Laminate Update 2009 - August/September 2009

Despite growing evidence of renewed activity in the housing market in some parts of the country, as well as signs that growing numbers of homeowners are considering remodeling projects over the next year, it’s likely that the laminate flooring industry will suffer its third consecutive double-digit sales decline this year, after growing steadily throughout its short history. Sales this year could fall below $1 billion for the first time since 2003, and perhaps drop below last year’s 5% marketshare.

With continued improvements in design and technology, lower pricing, and a growing assortment of products, ranging from exotic wood looks to stone and concrete, it would seem that laminate is ideally suited for consumers who are looking to cut costs and buy do-it-yourself flooring. However, Market Insights/Torcivia estimates that sales will decline about 17% this year, after falling nearly 19% last year, and this is in line with the estimates of many manufacturers.

The industry has been hit by a number of factors. With hardwood prices falling due to lack of demand, homeowners who want the look of wood appear to be opting for the real thing rather than an imitation, as the price disparity isn’t as great as it used to be. It’s also being challenged by luxury vinyl tile on the low end, which has better wet area performance characteristics and considerably improved styling and looks. Due to over capacity, price points are falling, which leads to lower margins. And that leaves less money for product differentiation, everything from advertising to research and development. Laminate is also becoming a more mature category, as roughly 75% of flooring specialty stores carry the product, and it is in all the major home centers. One potential avenue of growth could be in the builder market once housing gains traction again. Only about 8% of laminate is sold to builders, according to Market Insights/Torcivia.

Rising oil costs last year hit laminate producers hard as petroleum is the basis of most resins in laminate. However, for the most part, manufacturers have not been able to pass the increases on. The average manufacturer’s cost per square foot last year was $1.26, which is less than the average cost of $1.28 in 2004, and prices are expected to be flat this year. This should work to the advantage of coreboard makers like Uniboard and Mohawk/Unilin, whose costs are lower.

Low cost imports, especially from China, are also a factor, but not as significant as they used to be. Importers have to buy in large quantities, which many can’t afford to do in a slow sales environment. However, the majority of high gloss products sold in the U.S. come from China.

Several manufacturers said they are starting to evaluate direct printing technology, which would essentially use ink jet technology to create a particular wood grain or tile look directly on the coreboard, instead of printing on special media and attaching it to the coreboard. However, it’s not clear how quickly the technology might gain a foothold. At least one manufacturer is making products using the technology and testing them in Asia.

Laminate has never had much presence in the commercial market, with less than 10% sold there, so it’s interesting that some of the largest firms are rolling out dedicated commercial programs this year.

THE PLAYERS
The big news at Armstrong this year has been the launch of its commercial laminate business, which it unveiled at NeoCon this year. The products, sold under the Armstrong name and sourced in China, are being marketed heavily to the A&D community, although samples will also be on display at retail locations. The 20 new SKUs include five traditional wood looks, as well as 15 SKUs that are similar to the residential laminates Grand Illusions (Armstrong) and Park Avenue (Bruce). Armstrong decided to launch the new business so it could offer the A&D community wood looks in every flooring product category. So now if a specifier wants a wood visual, Armstrong has all the bases covered. The products have a 15 year commercial warranty and a lifetime residential warranty, along with an AC-5 class rating. Unlike some other commercial products, Armstrong’s commercial products require no glue for installation.

On the residential side, later this year Armstrong is coming out with price sensitive 8 mm versions of two of its best sellers. Illusions is a version of the 12 mm Grand Illusions and Chelsea Park is a version of its Park Avenue. Also new will be Mineral Forest, a look that mimics petrified wood.

The company is trying to offer looks that aren’t generally available elsewhere. Its White Wash Walnut is one of its best sellers.

Armstrong is planning a national sales campaign for later this year, after last year’s successful “It Only Looks Like The Real Thing,” featuring look-alike models of icons like Lucille Ball and Dean Martin.

Mohawk Industries, which sells both Mohawk branded laminate, along with the Quick-Step brand from its Unilin division, and Columbia, is focusing its efforts on value price points this year. It is introducing 8 mm versions of a couple of its soft-scraped products, Mohawk’s Marcina and Quick-Step’s Sculptique, The thinner product allows a lower price point. In addition, in August Mohawk debuted a new high gloss line called Boulevard, while the Quick-Step counterpart is Allustra. Both lines are exotic wood looks, with Quick-Step featuring a 6” plank width and Mohawk a 4”, and both carry mid range price points. Mohawk, which added a significant amount of equipment and other improvements to its Thomasville, North Carolina plant to produce these products, believes it is the first domestic manufacturer to produce high gloss laminates. Virtually every other high gloss product comes from China, where the technology was developed and costs are lower. The process to produce these products uses a lot more press plates than other laminates and it turns out that high gloss products are more difficult to produce in highly automated Western plants. This is part of an overall $50 million investment that will allow the company to produce nearly all Quick-Step products, as well as many for Mohawk and Columbia. The firm currently produces about 90% of its products domestically.

Mohawk sells all three brands though independent retailers, with the Mohawk and Quick-Step brands being about equal in size, and Columbia much smaller. Mohawk also sells its Mohawk brand in home centers through special orders only.

Mannington, which sells primarily in the high end of the market, has remained fairly aggressive this year in terms of new product launches, with ten new SKUs earlier this year and another ten due out early this fall. Its Time Crafted Walnut, the follow-up to last year’s Time Crafted Maple, has sold better than anticipated and is outselling the maple look. The Time Crafted series takes advantage of Mannington’s proprietary variable edge technology, which produces a rough hewn look. In addition, Mojave Slate, a follow-up to Adirondack that was introduced two years ago as part of its Revolutions tile line, has also been moving fairly well. Tile looks now make up about a quarter of all Mannington laminate sales. Later this year, the company will roll out Diamond Bay, a high gloss, high clarity exotic collection that will be sourced in China, unlike virtually every other Mannington product that is manufactured in North Carolina.

Mannington has also put more emphasis recently on the middle price points, unlike many other players that are concentrating on the high and low ends of the market. It has added some handscraped exotics to the mid-range price point of roughly $1.59 to $1.79 to the retailer. Mannington says the general industry lack of sales in the mid range has been a self-fulfilling prophecy because when sales slackened, manufacturers failed to update the mid range looks, which has caused sales to fall further.

Mannington sells through independent retailers and has a small private label business. It does not sell through the big boxes but would consider it if there was no channel conflict.

Shaw has been focusing on the high and low ends of the market and believes its high end Luminiere product may be stealing share from wood. These higher gloss looks are starting to get some traction in the builder market, as builders offer an upgraded look for less money. Its concrete looks are also moving fairly well for applications like basements and recreation rooms. Shaw has also added richer coloring to its base grades, which has helped stimulate sales. The firm’s lowest priced offerings, at a retail price of about $1.30, are making inroads against low priced imports, which often have huge minimum orders that can be problematic for retailers. Many Shaw retailers are devoting more than half their showrooms to hard surfaces, and laminate is getting its share of space.

Shaw has made some changes to its logistics to cut down on transportation costs. It’s making use of distribution centers rather than shipping everything out of its main warehouses. Among other things, that means customers can get laminate and carpet in the same truckload, which helps cut costs.

Recently Shaw closed its Seattle manufacturing operation and consolidated the lines into its Dalton, Georgia plant. It believes the move will make the company more efficient by making it easier to fill and service orders.

Pergo, the inventor of laminate flooring and now part of Pfleiderer AG, is pushing into the U.S. commercial market this September with the introduction of its Pergo Pro line of flooring, 21 direct pressure laminate products produced in its Garner, North Carolina and Laval, Quebec, Canada plants. The collection will include a few slate type patterns in grey and black, as well as more traditional wood looks. The main focus is on giving the A&D community a greater selection of decors, including exotic type species of wood. Mike Nielsen has been tapped to run the commercial operation and will add staff as the company sees where business is likely to be strong. It sees hospitality and high rise residential as potentially strong markets for its products, which will likely be sold direct and through distribution. The company has had a thriving commercial operation in Europe for some time through its sister company, Duropal.

The other big news for Pergo is that Pfleiderer’s coreboard operation in nearby Moncure, North Carolina is scheduled to begin production later this year, which should help cut Pergo’s transportation and logistics costs. The facility, originally a particle board plant, was purchased from competitor ATC and is being converted to a high density fiberboard plant. Pfleiderer is moving an HDF line from Canada to North Carolina.

Pergo has a dominating presence in the home centers, and it also sells through independent retailers, and does some private label production. The products for each channel are different, and sales have held up better in Home Depot and Lowe’s than in the independent channel.

Pergo says it is putting significant resources into research and development to improve joint technology and make installation even easier.

Faus has stayed somewhat conservative in terms of product introductions, with just two new SKUs in the first half of the year. However, the company plans to pick up the pace later this year and will introduce some handscraped looks in the new mix. In the meantime, it is offering retailers a new tower display option, and retailers can buy up to four towers, depending on how many different products they want to show. The towers, which can each hold 26 samples, started shipping in early August, and so far Faus says interest is fairly strong.

Top sales management has also changed in the last few months as David Carballo became the new vice president of sales at the beginning of the year and Craig Stromer was named director of sales. These appointments come after the company decided last year to abandon its distribution system and sell direct. That has also required the hiring of inside sales and customer service staff. So far the changeover seems to be working.

Faus has wrapped up most of its recent expansion, and the final finishing line became operational early this summer. Still to go is a molding line—all molding is currently imported from Spain. Now about 20 of Faus’s most popular flooring products are manufactured in the U.S., with the rest imported from Spain.

Faus sells under the Faus brand at independent retailers. It also manufactures the DuPont line of laminate for Home Depot. It also sells a couple of special order Faus branded products through Home Depot.

The firm’s cottage stone and ceramic looks are selling well, as are its most unusual exotic looks such as pear and olive wood.

Kronotex, based in Barnwell, South Carolina, sells laminate flooring under the Formica and Kronotex brands, all through distribution to specialty retailers, and also does a sizeable private label business to national chains and home centers. The firm has owned the Formica brand for three years, so it’s still in a growth mode, and thanks to a lot of changes, including new styles, this year Formica sales are up by double digits over last year.

Kronotex brand sales are also up, largely because the brand itself is new. So far it’s sold through only nine distributors, covering about 70% of the country. The firm is a volume driven, low cost manufacturer, and it manufactures its products in Barnwell as well as through its vertically integrated facilities in Europe.

Private label business, which accounts for a lot of its volume, has also been strong—the largest stocking retailers, be they specialty retailers or big boxes, are performing the best in this economy. The firm has also added private label customers over the last year.

Business is strongest in the Midwest and the Pacific Northwest. West Coast and Sunbelt business is slow, as is much of the Eastern Seaboard.

Tarkett is staying low key this year, and likely into next year, as far as introductions are concerned. Last year the firm remade its entire laminate line, which included all new samples for its displays, and a switch to 100% domestic production. Tarkett is planning no new products this year, instead focusing on minor tweaks. It has 58 SKUs, all wood looks, and they’re all produced by Clarion Industries in Shippenville, Pennsylvania. They span the gamut of price points, widths and thicknesses.

Earlier this year, Tarkett sold its interest in the Clarion Industries joint venture to Chilean wood panel company ATC Panels and a private equity group. The sale hasn’t had any impact on products or marketing, the firm says, and was largely an invisible change.

Tarkett largely sells through distribution to independent retailers. However, it does sell under the Tarkett name at Menards home centers, and has a small private labels business that it’s trying to grow.

A relative newcomer to the laminate business is Southwest distributor Swiff-Train, which has been marketing its Earthwerks brand of laminate for about two years, along with Earthwerks wood and LVT. Most of the laminate is sourced in Germany, and China is an option as well. The firm has 30 SKUs covering all price points, with a variety of wood looks, including high gloss and exotics. Right now the products are sold through independent retailers in Swiff-Train’s distribution area of Texas, Oklahoma, Arkansas and part of Louisiana. The firm is likely to add other distributors as well. It is not in the home centers.

Wilsonart says it is seeing the first signs of stabilization in the laminate market and it believes that its high pressure laminate offerings should perform relatively well against the competition. It’s seeing the strongest sales in the Pacific Northwest and the Southwest, and its Silken Finish products, introduced in 2008, and a 2009 ADEX Award winner for design, are its best sellers, along with several bamboo looks. Commercially, it sees opportunities in healthcare, education and multi-family housing, while sales have been especially slow in retail and hospitality. This year Wilsonart, which manufactures all its products in Temple, Texas, had 15 product introductions and this fall it will bring out a new series of woodgrains. It is focusing on the exotic looks of woods from Africa, Honduras and Hawaii, as well as weathered and handscraped designs, with retail price points ranging from $4.99 to $6.49. In conjunction with the product launch, Wilsonart has completely updated its display system that reinforces its “Commercially Tested—Family Proven” message.

Wilsonart Flooring is leveraging some of the shipping and transportation efficiencies offered by the larger Wilsonart company. For example, for the last 12 years it has only shipped flooring goods on trucks to its distributors. However, now it bundles flooring goods and things like adhesives and solid surfacing to a particular destination, which eliminates the need for distributors to order a full truckload.

Wilsonart’s parent company, Illinois Tool Works, said in May that it won’t sell off Wilsonart and the rest of its Decorative Services Division as it had previously announced.

Kennesaw, Georgia based Robina, which sources all its products from Malaysia and China, has put renewed emphasis on the U.S. market this year after it completed a joint venture with Chinese firm Desai Zhongxin. It sells primarily in the Southeast and on the Eastern Seaboard through independent retailers under the Robina name but hopes to have most of the domestic market covered with distribution by the end of the year. It has added Välinge’s 5G locking system to its product line, which leans heavily toward wood looks. Its primary focus is on entry level price points, and it has added new high gloss looks with a subtle scrape. The company is also trying to develop direct printing technology to use on future products in the U.S. It’s testing the technology on products in Vietnam and Malaysia.

Robina got a new president last fall. Jason Loh, the grandson of the founder of the Robin Group, founded the Redwood Trading Group. CEO Hartwig Siemerling retired.

Alloc says its sales have been better than expected, although they are still far less than the company would like. It is also seeing signs of stabilization in the market, as the coasts have been the hardest hit but there are bright spots in between. The mainstreet commercial business has suffered the most as new retail construction is at a snail’s pace, and chain store expansions and remodels have been severely curtailed.

The firm has had some initial success with its new Alloc Elite, a 5” wide, 12 mm product in three different finishes, including a high gloss and handscraped look. It features Välinge’s 5G locking system and sells at a medium price point.

Alloc and sister company, Berry Floor, said this spring that Wisconsin based Jaeckle Distributors, Georgia based R.A. Siegel, Utah based Hughes Western, and Spokane, Washington based Wanke Cascade have become regional master distributors for the firm’s new business model, importing product directly from Alloc’s Norwegian operations. The hubs will allow for shorter lead times on delivery, improved freight efficiencies and lower carrying costs. They will serve as sources of supply for 20 distributors nationwide. Alloc said last December that it is closing its Racine, Wisconsin and Charleston, South Carolina facilities to implement a master distributor business model.

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