Laminate Report: Laminate suppliers report increased interest in the category – Aug/Sept 2023

By Jennifer Bardoner

In a market flooded with LVT, many retailers are looking for something different. And while LVT has been maturing in the marketplace-and with performance issues in low-end SPC starting to surface-laminate has been busy reinventing itself. Thanks to recent innovations in laminate coupled with current market conditions, retailers are returning to the category, with suppliers reporting renewed interest and additional shelf space.

ADVANCES IN LAMINATE
When rigid LVT entered the marketplace ten years ago, the laminate category was hobbled by its susceptibility to water damage, owing to its wood-based construction. However, enhancements through new topical treatments and core compositions have increased the product’s resistance to water. In addition, the category has upped its game with regard to aesthetics, as embossing and digital print capabilities have helped make laminate more difficult to visually discern from real wood. These advancements, coupled with the product’s high scratch resistance and value, are encouraging customers to take another look at the category.

“Many companies were in laminates early on and walked away as the resilient wave came on,” says Stephen Caldow, director of product innovation for Torlys. “We think that as distributors and retailers get reacquainted with beautiful, top-quality, waterproof-surface, high-performance laminates, the laminate surge will continue building momentum year by year. We have been able to gain back our share of laminate in the last 24 months and, in fact, have it as one of our top growth segments as the vinyl floors get value engineered and oversold.”

LVT’s unprecedented boom has led to a growing number of suppliers seeking a piece of the $7 billion category. While that has helped it grow at unprecedented rates, there is now an oversaturation in the marketplace, which has led to a race to the bottom.

“There’s very little barrier to entry to SPC,” says Inhaus CEO Derek Welbourn. “As much as the market has grown, the supply base has grown even more. And that is with both retailers and builders-these SPC markets grew with the category, and they probably overemphasized their offerings in SPC. And with that came an overselling of SPC. Everyone was like, ‘It’s waterproof, you don’t have to acclimatize it, you don’t need a vapor barrier, it installs itself, it will do your taxes.’ With all that pressure came price point. I think there were some value-engineered products that were a little too aggressive. Getting down to that 2.5mm is a little thin for a floating floor, and there have been some claims.”

Rigid LVT came on strong, taking a chunk of laminate’s marketshare thanks largely to its inherent waterproofness and competitive price point. With “waterproof” now an expected designation in the market, laminate suppliers have focused their efforts on enhanced joint treatments and new core constructions to help seal the product against water. Inhaus, for example, recently developed a new type of edge seal that Welbourn says offers 30% improved water performance over the company’s previous offerings.

“Over the years, we’ve seen an evolution in consumer demands, and waterproof properties have become a crucial factor for many customers,” says Thomas Baert, president of CFL, which helped pioneer water-resistant laminates a decade ago.

Republic Floor was one of the many suppliers at this year’s Surfaces that rolled out related laminate introductions, now a major focus for the company, which has historically touted its resilient offerings and innovations. “While we did offer water-resistant laminate options previously, the shift toward waterproof showcases a clear inclination toward enhanced performance and durability,” CEO Rotem Eylor says. “The waterproof core employs a specialized resin wrapping that enhances its water resistance, making it suitable for areas with higher moisture levels.

“In terms of sales, the demand for waterproof laminate has surpassed our expectations. Demand has been soaring, with customers from all walks of life recognizing the value it brings to their homes and businesses. As we look ahead, our product pipeline is brimming with even more innovative waterproof laminate solutions.”

As laminate suppliers seek to compete with inherently waterproof resilient products, a hybrid model is emerging to prevent laminate’s traditionally wood core from swelling when exposed to moisture. The Dixie Group recently launched Trucor Refined with a mineral composite core. Inhaus is rolling out Uberwood to the market later this year, featuring a resin-infused HDF core. And Swiss Krono is in the process of launching Corepel, which uses a proprietary polymer to protect its HDF core.

“It’s that classic thing: once you start doing something every single day, you get better at it,” Welbourn says of the category’s growing water-resistant options. “I remember looking at NALFA seam test codes. Water resistant meant 24 hours of exposure. Now we’re hitting that 168-hour level, and even then, it doesn’t go through, but that’s what we’ve been testing it toward. I never thought we would get through to that level.”

He expects that hybrid products like Uberwood will help laminate claim more marketshare, though he anticipates that such products’ growth will also occur at the expense of other offerings within the category as the bar gets raised.

“I was talking to a customer yesterday about, ‘What’s the next ‘it’? Is it this hybrid laminate?’” says Jamann Stepp, Dixie’s vice president of hard surface. “We’re already getting some pretty strong positive feedback. We’ve sold quite a bit of material, more than 70,000 square feet, in just the 60 days since we started shipping samples.”

SUPPLY CHAIN ADVANTAGES
LVT has been challenged due to its supply chain, which is largely concentrated in Asia. Though container rates from Asia have come back down to pre-pandemic norms, the Uyghur Forced Labor Prevention Act poses a new wrinkle that has trapped some LVT at the U.S. border as customs officials trace the lineage of each of its components to prove that none were sourced or produced using forced labor. And a recent ruling by the Department of Commerce that plywood imports from Vietnam constructed using components from China are subject to the same antidumping and countervailing duties could hold implications for LVT. Following the confirmation of these 25% tariffs against Chinese products in 2020, large-scale LVT operations began popping up in Vietnam and Cambodia, which many in the industry suspect are Chinese offshoots.

Laminate, however, enjoys a large domestic manufacturing base, and at a time when inventory and import challenges due to the pandemic are still fresh in everyone’s minds, that capacity offers an assurance that has become a strategic advantage.

“The SPC supply chain has definitely seen some challenges, and I think laminate will benefit from that,” says John Hammel, senior director of wood and laminate for Mannington. “SPC is here to stay, but we have come across more retailers over the last couple of years who are wanting to look at something different from SPC and maybe, in some cases, are realizing some of the limitations of SPC and the improvements in the laminate category. Mostly it’s people who, years ago, kind of walked away from laminate to SPC and are now saying, ‘I want to take another look at laminate.’”

Barbara Ellenberg June, president of the North American Laminate Flooring Association (NALFA) and general counsel for Swiss Krono, cites LVT’s import challenges for some of laminate’s increased interest, but she also notes that such growth is marginal. “People who said, ‘I’m going to be 90% vinyl and 10% laminate,’ are maybe saying, ‘Perhaps I should be 75/25,’” she explains.

However, Welbourn points out that, “When you’re a category that large, some of that shift can have a fairly meaningful impact on your laminate. It’s not like SPC is going to go away. Products that are higher quality will still come here [from Asia]. That whole thing is just shifting the cost curve and value of SPC so that it’s not quite as euphoric as it used to be.”

Laminate’s own cost structure is not immune to such challenges, but it has largely already transitioned away from super-low-cost options.

While Asia is not currently a major U.S. supplier of laminate, a significant portion is still imported from Europe. Inhaus operates the world’s largest single-site laminate plant in Germany, and other large-scale producers are headquartered in Europe, where the category was invented. Welbourn reports, “In Europe, container rates didn’t go as high as China, and they didn’t come down as quickly as China, but it has happened and will continue to happen.” Meanwhile, raw material costs have stabilized, but they are still somewhat elevated.

“I think prices stabilized, but we aren’t seeing a ton of decline at this point,” says David Moore, senior product director for Mohawk. “It’s almost a reset to the new normal. We’ve got to figure out how to take costs out at different places.”

With most domestic laminate operations located in the Southeast and imports from Europe coming into East Coast ports, the category must also navigate logistics challenges related to the trucking industry, which in many cases drives up the cost of transportation beyond that of a typical ocean container. “The price of containers is more or less set on supply and demand,” Welbourn explains. “Trucking is set on the cost of the driver, the cost of the truck and the cost of fuel, not as much on supply and demand.”

OUTLOOK
While suppliers report an increase in interest and shelf space for laminate, they note that retail, the category’s main sales channel, is down overall. “Demand at retail is still in a dip, but all indications from customers are that they expect a rebound,” June says. “We had hoped it would be Q3 or Q4, but it really may be calendar year 2024. But we are steady.”

Following two years of unprecedented growth across the industry as homeowners funneled their time, energy and savings into updating their homes, life has returned to normal, lowering the bar for industry sales, which are also returning to a seasonal structure. But as things settle back in, the industry is up against some high sales benchmarks.

“After a couple of years of huge gains, things have now balanced themself out,” says Hammel. “The pendulum is swinging so that spending can rest somewhere in the middle. Airports are jampacked; restaurants are jampacked. It seems people are taking the opportunity to spend their money on those things rather than home improvements, which has not been the case the last few years.”

NALFA members saw estimated growth of 2% to 4% in units in 2022 year over year, though higher average selling prices pushed their dollar growth up an estimated 10% to 15%, June says. Mirroring the overall industry, the bump in volume came during the first half of 2022, with sales tapering off during the third quarter and down year over year for Q4. “That negative trend has continued into the first quarter of 2023 with significant declines in both volume and dollars compared to the same period last year,” she continues. “We anticipate the downward trend to continue for Q3 with a return to flat comps for Q4 of 2023-but the crystal ball is a bit unclear these days.”

It is worth noting that 2024 is an election year, which typically causes uncertainty in the market. On the other hand, inflation has historically given laminate a boost due to its value proposition. “A lot of people are saying doom and gloom, but I don’t think so,” she says. “I believe that laminate will maintain and even exceed share next year.”

With costs normalizing, the current drop in sales volume has benefited customers through reduced pricing and the removal of surcharges adopted during the pandemic. “Every two weeks, our ocean costs were going up,” Stepp says, referencing Dixie’s imported laminate lines from Asia. “We couldn’t raise prices enough. Even with the surcharge, it didn’t cover it all. We took the opportunity in January to come back across the board and lower our prices on all products to our customers. Most everybody came out of the gate in 2023 and got more aggressive on prices.”

Projecting mid-single-digit growth for this year, many of the suppliers with whom we spoke see the builder and multifamily markets as an opportunity, citing the transition from low-end SPC.

“Low-rise and high-rise builders are migrating over to laminates, as well as property management/apartment buildings,” Torlys CEO and president Peter Barretto reports. “In our business, we are very focused on the builder, multifamily and project management segments and, given the focus, are getting success as laminates-specifically waterproof-surface laminates-are desired due to visuals, performance, trade damage resistance, dimensional stability, ease of install and repair, and low claim rates.”

“I think it solves a lot of problems with builders,” Moore agrees, though he notes the effect high interest rates are having on the market, which was down 8% year over year in June. “But we need more homes,” he continues. “At some point, we’re going to have to build, and I think it could be an interesting market for us. Multifamily is traditionally extremely price sensitive and looking for the most entry-level product. ‘Can we do something there?’ is kind of interesting. There are not any challenges, it’s just figuring out how to get into it. We see a lot of instability in installation of entry-level resilient product. I think it’s a headwind for resilient in those markets.”

WHAT’S SELLING
While water performance is “really the price of entry,” says Hammel, “concurrently with that, consumers are seeking great looking product,” which has led to other meaningful innovations. He adds, “Once you get up into that premium laminate space, you’re competing mostly with waterproof product. Then it becomes, how do you differentiate?”

Hammel reports that Mannington’s adoption of digital print, capable of up to 20 unique plank designs, along with its in-house development of curated visuals, has driven growth, as style and design are still the leading purchase drivers. Mohawk is seeing success with its hyper-realistic Signature embossing technology, which it has begun rolling out across its laminate portfolio.

“Performance-driven consumers are still shopping with their eyes, but then they’re quickly making a choice based on these attributes,” says Moore.

When it comes to catching the consumer’s eye, white oak visuals in warm tones are still favored, owing to their relatively clean grain pattern and texture. “White oak still dominates, and I don’t see that changing,” Moore says, though he adds, “There are a lot of white oak visuals out there in all the different categories, so you’re having more different species, whether hickory or maple, see a little bit of resurgence there, as well.” Hammel notes that Mannington’s Anthology product, featuring a combination of white oak, hickory and maple visuals, “is the most popular in our laminate offering by far,” and this year the company launched a maple visual that has been very well received. Additionally, Baert cites cherry as a popular visual.

“While wood visuals remain popular, stone visuals are making a notable impact, contributing to a diverse and well-rounded product selection,” says Eylor. “Stone visuals have indeed gained traction, offering a unique and attractive option for customers.”

Amid the budgetary constraints imposed by inflation, the middle end is getting squeezed, our sources report, which has furthered the transition to visual and performance attributes on thinner constructions. Welbourn notes that “7mm and 8mm thickness is an excellent quality laminate; you don’t need extra thickness. It just brings extra transportation costs and raw material costs, so you’re able to offer a better-quality product at a better price. We’re seeing the educated side of the business focus on those kinds of products.”

“By taking all the things we do well and putting it on a more economical platform, we’re able to get back to those critical retail price points,” adds Ward, referencing the $3 per foot range as the sweet spot. “We differentiate our products through our technology, style and design, so you don’t need thickness to do that. That’s been our strategy for the past two years, and it’s been very successful for us.”

But the high end is still performing well, and that has also led to a growing number of 12mm products, a visual differentiator that offers some inherent benefits. “Consumers are increasingly buying thicker laminate products, such as 12mm or higher, for enhanced durability and better sound insulation,” Baert says. Though, amid continued inflation and unattainable sales comps, that could begin to shift.

“We are transitioning from 12mm to 10mm currently,” June reports. “And right now, there also is an industry trend back to attached pad.”

Attached backings enhance the consumer’s perception of a product through the association of a simplified purchase, easier installation and lower overall cost. Backings can also provide acoustical enhancement-though laminate’s artificial sound remains a focus for manufacturers. CFL’s Surfaces debut, Atroguard Q, promises five times the sound insulation of traditional laminate products, in addition to enhanced water resistance through its resin-infused core.

“Our focus has always been on added-value products and driving innovation for the category, and that’s also where we see the potential for growth in the category,” says Baert. “We will keep pushing the boundaries of laminate technology, introducing features that set us apart from resilient options, including acoustic, plank size variations and natural wood decors that are in high demand.”

Copyright 2023 Floor Focus 

Related Topics:The Dixie Group, Mannington Mills, Mohawk Industries