Strategic Exchange - November 2010

By Kemp Harr

While it looks like the lackluster retail flooring sales conditions this fall could erase the gains made in the first two quarters—taking the market down a few percentage points by the end of the year—the long range indicators for growth in 2011 are looking very good. And it looks like we’ll see solid growth in all sectors, with the possible exception of new residential construction. The Dow is up over 11,000, the Harvard Joint Center for Housing is forecasting remodeling activity to be up double digits in 2011, and the American Institute of Architects Billing Index is up over 50, which bodes well for the commercial market. 

As consumers start to loosen their purse strings, the first money they’re spending is on non-deferrable necessities like cars. In September, U.S. auto sales rose 28.5% from the previous year. Money that is being spent on remodeling in 2010 is going toward energy related improvements like insulation and more efficient HVAC systems. Once consumers finish replacing the mandatory items on their list, they should start to spend more on deferrable needs like worn out flooring. Yes, there are still almost 15 million Americans unemployed but those numbers will improve with the seasonal hiring that takes place around the holidays. Beyond that, more permanent jobs should start to surface as the economy starts to warm up next year.

Growth in luxury vinyl tile
Many in the industry are wondering where the luxury vinyl tile market is headed. Overall, LVT is taking marketshare due to its realistic look and its price relative to other flooring options.

The downstream markets can be segmented into four categories. The commercial and high-end residential sectors can command up to $3.50 to $4 a foot at retail. But the multifamily/military housing category and the DIY sectors are more price sensitive. Many of the key suppliers are hesitant to develop products for the lower two sectors of the market because they fear product attributes won’t earn them a position in the price wars.

From a product design perspective, there are at least five options for how the product is designed to be installed, and it will be interesting to see which way the category moves. There is the traditional full spread adhesive that’s been around for years, the overlap “Metroflor” type design, the grout system, the click fit system and the loose lay option, which was first adopted in Europe but is gathering steam here in the U.S. The click fit system requires the product to be thicker to work properly so it will most likely never make it down into the lower priced sectors.

National Floorcovering Alliance
We couldn’t wait to catch up with the members of the National Floorcovering Alliance at their fall meeting last month because we wanted to find out what the conditions were like in each of their markets. Unlike many of the other buying groups, each of the NFA member companies has a unique retail identity, but collectively they share several common characteristics. They’re all motivated by success, they work long hours (but also know how to have a good time), most of them hold a leadership share advantage in the markets they serve, they all spend between 5% and 10% of their top line revenue on consumer advertising, and many of them are loyal Stainmaster customers in the carpet sector. 

This year, out of the 37 member companies, 14 are down, 12 are up and the rest are even in flooring sales. None of them has been immune to the effects of this recession but they were all quick to react by right sizing their organizations and adjusting their promotional mix and target customer base. And while many have interesting stories to tell, they’re all in strong financial condition. Those members that had a strong focus in the building sector have shifted that focus over to retail replacement.

All of the NFA members recognize the value of consumer advertising and of having a distinctive brand message. Most advertise on TV, radio, or in newspapers and some use outdoor advertising. Many of the members are on the leading edge of web-based marketing with strong Internet sites that give customers great shopping information but ultimately lure them into the store.

Another key advantage to attending NFA meetings is most of the mill executives on the supply side of the market are also there, so we’re able to gain insight from their perspective. We learned that order volume never really ramped up this fall as it normally does and that hard surface shipments in particular were softer than anticipated (they attribute this to the weakness in the upper price points, not lack of desire in the long run). We also heard that over 150 million pounds of additional polyester BCF carpet fiber capacity was coming online soon and it will be interesting to see how that affects carpet prices next year.

At this fall meeting in Puerto Rico, the group elected its next president for a two-year term. Jeff Macco of Macco’s Floor Covering Center in Green Bay, Wisconsin is stepping down and is being replaced by Jim Mudd of Sam Kinnaird’s Flooring in Louisville, Kentucky. Next year, the group will turn 20 years old. For highlights from the meeting, see our photos and interviews on Floordaily.net.

SmartStrand Zoo Challenge–Take Two
The marketing executives at Mohawk must have liked the results of their SmartStrand Zoo Challenge staged at the Birmingham Zoo last year because they’re at it again but this time they’ve cranked the challenge up a few notches. Last year, Mohawk tested the stain resistance of its SmartStrand carpet under a 2,800 pound black rhino for two weeks. This year, they’ve moved the event to the Dallas Zoo and expanded the size and numbers of the animals in the torture test. Not only does the challenge make a statement about stain and soil resistance, but this year with six 7,500 pound elephants, it also makes a statement about durability and resilience. 

In these recessionary times, companies often look for efficient and memorable promotions that will communicate their brand promise without costing a fortune. This elephant on carpet idea has just enough novelty to draw in the cable news channels and other consumer media without having to spend a fortune on consumer advertising. It also allows the trade to tie in with in-store signage and displays of the actual “zoo tested carpet.” The components of this year’s challenge are well aligned for a humdinger of a promotion. First, you have African elephants in a major zoo in a large U.S. city, along with an all-American HGTV spokesperson, nationwide in-store signage that reads “Life is Wild,” and social media components like Facebook and YouTube with connections to live webcams. Since the kick-off of this promotion in early October, 230 television and radio stations nationwide have picked it up as a news item, which translates into over 6 million consumer impressions. 

The residential design paradox
One of the biggest paradoxes in this industry is the dominant share that beige/neutral colored floorcovering has on the one hand and the amount of focus that’s put into design trends on the other. Take carpet, for example, which still commands over 50% of the flooring sold in the U.S. We’ve heard estimates that almost 80% of the residential carpet sold is some shade of beige. 

Why do consumers flock to beige? Beige makes the room brighter, and if you buy it with a fleck, it hides dirt, and almost everybody has heard that neutrals make a house sell faster when it’s time to move on. So consumers who want to play it safe go with beige and use other furnishings or textiles to give the house personality. 

What generational or post-recession trends are we seeing that might have an effect on floor color preference? If you’re going to have 15 different jobs in life, which some pundits are suggesting, it might pay to keep your floor neutral, since there’s a strong likelihood you aren’t going to be in one house for an extended period. However, if homes are no longer the fastest way to build financial equity, there could be less trading up and consumers might end up staying in their houses longer—so why not give a space personality and decorate with favorite colors or patterns? 

One skill set that helps separate the specialty flooring retailer from the home center (aside from quality installation) is design expertise. If the homeowner is just planning to play it safe with neutral flooring, price can quickly rise to the top as the only differentiator in their purchasing decision. However, if a specialty retailer—as an expert in their field—can help the consumer personalize their space with color, texture and products that offer personality in their home décor, then you will most likely get the sale and make the consumer happier in the end.

Last month, Shaw hosted a media event in New York City and invited three award winning interior designers to speak about residential interior décor. All three seek to give their clients a memorable and positive experience—an experience that extends beyond the aesthetic and also stimulates touch and other senses. Carpets and rugs, for example, can offer a soft touch and also dampen noise. Hardwood offers warmth and ceramic tile offers coolness (unless it’s installed over a radiant heating system). One of the speakers at Shaw’s Manhattan event (and who we also interviewed in our residential interiors story on page 46) was Linda Woodrum, who does project work for HGTV. She recognizes that people want their home to be distinctive, but that it also needs to be a calm, orderly, clutter free refuge from the outside world. When I visited Linda’s HGTV Green Home in Plymouth, Massachusetts this summer, I didn’t see any beige carpet. 

Truth be told, if you can ever get an interior designer to let their hair down, they’ll tell you that their primary passion is to push the envelope and specify more color, but they’re often held back by their client’s conservatism. As a retailer, you may not feel comfortable pushing the consumer into using color but you can show her a picture book of prior installations or vignettes in your own showroom that show what edgy color and texture can look like on a large scale. 

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.

Copyright 2010 Floor Focus 



Other Archived Articles

Wholesale Prices Slid in February   Full Article
Washington, DC, March 13, 2015—Wholesale prices fell 0.5% in February, says the U.S. Bureau of Labor Statistics. The unexpected drop represents the fourth consecutive down month, as measured by the Labor Department’s producer price index.

Interface's Claims New Microsfera Has Lowest Carbon Footprint Ever   Full Article
LaGrange, GA, March 13, 2015—Interface has unveiled its latest product, Microsfera, which the firm says has the smallest carbon footprint of any carpet tile in history.

Ecore Revamps Business Structure   Full Article
Lancaster, PA, March 13, 2015—Ecore is making changes to its business structure in conjunction with IHRSA 2015 by launching a new category of sports and fitness flooring called Ecore Athletic.

J+J Flooring Video Wins Gold in AVA Digital Awards   Full Article
Dalton, GA, March 13, 2015—J+J Flooring Group video was named gold winner in the corporate image category of the AVA Digital Awards.

Average Mortgage Rates Rising, Buoyed by Strong Jobs Report   Full Article
McLean, VA, March 13, 2015—Average fixed rate mortgage rates are moving higher amid a strong jobs report and bringing mortgage rates back to where they were at the start of 2015, according to the results of Freddie Mac’s Primary Mortgage Market Survey.

Trade Sales & Manufacturer Shipments Edge Down in January   Full Article
Washington, DC, March 12, 2015—The combined value of distributive trade sales and manufacturers’ shipments for January was estimated at $1,302.5 billion, down 2.0% from December 2014 and down 0.3% from January 2014, says the Commerce Department.

Retail Trade Sales Down from Previous Month But Up YOY   Full Article
Washington, DC, March 12, 2015—Retail trade sales were down 0.6% (±0.5%) from January 2015 but up 1.0% (±0.9%) over 2014, says the Commerce Department.

LL's Free Air Quality Testing Won't Meet CARB Standards   Full Article
New York, NY, March 12, 2015—Lumber Liquidators will offer free indoor air quality testing for its consumers--conducted to workplace standards,-- but OSHA's thresholds for formaldehyde in the workplace are not as stringent as CARB's for the home.

Parterre's Vertu Resilient Plank Wins ADEX Recognition   Full Article
Wilmington, MA, March 12, 2015—Parterre’s Vertu Resilient Plank won two ADEX awards.

Consumer Survey Reveals Optimism about Housing Market   Full Article
Washington, DC, March 12, 2015—Consumer optimism toward the economy is growing and appears to be contributing to further improvement in overall housing sentiment, according to results from Fannie Mae's February 2015 National Housing Survey.

Millennials Account for Largest Share of Home Buyers, Says NAR   Full Article
Washington, DC, March 12, 2015—The millennial generation represented the largest share of recent buyers, according to the 2015 National Association of Realtors Home Buyer and Seller Generational Trends study.

Three Tarkett Rubber Textures Win ADEX Platinum   Full Article
Chagrin Falls, OH, March 12, 2015—Tarkett received the Platinum Award for Design Excellence (ADEX) for its new range of rubber textures: Brushed, Concrete and Leather.

Fuse Alliance Focuses on Digital Marketing to Raise Awareness   Full Article
Laguna Niguel, CA, March 12, 2015—Fuse Alliance, a member-owned organization of professional, commercial flooring contractors, unveiled a next generation public facing website that clarifies the group's target audience and services offered.

U.S. Container Imports Down Over 5% in 2015   Full Article
Minneapolis, MN, March 12, 2015—Total U.S. container imports are down over 5% this year, compared to January and February of 2014, reports Zepol. Nearly the entire decline in imports is attributed to the West Coast ports of Los Angeles and Long Beach.

Armstrong Top Execs Offered Retention Award to Stay Through Spinoff   Full Article
Lancaster, PA, March 11, 2015—Armstrong World Industries is giving three of its top executives an incentive to stay at the company through the spinoff of its flooring business into a new, independent company next year, reports Lancaster Online.

Small Business Optimism Edges Upward   Full Article
New York, NY, March 11, 2015—U.S. small business optimism edged up in February amid signs of tightening labor market conditions, bolstering the view that a recent slowdown in economic activity will be temporary, reports Reuters.

LL Class Action Lawsuits Extend Beyond Formaldehyde Issue   Full Article
Toana, VA, March 11, 2015—Lumber Liquidators is currently facing at least 12 class action lawsuits.

Foreclosure Inventory Fell 33.2% Year Over Year   Full Article
Irvine, CA, March 11, 2015—CoreLogic's January 2015 National Foreclosure Report reveals U.S. foreclosure inventory declined 33.2% from January 2014, and completed foreclosures declined 22.5%, reports World Property Journal.

The Floor Store Earns Sixth Armstrong Elite Retailer Recognition   Full Article
Lancaster, PA, March 10, 2015—The Floor Store’s new San Francisco, California showroom has been named an Elite Retailer by Armstrong, the chain’s sixth location to earn the distinction.

Wholesale Inventories Up Slightly   Full Article
Washington, DC, March 10, 2015—Wholesale inventories were up 0.3% to $548.7 at the end of January, says the U.S. Census Bureau.