Area Rugs: An Untapped Goldmine? - July 2006

By Bill Banks

Most of the nation’s moderate and lower priced area rugs are sold by mass market chain stores like Kmart and Wal-Mart, specialty chains like Bed, Bath & Beyond and Linens N Things, and the big boxes—Home Depot and Lowe’s. As you can see in the Retail Survey, which starts on page 27, independent floorcovering retailers sell a surprisingly small amount of the nation’s area rugs—they account for just 3% of the total sales of this year’s survey respondents. And yet, area rugs are very profitable—some manufacturers say the profit margins can exceed 50%—easy to carry, and just as easy to sell, especially after you’ve just sold a new hardwood or ceramic tile floor.

So why aren’t independents stocking more rugs?

We don’t have any solid answers or even good guesses, but it’s obvious that most independents have yet to see the value in carrying them, even though manufacturers like Shaw Living, Mohawk Select, Oriental Weavers and Nourison have programs that make it very easy for them to carry those products (as you’ll see in the profiles below). We have noticed in the past year that some retail groups like CarpetsPlus Color Tile are telling their members about the profits in rugs, so things may be changing.

We’ve talked to a dozen key manufacturers and importers who have programs or special services for independents. Here’s a look at those players.

SHAW LIVING

The rug division of Shaw Industries sells only about 10% of its area rugs through independent retailers; the bulk of its estimated $190 million in sales comes from home centers (25%) and mass merchandisers (65%). Even so, the company believes it provides a growing percentage of the rugs sold through independent retailers, and Shaw Living wants to strengthen that channel even more. To this end, the company offers its best selling Kathy Ireland First Lady collection exclusively to independents. Shaw also has sales tools for independents, including its Big Book catalog showing all collections, a compact floor display that holds 40 rugs, comprehensive marketing help and training for sales staffs.

Shaw also offers retailers a program where customers can choose rugs from samples, and have the product shipped directly to their home from the manufacturer.

ORIENTAL WEAVERS

Oriental Weavers of America and Sphinx by Oriental Weavers now operate under unified management, operations and sales, a streamlining that put combined sales at $145 million in 2005. That included a 12% rise in sales to independent retailers.

The company sells products under both names, but Sphinx, which accounts for about 75% of total sales, is the group working primarily with independent retailers. Independent dealers sell nearly 65% of all Sphinx rugs. The Oriental Weavers division handles mass merchandisers and big box stores.

Sphinx imports 60% of its rugs: machine made wool and synthetics from Egypt, and handcrafted rugs from China and India. Imports are made from polypropylene, wool, leather, jute and bamboo; machine made polypropylene and nylon rugs are made in the U.S. The company does not offer dealers product exclusives, but it does support independents with advertising kits, point-of-sale kits and a website where dealers can place orders (www.owsphinx.com), check stock, track shipments and review new products and programs. One incentive program promises salespeople a bonus of $20 for selling specific rugs. Sphinx will ship an order that comes in from a dealer directly to the customer’s home.

MOHAWK

Mohawk, the world’s largest area rug manufacturer, has three separate rug divisions: Mohawk Select and Karastan supply independent flooring retailers, while Mohawk Home now supplies only mass merchandisers and big box stores. Mohawk Select, headed by David Moyer, specializes in mid priced rugs sold through independent retailers. Most of Mohawk Select’s 5x8 polypropylene rugs retail for between $199 and $299; some for as much as $799. Moyer has seen strong growth since his division was created three years ago, and believes that most independent retailers would very much like to carry area rugs, even if only to bundle a rug in with a hardwood flooring sale. Providing margins near 50%, area rugs can be a profit center; there are no inventory or transportation costs because Mohawk Select will deliver the rug to the customer’s door. Mindful of the value of retail floor space, Mohawk Select has a display with 40 rugs in 2’x4’ samples that takes up only 20 square feet, plus a catalog showing all the 150 available patterns. Display racks for rugs up to 8x11 are also available.

Karastan is the upscale corporate cousin to Mohawk Select. Karastan’s rugs retail in the $800 to $1,300 range; most of its woven wool and wool blend rugs are made in the US, but the company also imports from Belgium and India. Karastan sells primarily to furniture and department stores, but it also supplies more than 600 flooring specialty retailers, all of whom must meet Karastan’s particular business criteria. To support these retailers, Karastan offers advertising, floor displays, instore promotions and training for associates.

Mohawk Home, which now focuses on mass merchandisers and home centers, offers traditional and contemporary designs retailing around $300 for a 5’x 8’. Most rugs are made in Sugar Valley, Georgia, with woven and tufted construction, including shag rugs. Mohawk Home plans to increase its sales through catalogs and online retailers.

NOURISON

Nourison imports mostly wool rugs from China and India. They sell across all channels, but the firm takes care not to provide the same lines to both large and small competitors. Nourison sees independent retailers as the backbone of its business, providing help with marketing and advertising as well as sales incentives. For example, the company supplies brochures, newspaper inserts up to 14 pages long and even postcards designed to carry the retailer’s name. Nourison’s inhouse marketing staff helps retailers craft an overall marketing strategy. In all, Nourison has some 4,500 SKUs, including scatter, accent and bath rugs. An attractive website (nourison.com) shows a vast array of products, but also has sections to educate consumers—from the history of rug making to the latest decorating tips—and to direct consumers to retailers nearby.

MILLIKEN RUG

Milliken Rug saw steady sales last year through retailers, who constitute the company’s third biggest channel after home centers and mass merchandisers. Milliken prides itself on the diversity found among its 14,000 rug SKUs, which come in virtually all standard sizes and shapes, including rugs up to 11’x13’ made from broadloom carpet. All products are nylon, and there are three Stainmaster collections in 15 sizes. Licensed brands Claire Murray and Collegiate have been selling well for several years now. The popular 6’x9’ size in many styles retails for $129 to $299. The Milliken retail display shows 60 options on each arm to make the most of floor space. Consumers can also view all the products online at Milliken’s public website (http://xweb2.milliken.com/candr_public). Dealers can place and check orders online though a separate, password-guarded web page.

COURISTAN

Couristan imports all of its rugs—wools, wool and silk blends and nylon—from China, India, Spain, Belgium and the Netherlands. At least 40% of rug sales are through independent retailers, and retailers get help with advertising, direct mail and rebate programs. The Couristan web site (couristan.com) is an additional sales aid. The firm has power-loomed rugs with coordinated designs, colors, and runners; there are now 108 roll runner SKUs. Indoor/outdoor rugs are a fast growing segment so Couristan beefed up offerings in that category as well.

STANTON RUG

Stanton Rug, which sells primarily to independent retailers, imports almost all of its products; 10% of its rugs are custom made. Stanton imports finished rugs, but also makes rugs out of imported broadloom carpet. Rugs retail from about $150 for a 3’4”x5’4” to $899 for 8’10”x10’10”. Big rugs (up to 32’x20’) seem to be selling well lately, in part because a lot of new construction calls for super-sized rooms with hardwood floors. The company has 240 SKUs of stair runners, among the largest selection in the industry.

DALYN RUGS

Dalyn Rugs sells more than half its products through independent retailers, and saw a double digit sales increase in the past year. The company imports most of its machine woven and hand tufted products, primarily from Egypt and India. Custom rugs is a fast growing segment, especially indoor/outdoor rugs with borders. The company offers mid priced traditional and contemporary styles, including a plush nylon, and a natural fiber called seagrass. Although the company sells through all major channels, it has a policy of sheltering independent retailers by restricting products sold to online and brick-and-mortar giants. Dealers also have access to the company’s elegant website, which lets them view product lines and download “At-a-Glance” POP tags.

828 INTERNATIONAL

828 International sells about 75% of its products through independent retailers, and the company’s loyalty in that sector is considerable. Roughly 25% of sales are through off-price outlets and online sellers. All rugs are imported (Belgium, China, India and Turkey), mostly wool and heat set polypropylene in sizes up to 12’x18’. Retail prices for popular rugs range from $60 for a small accent to about $4,400 for a 10’x14’ traditional made in India with New Zealand wool. Sales last year topped $17 million on single digit growth.

MASLAND RUG

Masland Rug introduced hand knotted rugs this year. Nearly 85% of sales go to independent stores and the A&D segment. All domestic products are nylon; about 20% of products are wool imported from India, South Africa, Portugal, England and Belgium. Colors coordinate with broadloom carpet, and the company also makes custom rugs. A new trend is red accents, but gold and black remain mainstays of design.

MOMENI

Momeni is protective of independent specialty store owners and rug retailers, who account for about half of the company’s sales; other sales are split fairly evenly among department stores, Internet sellers and catalogs; only about 6% goes to big boxes and mass merchandise stores.

All Momeni rugs are imported; most are wool, including ten lines of machine made rugs. Retail prices for 5’x8’ rugs range from $199 to $1999; the biggest volume sells at $499. The company reports a trend away from traditional rugs toward transitional, contemporary and modern designs, though traditionals remain strong for indoor/outdoor rugs, which have, by the way, been selling well in the past two years.

Momeni protects independents from online sellers by offering many popular lines exclusively to brick and mortar stores. In fact, the company removed more than a dozen high end, hand knotted collections from Internet sites in response to concerns voiced by independents. In addition to promotional materials, Momeni has a one-of-a-kind program: Independents select a rug that they alone will have in their market. The firm still sells 36 collections online, but requires that websites do not advertise prices retailers can’t match. Last year saw double digit sales growth for Momeni.

CAPEL

Capel sells more than half of its rugs through catalogs, national chains and its own brand stores. After that, about a third of all rugs sell through casual furniture stores; 10% goes to flooring retailers.

The firm imports 65% of its rugs from scores of countries. It also makes large wool and cotton blend rugs in Troy, North Carolina, bringing the company’s total SKUs to 15,000. Machine made rugs retail for $199 to $299; handcrafted collections from $799 to $1,599. In the past few years, there’s been a surge in sales of outdoor rugs. Last year, they accounted for 7% of sales. The company built a facility in Dalton, Georgia primarily to meet the sudden demand for outdoor rugs, and maintains a same-day shipping promise for products in stock. Total sales were $70 million last year. Capel aids retailers with an exclusive B2B area at capelrugs.com.

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