffic is going to remain slow, they won’t be able to make up for it with volume.
On the Oriental Weavers USA side of the business, a 5’x8’ rug retails for $29 to $199. These rugs go to market through mass merchants and home centers.
Historically, 75% of Oriental Weaver’s rugs were imported. However, 40% are now made in Dalton, Georgia, as the company focuses on increasing its U.S. production.
Oriental Weavers has showrooms in Atlanta, Las Vegas, High Point and New York City. Its High Point showroom was originally established in 1995. It was open until 2008, when the company left for two years and moved back into temporary space. It reestablished its new permanent showroom this year.
It looks like business will be up moderately for Oriental Weavers in 2011. The retailers that the company works with report that business is still down but improving. The company notes that it had several upbeat meetings at the October High Point market with big retailers who reported that their business is trending upward.
Ninety-eight percent of Shaw Living rugs are manufactured at the company’s plants in Ringgold, Georgia. The company sells rugs that retail for between $159 and $1,899 (for a 5’x8’). The company notes a definite shift toward lower price points, with $399 now the best-selling price.
Shaw Living sells to all the channels but reports higher activity at the home centers and mass merchants, both because customers are seeking lower price points and because they are shopping at fewer stores.
Shaw Living does a bit more advertising to the consumer than the other rug manufacturers we interviewed. Through its national campaigns—HGTV Month, Spring is Green, Dream It Do It—the company promotes its area rug business. It also does print ads in shelter publications.
Shaw Living goes to market under eight brand names: Shaw Living, HGTV Home Flooring by Shaw, Kathy Ireland Home, Tommy Bahama Home, Angela Adams, Bob Timberlake, Jack Nicklaus and Phillip Crowe.
Mohawk split its carpet and rug businesses because traditional carpet retailers do not often specialize in rug sales anymore. These retailers were a traditional channel for the Karastan line, the most expensive of the company’s three rug lines. Department stores were also an important channel for Karastan, but the consolidation of these retailers has changed that channel as well. Now Karastan is most often sold through high-end furniture stores and specialty rug retailers, with price points between $699 and $1,299 for a 6’x9’.
Mohawk’s two other rug lines target different channels. The Mohawk Select line ($99 to $199 for a 5’x8’) has distribution through carpet and rug stores, specialty retailers and e-commerce, while Karastan Studio ($299 to $499 for a 5’x8’) is primarily sold through furniture stores and decorative accessory locations.
Almost all Karastan rugs are made in Eden, North Carolina and Calhoun, Georgia. The company is known for creating wool rugs, but it also works with nylon.
Karastan is trying to reach a younger audience by offering fun colors in transitional and contemporary designs. It runs consumer ads in House Beautiful and Luxe, as well as in some of Conde Nast’s shelter publications with suggestive (not hard sell) advertisements. The company is also focusing energies on e-ads and e-commerce business.
Karastan believes that 2011 will close up double digits from 2010, but it points out that 2010 was a low spot. The company is focused on figuring out how to drive business in the new marketplace.
Karastan has showrooms at all four major U.S. exhibitions.
Capel had a great High Point market in October, beating 2008’s sales numbers. Attendance doubled from under 400 buyer visits in 2010 to over 800 this year. By the end of the market, the company had signed up 300 new dealers. Part of the success, the company believes, was due to the fact that it launched its new program with Genevieve Gorder of Trading Spaces and Dear Genevieve. The collaboration is a collection of flat woven rugs with designs that retail for between $599 and $649 in a 5’x8’.
Capel makes 50% of its rugs in the United States—in Troy, North Carolina and Dalton, Georgia—and imports the other half from countries like India, China and Belgium.
Capel covers all the channels with prices that range from $125 to $4,000 (5’x8’) under two brands, Capel and U.S. Rug. The higher end price points are selling best right now; style-wise, braided rugs are the biggest sellers currently. The company’s sweet spot is between $299 and $399; this has eroded a bit from $349 to $449.
Capel has a big catalog business, while rug specialists are the least active channel for Capel. The company does a little private label business with mass merchants. Online business is the strongest channel for the company right now.
Capel has showrooms in High Point, Atlanta and Las Vegas, and agreements in Los Angeles and Minneapolis. The company just shut down its San Francisco showroom after 57 years. The company had a showroom in New York for four years, but doesn’t believe that the show reaches its target market, though Capel does send representatives of the brand.
Capel is hoping that 2011 revenues are even with 2010 at year’s end, but the indication is that the year might close slightly down.
Dixie offers rugs under the Masland, Fabrica and Dixie Home brands. For the most part, the rugs are high end (with price points ranging from $399 to $2,400 for a 5’x8’). The Dixie Home line is all bound broadloom. Both Masland and Fabrica sell custom made rugs as well—Masland has its Floorscapes and Infinity lines and Fabrica has Chez—but the brands also offer a few standing lines.
Masland’s Heirloom collection is a hand-knotted traditional line out of India. The Chobi style rugs are made to look antiqued. Masland has also partnered with Brink & Campman to offer transitional and contemporary looks—160 styles in all. Masland rugs sell through furniture stores and high end retailers.
Under Fabrica, there is the Chinese made Traditions line, much of which is used in nontraditional applications like yachts and airplanes. These rugs sell through high end retailers. These retailers are more reliant than ever before on vendor partners to provide sales solutions that don’t impact inventory levels.
Masland has a showroom in Las Vegas and is considering opening a second in High Point. The company notes a trend towards larger rugs. It is selling 8’x10’, 10’x14’ and 12’x14’ regularly.
At the close of 2011, Masland expects to see modest growth; it credits this with the fact that is has continued to bring more products to market during a difficult time.
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