Carpet, the economy, and Shaw in Grand Central: Strategic Exchange

By Kemp Harr

 

Brian Beaulieu with the Institute for Trend Research is a perennial speaker at the annual NAFCD (North American Association of Floor Covering Distributors) meetings. He is an economist with an entertaining stage presence, which helps make him a popular public speaker. Brian’s message in Chicago in mid-November was mostly good news.

This year he started his presentation by showing a chart that proved that most of his forecasts have been amazingly accurate. He does predict that the current economic recovery will briefly taper off in the second half of 2014 but overall the next three years (2015-2017) will be good years. Here are a few of his comments:
• Housing outpaced his original projections for 2013 but it will go flat briefly in 2014. 
• Inflation will remain dormant in the near term. 
• The U.S.’s position in the global economy is improving. The U.S. will have the most powerful economy in the world for at least the next two decades—so stop worrying about your kid’s future.
• The global population will increase by one billion between now and 2050, and the U.S. alone will grow by 120 million. Population growth is good for the economy. Inversely, the population in China, Japan, Germany and England is shrinking. The only negative demographic in the U.S is related to aging. But this issue will correct itself in 2036.
• There’s a 90% probability that the stock market will go down in 2014 and stay down for four to eight months. This will negatively affect the “affluent” sector of the market the most. A severe downturn in the stock market does not mean the economy will suffer.
• The bond market will not be good in the second half of 2014. New Federal Reserve chair Janet Yellen will continue to stimulate the economy with quantitative easing. She will keep interest rates low despite potential inflationary implications.
• Banks continue to lend more and more money every year. Now is the time in the business cycle to be investing. Hire more salespeople.
• Consumers may have less money to spend in 2014 due to Obamacare.
• Retail sales are up 2.9%. That number needs to stay above 2.5%
• Employment will continue to rise. We need to see at least 150,000 jobs each month. The rate of growth in employment is flattening. The issue is lack of supply, not lack of demand.
• Labor costs and raw material rates will go up before the CPI does but not until 2015.
• U.S. taxes will rise due to our “paternalistic government.”
• We do have a spending problem in the U.S., but we still have time to fix it. Deficit spending will decline for the next three years, making Americans falsely think the issue has been resolved. But in 2017, it will mushroom as interest rates start to go up. Interest rates will go up three points in 2017. 
• Brian and his twin brother, Alan, are in the middle of writing their next book called Prosperity in a Major Decline, which addresses their prediction that the U.S. will see another major downturn in the 2030-2040 decade.

THE HIGH END OF THE CARPET MARKET
The stellar performance that The Dixie Group had in the third quarter (with revenue up 37% versus the same quarter last year) tells us that business conditions on the upper end of the market are very strong. Dixie, with its Fabrica and Masland carpet brands, sells both wool and nylon carpet at prices that generally run three times the wholesale cost of the industry’s average. So it is obvious that the consumer at the higher end of the market has money and is willing to spend it. 

The stock market’s record performance has created a wealth-effect among the affluent, so they are more comfortable spending money on plush home furnishings. Chris Ramey, who’s an expert on marketing to the affluent consumer, told me in a recent FloorDaily interview that retailers who want to sell to affluent consumers need to focus more on their lifestyle and less on the transaction. To be successful at selling to the affluent, you must know that style and fashion are much more important than price.

SHAW’S GRAND CENTRAL WEAR-TEST PROMOTION
Durability and cleanability are two very important performance attributes for floorcovering. Back in 1933, Karastan, which at that time was owned by Marshall Fields, wanted to prove that its rugs were durable, so it installed a rug at the entrance of the Chicago World’s Fair. Over the course of the fair, the rug was walked on by five million people. Afterwards, the rug was cleaned and it looked so good that it was called the “wonder-rug.” 

Move forward 80 years and a similar promotion is happening this holiday season with the Shaw Floors brand. This time the venue and the products are different and the traffic numbers are even greater but the concept is the same. So for six weeks, starting November 18, 14,000 feet of Shaw’s carpet, hardwood and resilient flooring are covering the floor of Grand Central’s Vanderbilt Hall, site of the Centennial Holiday Fair. Each day, roughly one million people travel through this building, so the message from Shaw is its residential floorcovering can withstand a beating and still look good. As part of this promotion, burgundy rugs with the Shaw Floors logo have been installed at all of the main entrances of this iconic terminal, along with huge brand banners in the main hall. While it remains to be seen how the product will survive under all this traffic, one thing for sure is that many more consumers will be exposed to the Shaw Floors brand. 

In an age when retailers would rather either own the brand experience themselves or, at a minimum, prefer the products be sold under a private label, this is a refreshing marketing investment on the part of Shaw Industries, and I applaud it. As we mentioned in an article earlier this year, brand messages from flooring manufacturers to consumers have been on the decline, and most of the business school case studies have proven that the entity that commands the voice to the consumer will be more successful at achieving its growth and profit goals.

One of the more subtle nuances of this promotion is the tie-in with a few iconic brands that have withstood the test of time. Not only is Grand Central Station a symbol that’s well known throughout America but the Rockettes, two of whom helped kick off the promotion, and Manhattan itself are strong, traditional brands that give this promotion even more clout.

CARPET CONTINUES TO LOSE SHARE
It does appear as though carpet has lost share to hard surface flooring in 2013. As we end the year, we hear that carpet units in the U.S. are up less than 3% versus 2012 and the numbers for hardwood, tile, LVT and sheet resilient are all up over 5% in units. The biggest single factor in this share loss has been in the multi-family sector. As more apartments have come online and existing units have been remodeled, carpet has been relegated to the bedrooms, and LVT has taken its place in a larger percentage of the living areas. 

The same trend is occurring in the residential builder market. As more new homes are being built (the pace for new homes in 2013 is running about 630,000 units), more rooms in the living area and, with some homes, even the bedroom area, are foregoing wall to wall carpet for a hard surface alternative. 

There are multiple factors that are driving this trend. On the upper end, as home values have risen, homeowners are comfortable making the investment in authentic porcelain tile and hardwood floors, which many consumers feel are more durable and easier to keep clean. And in more affordably priced homes, carpet is being pushed out by LVT, which today looks so close to real wood, tile or stone that many people can’t tell the difference without reaching down and touching it.

In the commercial sector, we continue to see the de-selection of carpet at airports and in hotels. Carpet is being removed from high traffic areas down the main corridors and in the lobby areas. Even the guest rooms are being converted to hard surface in the economy-level hotel properties.

While much of this trend is being driven by product innovation, with digitally produced visuals making today’s LVT look like realistic wood, tile, and stone, other factors are durability and perceived ease of maintenance—especially now that over 50% of all homes have pets. There are others, however, who believe that part of the issue—in the commercial and multi-family sectors—is being driven by facility managers and end-users who have recently been disappointed by the performance of the carpet they’ve purchased. One can easily tell by looking at the statistics within the carpet industry that the construction of carpet has been rapidly changing. Face weights are lower and polymer use has shifted, both of which can have an effect on the durability and performance of carpet, especially when janitorial constraints also reduce the cleaning frequency.

High quality carpets that last are still available on the market today but not at the same price that you could buy them for ten years ago. As with many products, you get what you pay for.

 

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

Copyright 2013 Floor Focus



Other Archived Articles

New York Manufacturing Improves at Slower Pace   Full Article
New York, NY, Aug. 15, 2014 -- The Empire State manufacturing survey fell back to 14.7 in August after hitting a four-year high of 25.6 in July.

Consumer Sentiment Falls in Early August   Full Article
Washington, DC, Aug. 15, 2014 -- The preliminary August reading on the University of Michigan/Thomson Reuters consumer-sentiment index fell to 79.2 from a final July result of 81.8.

Investors Wondering About Firm's Stake in Armstrong   Full Article
New York, NY, Aug. 15, 2014 -- Flooring industry analyst Stifel Nicolaus says talk is heating among its clients up that Armstrong World Industries could be broken into separate entities.

Office Environments Acquires Flooring Firm   Full Article
Charlotte, NC, Aug. 15, 2014 -- Office Environments, a Charlotte based commercial furniture dealer, said it has acquired Modular Designs, a flooring firm also based in Charlotte.

FCICA Continuing Diamond Member Club   Full Article
West Bloomfield, MI, Aug. 15, 2014 -- FCICA, the Flooring Contractors Association, said it will continue its Diamond Club member program for the 2014-2015 membership year.

Housing Affordability Declines in Second Quarter   Full Article
Washington, DC, Aug. 15, 2014 -- Nationwide housing affordability dipped in the second quarter as several markets saw a firming of home prices, according to the National Association of Home Builders.

Georgia Unemployment Grows but Dalton Layoffs Fall   Full Article
Atlanta, GA, Aug. 14, 2014 -- Unemployment in Georgia in July rose to the highest rate since last October, according to the Georgia Department of Labor.

Initial Jobless Claims Rise Last Week   Full Article
Washington, DC, Aug. 14, 2014 -- Initial claims for unemployment benefits rose 21,000 to 311,000 in the week the ended Aug. 9, according to the Labor Department.

Higher Downpayments Hitting First-Time Home Buyers   Full Article
New York, NY, Aug. 14, 2014 -- Growing requirements for downpayments are shutting many first time buyers out of the housing market, Bloomberg News reports.

Tarkett Contest Features Commercial Flooring   Full Article
Chagrin Falls, OH, Aug. 14, 2014 -- Tarkett has launched a WeLikeItNatural Creative Contest featuring its commercial vinyl flooring.

Retail Sales Flat in July   Full Article
Retail Sales were flat in July as car demand slowed and consumers remained cautious in their spending. This is the weakest performance in six months.

Mortgage Application Volume Down Last Week   Full Article
New York, NY, Aug. 13, 2014 -- Mortgage application volume fell last week as both purchase and refinancing applications declined, according to the Mortgage Bankers Association.

Valinge Awarded Another U.S. Patent   Full Article
Viken, Sweden, Aug. 13, 2014 -- Valinge said it has been awarded a U.S. patents regarding mechanical locking of LVT/resilient floorboards.

Another Investment Firm Discloses Armstrong Position   Full Article
New York, NY, Aug. 13, 2014 -- Another investment firm has disclosed a large position in the shares of Armstrong World Industries.

Home Price Increases Continue To Moderate   Full Article
Washington, DC, Aug. 12, 2014 -- Home-price growth continued to moderate in many metropolitan areas in the second quarter, according to the National Association of Realtors.

Domotex Turkey 2015 Set for May   Full Article
Hannover, Germany, Aug. 12, 2014 -- The dates for Domotex Turkey 2015 are May 25-28 at the Turkish carpet trading capital, Gaziantep.

Job Openings Edge Higher in June   Full Article
Washington, DC, Aug. 12, 2014 -- Job openings increased to 4.67 million in June, according to the latest Job Openings and Labor Turnover Summary from the Bureau of Labor Statistics.

Ceramic Tile Standards Subject of Gathering in SC   Full Article
Clemson, SC, Aug. 12, 2014 -- International trade and standards for ceramic tile were the focus of discussions as delegates from 15 countries met in Clemson to develop new standards.

Propex Marks 50th Anniversary of Polybac   Full Article
Hazlehurst, GA, Aug. 11, 2014 -- Propex recently celebrated a significant milestone for the carpet industry at its Hazlehurst manufacturing facility.

Realtors Applaud FICO Calculation Changes   Full Article
Washington, DC, Aug. 11, 2014 -- The National Association of Realtors said it supports the decision of Fair Issac to make some changes related to how it calculates FICO credit scores.