Domestic LVT Production: Resilient Report - Feb 2014

By Darius Helm

The last several months have seen some of the most significant developments in domestic production in the recent history of the flooring industry. In that time, four flooring producers have announced plans to either build domestic luxury vinyl (LVT) facilities or expand capacity, with a fifth player signaling its intent to follow suit in a few years. In all, over a quarter of a billion dollars of domestic investment have been committed to domestic LVT production.

Shaw, IVC and Armstrong are building LVT facilities, while Mannington, the market leader, is greatly expanding its existing manufacturing plant. And down the road, Mohawk anticipates building a U.S. LVT operation.

Luxury vinyl has been the hottest flooring product for several years. Unlike laminate, which flooded the market in the last decade, LVT is in high demand in both the residential and commercial markets. And, significantly, one of the categories it’s stealing the most share from is laminate flooring.

For now, the majority of the LVT sold in the U.S. comes from Asia, be it China, Taiwan, South Korea, Japan or Indonesia. The leading domestic producer is Mannington, via the facilities acquired in the Amtico merger, and another significant producer is Tarkett. And both Congoleum and Armstrong have U.S. facilities that make residential LVT.

Currently, there is not a single domestic LVT manufacturer that does not source some of its product from offshore producers. None of the click system products sold in the U.S. market are manufactured onshore. A lot of high-end product, like those finely engineered click systems, comes from Asian producers, along with some of the highest quality commercial products, but it’s also Asian products at the low end, on the shelves of home improvement centers and discount chains.

These recent investments in domestic LVT capacity buck a trend that has been a defining characteristic of the American industrial landscape in last few decades—the decline of U.S. manufacturing. It decimated the domestic furniture and textile industries. The flooring industry in general has fared better. In most flooring categories, domestic production holds an edge against imports. Domestic carpet consumption has always been almost entirely from U.S. production. But this virtually simultaneous investment in domestic capacity by most of the market leaders suggests that the time may be right for a reversal of the trend.

MARKET OVERVIEW
Domestic LVT consumption reached a value of $727 million (at mill sell) last year, according to Market Insights LLC, with at least 70% of that coming from imports, and a volume of 383 million square feet. That’s up 20% from $606 million in 2012. About 59% of that goes to the residential market and 41% to the commercial market.

By channel, retail flooring stores have the highest share, at an estimated 35%, followed closely by the home centers (28%)—with the big difference between those two channels being the price point. Currently, the momentum lies with the home centers. The commercial market accounts for another 27%, and the balance goes to the builder market.

In the residential market, LVT is taking share from both the resilient sheet and laminate sector in the upper price points. Last year, the average retail price for laminate was $1.05 per square foot, compared to $1.90 for LVT, so LVT can’t easily compete with entry-level laminate flooring. However, its performance attributes allow it to be installed in damp environments, like basements, where products like laminate and solid hardwood would not survive.

For years, home centers have sold peel-and-stick vinyl tiles for less than a dollar a foot. In the past, they were fairly unmemorable, with poorly executed designs and no real wearlayer other than a little polyurethane. More recently, the home centers have been upgrading their peel-and-stick products or replacing them with real LVT at twice the price point.

On the commercial side, the biggest market for LVT is retail, where it competes mostly against VCT. It’s more expensive than VCT, but its visuals alone add value, and its performance characteristics and low maintenance profile are also helping to drive demand. It’s also opening up new avenues of design, because its high definition visuals allow for the use of wood looks in areas where hardwood cannot perform.

That level of realism has helped LVT gain traction in everything from restaurants to hospitals. In fact, healthcare is the second biggest LVT market, including both acute care and senior living. Other big markets include mainstreet, where it’s making rapid gains; hospitality, for back of house applications more than guest-facing; multi-family; and education, including lots of demand in K-12. The largest commercial market, corporate, is fairly untapped. Currently, most corporate uses focus on utility applications.

DOMESTIC PRODUCTION
The LVT leader, both domestically and globally, is Mannington, which has manufacturing facilities in Madison, Georgia and in the United Kingdom. Last year, the firm started shifting production of a few of its commercial products, like Spacia, and the better service and lead times have been well received by its distributor partners, helping the line grow, according to the firm.

Last October, Mannington announced a major expansion of its Madison facility. This project, which will double the footprint, will also add about 220 jobs. The firm’s LVT programs include the Amtico Collection of 2.5mm products with a 40 mil wearlayer and 188 colors and visuals. That product is made in the U.S., along with Spacia, which is now under the Mannington brand—it used to be an Amtico product. Spacia has a 20 mil wearlayer.

Spacia First, a 2mm product with a 12 mil wearlayer, is a light commercial product currently sourced from Asia, which the firm ultimately wants to produce domestically. And Spacia Access, a thicker gauge loose lay product, is also sourced from Asia.

On the Mannington side, the hardwood visuals of the Nature’s Paths line, previously produced in Asia, are now made in Georgia. Nature’s Paths Select, with handscraped and embossed in register visuals, is currently being transitioned to onshore production. Significantly, Mannington has invested in a line to produce its click LVT, for which it owns the patent. It will be the first domestically produced click product. In the coming months, the firm will use it on commercial products and plans to add residential click products later in the year.

Mannington also produces commercial carpet, and over the years it has come out with programs coordinating carpet and resilient flooring like sheet vinyl. The firm intends to take that capability and apply it to products designed for other potential growth sectors, like corporate.

Last month, Shaw Industries announced that it was closing its area rug business and investing over $100 million to convert the rug mill, located at the old Salem Carpet facility in Ringgold, Georgia, into an LVT production facility. According to the firm, most of the 400 employees will have opportunities for other positions at Shaw, and the LVT facility will add another 200 jobs in the Ringgold area.

Shaw has been selling commercial LVT for three years under the Shaw Contract and Patcraft brands, and now the firm is rolling out a new mainstreet collection called Fifth and Main. The 130 SKU line comes with a range of installation methods, from full spread adhesive and perimeter gluing to loose lay and locking systems, with wearlayers from 12 mils to 20 mils. Shaw also sells to the multi-family and home builder market, and it has a line called Array that is sold through traditional flooring retailers.

Shaw does not plan on fulfilling all of its LVT demand with its Ringgold facility. The firm has had a team with boots on the ground in the Asian markets since its acquisition of Anderson Hardwood, and it has been very successful in forging manufacturing partnerships and creating visuals for the U.S. market.

By virtue of its substantial sheet vinyl programs, Armstrong is the largest domestic vinyl producer. While most of its commercial and residential LVT is sourced from Asia, the firm does produce its higher end groutable Alterna and Alterna Reserve residential LVT at its facility in Kankakee, Illinois. Armstrong also has an LVT operation in Germany that serves the European market.

Last summer, Armstrong announced that it was investing $41 million to build an LVT facility in an existing structure just down the road from its world headquarters in Lancaster, Pennsylvania. The firm anticipates starting production in the second quarter of 2015, and the capacity will be used for both residential and commercial LVT.

In addition to Alterna, Armstrong’s residential offering includes Natural Personalities and Natural Living, which are more affordable lines, and Luxe, which is priced a little higher. Installation systems include full spread adhesive, a contact adhesive system and the Lynx system, which uses an adhesive film to attach the planks to each other. On the commercial side, Armstrong’s flagship product is Natural Creations, a glue-down product.

The other player investing in U.S. LVT production is IVC US, which just three years ago opened its state-of-the-art glass-backed sheet vinyl facility in Dalton, Georgia, with a capacity of over 320 million square feet. Even back then, the firm was candid about the potential of building an LVT facility on the site, given that the footprint for the sheet vinyl facility was 550,000 square feet on a 24-acre site. In 2012, the firm started production at its newly completed LVT facility in Belgium, where IVC is headquartered. It had previously outsourced all of its LVT.

Last month, the firm finally announced its plans to build a 300,000 square foot LVT facility on the current site. The project, an $80 million investment, should be completed by the end of the year, with product coming off the line in early 2015. IVC’s Moduleo LVT, currently produced in Belgium, goes to both the residential and commercial markets.

Then there’s Mohawk Industries, the largest floorcovering manufacturer in the world, which happens to manufacture every major flooring category except vinyl. Last November, the firm announced the construction of an LVT production line in Belgium, using square footage in a section of its extensive Unilin laminate facility that recently became available with the removal of old laminate technology.

The plant is scheduled to start up at the end of the year, and product should start shipping in the first half of 2015. The LVT Mohawk ships to the U.S. will go to both the residential and commercial markets. Once that program is in full swing, the firm will gauge demand and decide on its approach to domestic production.

Mohawk is the national distributor for Congoleum, and it will continue in that role. In the last couple of years, Mohawk has introduced three LVT products under the Mohawk residential brand, and it has also been coming out with commercial vinyl under the Mohawk Group brand, sourcing from a variety of manufacturers. The firm is in the process of ramping up its commercial offering.

One of the most prominent resilient producers is Tarkett, which already has U.S. LVT capacity through its Alabama facility for the Tarkett brand (formerly Nafco), as well as through its Centiva facility, which is also in Alabama. In 2012, the firm invested in its Nafco facility, upgrading the operation so it could produce thicker wearlayers and thereby start producing commercial LVT in addition to its residential production.

Until recently, Tarkett didn’t have much in the way of commercial LVT, not including its Centiva division. But in the last year the firm has come out with three commercial LVT lines, including one produced at its European facility (in Luxembourg) with a 28 mil wearlayer, called ID Inspiration, and two produced at the Alabama Tarkett facility: ID Freedom, with a 20 mil wearlayer, and ID Patriot, a smaller program more focused on the mainstreet market.

Tarkett’s Luxembourg facility also serves western Europe, while its Russian facility makes product for eastern Europe.

Centiva, acquired by Tarkett in 2010, was recently married to the firm’s latest acquisition, commercial carpet producer Tandus, and the two now go to market as Tandus-Centiva, since both have direct business models, while Tarkett Commercial goes through distribution. Tandus-Centiva is headed up by Glen Hussmann, formerly CEO of Tandus.

The new business unit, which has consolidated sales, marketing, customer service and product development, is on a mission to build a multi-service business. Tandus-Centiva has started coming out with LVT and carpet lines designed to coordinate, and it plans to offer coordinated hard surface products and accessories with its upcoming soft surface launches. Two of Centiva’s lines, Victory and Contour, are made in Alabama. A third line, Event, is made in Japan.

Another domestic LVT producer is Congoleum. Its Duraceramic line, introduced in 2003, is a high limestone content vinyl tile that has gained a lot of fans in the residential market. A sister product, Ovations, is also produced in the U.S. Congoleum also offers three additional residential LVT programs, which are sourced offshore, as well as a commercial product called Structure that is made in China. Its U.S. facilities are in Mercerville, New Jersey.

IMPORTING LVT
There are several prominent firms that have manufacturing relationships for their LVT production, most of which are focused on the commercial market. One of the largest is Metroflor, which has been supplying the U.S. market since the 1960s. The firm has multiple long-standing relationships with Asian producers, including two Chinese facilities that work exclusively for Metroflor and make the bulk of its LVT, a factory in Taiwan that makes most of its dryback tile, and a couple more facilities in South Korea and China that it uses as an OEM supplier.

The fastest growing sector for Metroflor has been multi-family, which now accounts for over one third of the firm’s revenues. Another 35% to 40% goes to traditional flooring retailers, and the balance is contract work. Metroflor’s sister company sells product to Home Depot under the Allure TrafficMaster line. At last month’s Domotex show, Metroflor soft launched its Aspecta direct glue upper-end commercial LVT, creating buzz with large cubes installed on end outside the show and alongside just about every show entryway featuring little more than the name of the product and producer, along with the tagline: A new dimension in flooring.

Another major supplier is Earthwerks, which goes to both sides of the market but is more prominent residentially. Earthwerks not only services the distribution clients from Swiff-Train, which owns the brand, but it has also built a substantial international business which it promotes at Domotex Hannover every year.

CBC Flooring brings a range of prominent brands to the U.S. market from producers in Asia, including Toli, Halo and Takiron.

Bolyu, the commercial carpet division of Beaulieu of America, has been offering rubber an LVT program through LSI, a Canadian supplier of luxury vinyl, but now the firm is moving away from its LSI offering, though some inventory remains, and instead is creating partnerships directly with manufacturers.

Sister companies Flexco and Roppe, which have their own facilities and product lines offering and vinyl flooring, both have offshored LVT programs. Flexco’s facilities are in Alabama, while Roppe manufactures in Ohio. Massachusetts based Parterre, a commercial LVT specialist, is a well-established firm with 23 years in the business. Another major commercial player is Karndean.

Gerflor, a French vinyl producer, has been in the U.S. market for several years. Focused on the commercial market, Gerflor offers a range of vinyl products, including the Creation line, recently relaunched, with a 27 mil wearlayer. The firm is also adding to its Saga2 line, which is an LVT face fused to a backing of recycled PVC and cork. Gerflor’s products are made in France.

Newer to the market is FreeFit, which makes a floating LVT in Asia. And even USF Contract is getting in the game. Last year the firm came out with a hybrid LVT that features a core, called Coretec, made of bamboo and limestone, and a cork backing.

2015 AND BEYOND
Even before this new domestic capacity comes online in 2015, there will be big changes in capacity, with the Asian market in the midst of a massive expansion that will add, by some accounts, a billion square feet of new LVT capacity. When new capacities come online, it animates the industry, as suppliers and manufacturers create new partnerships. So this next year or two will bring a lot of change to the market, even though it will take longer before it’s clear what kind of LVT industry this domestic manufacturing has produced.

While some industry players are concerned that these new capacities will exceed demand, leading to price erosion, the majority are optimistic and confident that the category will continue to gain ground and take share, much like carpet tile has done over the last decade.

Part of the reason that the LVT firms are confident about their investments is because of how conditions have changed in the last few years. For one thing, many Asian manufacturers don’t have as much of an edge in price as they used to, and part of that is because labor in countries like China is starting to cost more, as is freight. Also, automation in state-of-the-art facilities is a buffer against the higher wages of U.S. workers.

Domestic production is also a good strategy for those in the commercial market, where transparency and local manufacturing are in demand in the construction of green buildings. On top of that, there’s the sense that clients and end users are developing a greater appreciation of the level of service and logistics, not to mention customization, that domestic manufacturers can provide.

A side benefit of moving production onshore is that firms don’t have to tie up their money in inventory and warehousing, freeing them up to use it in revenue-generating instruments.

Then there’s also the question of where all that offshore capacity will go, and the answer, ideally, is that the growth in global demand for LVT, including from the U.S., will draw from those sources. It’s likely that many of the U.S. LVT manufacturers will continue to source some of their flooring from overseas producers, particularly those that are more labor intensive, like handscraped textures or in-register embossing.

LVT with click systems are among the more labor-intensive constructions, and that’s probably why there’s no domestic production of click products. Mannington will be the first to produce click products in the U.S., but it’s not yet clear if the other manufacturers have similar plans. The hope is that all the manufacturers try to push the envelope, creating an innovative and competitive industry that drives the market upward.

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