Mohawk financials, US Floors, Schönox, Shaw convention

By Kemp Harr

Right before this issue went to press, I conducted an extremely upbeat FloorDaily interview with Harvard economist Kermit Baker. He closely monitors both the commercial and residential markets in his role as chief economist with the American Institute of Architects and project director for the Remodeling Futures program at the Joint Center for Housing Studies (JCHS) at Harvard. In both sectors he’s predicting the best year that we’ve seen since before the downturn in 2008.

In the commercial sector, the institutional market is seeing major projects in the design phase, both in education and healthcare. Describing the activity in these two sectors, he said it was “as if a switch had been turned on.” He also explained that the recent moderate dip in the Architecture Billings Index was due to weather in the Northeast, and he expects it will return to numbers well above 50 (which indicate growth) by March. Last year, this index rose above 50 in April and remained there the rest of the year.

Baker also mentioned a recently published two-year study by the JCHS, which shows that the housing remodeling will fully recover this year to levels we haven’t seen since before the recession. He concluded that lower gasoline prices and the Millennial generation re-entering the housing market were two contributing factors to his favorable outlook for the year.

MOHAWK’S YEAR-END FINANCIALS
There were some great nuggets of information in Mohawk’s year-end financial report about sector growth, currency fluctuations and shifts in product consumption. Mohawk is now a $7.8 billion global flooring company, and that doesn’t include revenue from its recent $1.2 billion acquisition of IVC, which won’t close until sometime next month.

Mohawk’s fourth quarter earnings were the highest ever at $147 million. A year ago, Mohawk earned $97 million in the quarter on basically the same revenue number, so this is a substantial improvement.

For the year, Mohawk’s revenue grew 2.5%, if you dial out any gains from acquisitions, but its earnings per share were up 24%. Seventy percent of Mohawk’s revenue is generated by sales here in the U.S. By comparison, the current consensus for growth in the U.S. flooring market for 2014 was 3%-4%. Mohawk’s organic revenue growth is exceptional when you consider that 30% of its business is generated outside the U.S., where economic conditions are more challenging.

Carpet earnings for Mohawk were up 32% for the year on revenue growth of 4%. Mohawk’s fastest growing product category is ceramic tile, which grew 7% in revenue and 22% in earnings for the year.

In 2014, Mohawk invested $560 million in capital expenditures. In addition to breaking ground on a new tile plant in Tennessee, the company also purchased the Kai tile plant in Bulgaria for $190 million. It also continued to invest in more efficient carpet manufacturing equipment.

The biggest disappointment for Mohawk last year was the lack of growth in the residential replacement market, but, much like Kermit Baker, it is forecasting a more robust year in 2015.

US FLOORS’ PENDING PATENT ON CORETEC
Right after Surfaces ended, Piet Dossche was granted a Notice of Allowance on the patent he started pursuing two years ago on US Floors’ CoreTec product. When the U.S. Patent and Trademark Office gives a Notice of Allowance, it usually means that the examiner has found that the design of the product is novel and unprecedented, and that a patent number will be issued soon.

Based on the rapid acceptance of this product in the marketplace, this could be quite a victory for the company. For those unfamiliar with CoreTec, it has an LVT wear surface that is adhered to a semi-rigid waterproof core material that clicks together, and this composite is backed with a layer of cork. Flooring dealers love it because it installs quickly and, unlike conventional LVT, the subfloor can have imperfections, cracks or grout lines and they won’t telegraph up to the surface. Dealers also love it because they can offer their consumers an affordable, quick and easy floorcovering that looks like hardwood.

In the two years that it’s taken US Floors to get this far in the patent process, several other companies have launched similar products here in the U.S., and there’s a good chance that they will now either have to pay a royalty or stop selling the product. There’s also a good chance that this patent could wield as much influence in this business as Unilin’s click system—and that patent, by the way, expires in two years.

DEALER TOOLS LAUNCHED AT SHAW’S DEALER CONVENTION
Shaw Industries held its tenth aligned dealer convention in Orlando in mid January right before Surfaces, and more than 900 dealers and their families attended the biennial event. The theme this year was “Awesome 2015,” and in addition to new products (which Floor Focus covered in the “Beyond Las Vegas” article in January), Shaw launched new support programs to help dealers connect with consumers.

In the general session, Shaw introduced Dr. Kit Yarrow, an authority on consumer psychology. In a discussion about her new book, Decoding the New Consumer’s Mind, Yarrow talked about how technology has changed the way our brains work, giving us shorter attention spans and making us more easily bored. Increasingly superficial relationships built online versus in person have led to what she calls “radical individualism,” creating a desire to feel relevant, seen and respected. The speed and information overload from technology has also led to intensified emotions, so we seek hassle-free experiences with choices tailored to our individual needs.

Yarrow suggests that dealers adopt strategies to address these issues when connecting with consumers. She recommends using a combination of innovation and technology to pique consumers’ interest, and building trust through transparency and openness both online and in the store. Her strategies include shifting customers from passive consumers to active advocates, encouraging them to participate in ratings and reviews, and engaging them on Facebook and Twitter. She says that dealers should intensify communication, making the message faster and more stimulating to capture consumer attention in a crowded marketplace.

Shaw has incorporated these strategies into its new programs to assist dealers, and all 900 dealers who attended the show received iPad Minis loaded with Yarrow’s e-book as well as all of Shaw’s digital programs to help dealers connect with the new consumer.

One of the most interesting digital tools for consumer engagement is a mobile app called Floorvana, which lets the consumer take inspiration from anywhere, such as cool curtains at a friend’s house, scenery from vacation, or the stripes in a favorite shirt. Users take or upload any photo, and Floorvana samples colors from the photo. Users pick from the color samples, and the app displays any Shaw flooring that coordinates with the chosen color. The app then connects the user with the nearest Shaw dealer to see the flooring in person. Salespeople can also utilize the app in the store to better assist customers who come in with a swatch of fabric or a paint chip.

SCHÖNOX FACTORY TOUR IN GERMANY
On the way to Domotex in mid-January, I stopped in Rosendahl, Germany to see how Schönox makes its self-leveling floor-prep system that’s been attracting so much attention recently here in the U.S. We’ve all heard the proverb that “necessity is the mother of invention” and this certainly comes to mind when you hear the story about the invention of this product. In the early ’90s, when the Berlin Wall was torn down and Germany was reunified, the country started focusing on repairing the infrastructure of the Eastern Bloc, which had deteriorated after many years of neglect. Many of the interior subfloors were cracked and had to be repaired.

Before long the engineers at Schönox, a company with a heritage that dates back to 1891, used their German ingenuity to develop a revolutionary subfloor system made out of synthetic gypsum that not only repaired the cracks but also created a durable and level foundation for the quick installation of new floorcovering. Today, that system has been so successful that it’s the marketshare leader in Germany and many other European countries.

Unlike the traditional cementitious products that continue to be used even today, Schönox’s new floor prep invention is touted by its inventors as a much better solution. It doesn’t shrink and crack when it dries, it minimizes dust on the job site, and it’s beneficial for indoor air quality. It also creates a hard, level subfloor with a PSI strength of 5,400. But according to Schönox, the biggest advantage is how easy and quick it is to install. Just mix it up and pour it on, and you’re ready to install the floorcovering the next day.

While this product has been in use for almost 15 years in Germany, it was only introduced here in the U.S. four years ago. That’s when HPS Schönox, based in Florence, Alabama, started building a network of distributors and teaching builders and flooring contractors how to work with it.

So you may be curious about what synthetic gypsum is. Unlike natural gypsum, which has been mined for years to produce drywall, the synthetic gypsum used to produce Schönox’s compound is a waste byproduct of the scrubbing systems used to reduce emissions at coal fired power plants. As a manmade product, synthetic gypsum is more refined and serves as a better base material that can be blended with polymer for a high-strength foundation that won’t shrink or crack.

Floor leveler is just one of many products produced by Schönox. The firm also produces, adhesives, tile grout and moisture mitigation products. In fact, according to Helmut Twilfer, Schönox’ general manager, “the company’s mission is to make the everyday life of the floorcovering craftsman [installer] better by developing ergonomically superior installation products.”

A primary reason that Schönox’s floor leveling system is attracting more attention than its other products is due to the resurgence of resilient floorcovering here in the U.S., whether in the form of sheet vinyl or LVT. As all seasoned flooring contractors know, resilient floorcovering must be installed on a smooth subfloor or the imperfections will show through on the surface.

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

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