Strategic Exchange - February 2011

By Kemp Harr

Growth in 2011 will come to those companies that recognize that the buyer still holds the upper hand—a situation we’ll continue to see until demand overcomes the level of supply. Not only are there plenty of buyers but there are also plenty who are willing to pay for the level of service and the quality that you offer. If you focus in two areas this year—differentiation and visibility—you will more than likely grow your business.

If you look like you offer the same products and level of service as your competition, then there’s no reason to raise your visibility because the only thing you’ll be promoting is a commodity. So the first step is figuring out what sets you apart and then amplify that message.

It’s easier to determine your advantages than you might think. Just ask your most recent customers why they bought from you. Take care to do this until a pattern starts to develop and you start to hear the same reasons again and again. Now, you have identified what most marketers call a USP, or unique selling proposition. If for some reason you don’t see a pattern, then you might not have a USP. In that case, try to develop one; there are plenty of strategic marketing companies that can help you find a solution that will assist you in breaking through the clutter to resonate with the needs of your target audience.

There are many options for raising your visibility but the most fundamental solution is hiring a sales person or team who can get the word out. I’m not talking about order takers…I’m talking about order makers. This is someone who knows how to go out and tell your story, get the word out, and develop a transactional solution that benefits both the buyer and the seller. Naturally, you’ll need to support this sales effort through some type of advertising message but there’s no reason to advertise a commodity (a company without a USP) and you shouldn’t advertise until your sales team is on board and properly trained.

Floorcovering Price Increases
Nearly all of the major flooring producers on both the hard surface and soft surface side of the business have recently announced a price increase. Many on the downstream side of the business will tell you that this is no time to raise prices, but raw prices are, in reality, rising. In fact, the price of crude oil has been climbing past $90 a barrel and although it’s still fluctuating, all indications are that it will continue to climb as the economy starts to heat up. China’s economic growth has increased the demand for oil, and supply continues to be constrained.

While it might seem that these price increases are a regular occurrence, I found it interesting that the average price per yard of carpet only rose 1.2% in 2010, from $8.00 to $8.10. Even though the supply side of this industry has consolidated, there has been enough competition either from other domestic producers or from foreign competitors to keep last year’s “announced” increases from sticking—especially at a time when demand has been depressed now for over three years.

As you can imagine, much of the pressure to keep prices from going up comes from the home centers, the category killers like Empire Carpet, and from some of the big buying groups. When one buyer, at the stroke of a pen, can shift the type of volume that a large supplier knows covers much of his overhead, it can be gut wrenching to hold your position. Unfortunately, our industry’s producers are being squeezed because polymer prices and other components are on the rise. And loss of margin among producers can result in a spiraling long term problem for the whole industry.

When our producers are barely getting by, there are many unfortunate side effects. Production lines can be sped up, raw material usage can be reduced, and quality control standards can be downgraded, which ultimately result in an inferior product. In addition, R&D budgets can be reduced, which slows the development of new and innovative products. And lastly, support programs like national advertising campaigns and co-op programs can be cut, so in the end when the consumer has an extra buck to spend, they think more about big screen TVs and other home furnishings than they do about flooring.

Polyester Carpet
In the retail sector, this is the time of year when new products are being introduced and in the carpet arena, we’re seeing more new polyester carpet styles than ever before. As a dealer, you have to ask yourself what’s motivating this shift in focus from nylon and polypropylene over to polyester. Certainly it’s being driven by cost but there are other factors as well. Today, polyester resin is cheaper than both nylon and polypropylene. In addition, some of the issues that plagued the last generation of polyester carpets have been solved. Yarn extrusion and twist has evolved and you can now find softer, denser products that don’t crush or soil as easily as they did back when the leisure suit was popular.

Many consumers buy carpet based on “the hand” of the sample and when compared to nylon, a $29 per yard sample of polyester carpet is usually softer and bulkier than a nylon product in the same price range. The luster issues have also been solved. Gone are the days when polyester fiber reflects light and appears shiny. Staining has never been much of an issue with polyester but soiling has. Polyester fiber has an affinity for oil but today’s fluorocarbon treatments solve many of those issues.

Most of the mill executives we’ve talked to tell us that nylon is still the premium carpet fiber when it comes to performance and longevity but it also costs more. So, for residential shoppers who are on a budget, like the soft hand, and aren’t planning to stay in their homes for a long time, polyester might just be the right recommendation.

One of the issues with polyester carpet today is what happens at the end of its life. Once the carpet has worn out, it can’t be converted back into carpet again like nylon can. This isn’t to say that a solution won’t be developed in the future, but there isn’t one today. There is, however, an alternative to keep that polyester carpet out of the landfill. It can be converted into energy at a waste to energy plant, and the experts say it burns cleaner than coal. I should also add, as you’ll find in the next section, that polyester carpet can be made out of post consumer PET drinking bottles.

While in Germany last month at Domotex—the largest flooring industry trade show in the world—I did take note that this polyester phenomenon that we’re seeing here in the U.S. isn’t as prevalent in the rest of the world. Most of the carpet produced in Europe has a much lighter face weight and is either made of wool, nylon (which they call polyamide), polypropylene or some blend of those fiber types.

Shaw/DAK Americas and Aquafil
On the sustainability news front, two companies have made major investments that prove their commitment to reducing landfill tonnage and turning post consumer waste back into carpet components. The latest news comes from Shaw’s Clear Path Recycling Facility in Fayetteville, North Carolina, and Aquafil, with its nylon 6 depolymerization facility in Slovenia.

Shaw’s plant celebrated its ribbon cutting in December and now, in its phase one level of completion, is capable of converting 160 million pounds of PET bottles per year into carpet fiber. Should Shaw continue on with its phase two expansion, this plant will be able to process 280 million pounds of waste PET bottles, making it the largest in North America.

Interestingly enough, the partnership between DAK Americas and Shaw that was formed to build this plant is part of an ongoing 20 year relationship with the DAK Americas parent company, ALFA Group, one of Mexico’s largest corporations. In fact, this bottle recycling plant was built in Fayetteville next to one of DAK Americas polymer plants. Many years ago, this same site was owned by DuPont and was used to make nylon for the carpet industry.

Inside this plant, bales of reclaimed bottles are separated by color, chopped up into PET flake and then cleaned to remove contaminants. Only the clear flake can be used for carpet fiber and the colored flake is sold for other uses. Shaw then ships this clear flake to one of its facilities in Georgia where it is converted—using a patented process—straight from flake into filament carpet fiber.

Many of our readers know that Shaw owns a facility in Augusta, Georgia, where it recycles post consumer nylon 6 carpet back into new nylon 6 fiber for use again in new carpet. Shaw obtained this Evergreen plant as part of its acquisition of Honeywell’s carpet fiber business back in 2005. To facilitate the process, the nylon fiber must be depolymerized back into caprolactam. Once it’s “un-zipped” into its raw components, it can then be repolymerized into nylon 6 with the same physical properties as virgin fiber.

Until Aquafil’s recent announcement, Shaw’s Evergreen facility was the only one of its kind in the world. Last month, Aquafil announced that it has invested $21 million in a depolymerization plant in Slovenia, just outside of Northern Italy.

For those of you who aren’t familiar with Aquafil, it’s an Italy based nylon 6 carpet fiber producer with annual sales of $570 million, 12 manufacturing plants and 2,000 employees worldwide. Here in the U.S., it currently produces 24 million pounds of nylon 6 BCF fiber at a facility in Cartersville, Georgia but once its current expansion is complete, it will produce 40 million pounds here in the U.S.

The recovered first grade nylon 6 polymer from this plant, which is called Econyl, will be converted into Aquafil’s Alto Chroma BCF carpet fiber—available in 93 solution dyed colors. Once Aquafil has ramped up this project into its final phase, the goal is to offer 100% post consumer recycled nylon 6 carpet fiber. Starting in April, in its first phase, the fiber will be 25% post consumer and 75% post industrial.

Both of these companies deserve credit for taking steps to making investments to create a closed loop cradle-to-cradle solution for our industry. And now that Aquafil has stepped into the arena, smaller carpet producers can have access to recovered first grade nylon 6 fiber for their own carpets.

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

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