Laminate Update - Aug/Sep 2012
By Brian Hamilton
Laminate flooring and the U.S. laminate market in general have come a long way since the category was first exported to the U.S. in 1994 under the brand name Pergo. That was 15 years after the first laminate products were first put into production in Europe by Swedish firm Perstorp, the inventor of laminate flooring and the Pergo brand name. Laminate, despite many advances in its looks, finishes, production and installation methods, is in many ways still an immature product category. Oddly enough, its chief competitor is an even less mature category, luxury vinyl tile.
Today, close to a billion square feet of laminate are sold annually in this country—representing about 6% of the total U.S. floorcovering market—from a variety of manufacturers, and the majority of it, about 70%, is produced in the U.S. In 1994, probably few people would have predicted that a thin composite floor that looked somewhat like wood flooring would make such inroads into the U.S. flooring market.
Where exactly does laminate fit in today’s flooring market? There’s not really an easy answer to that question. Laminate sales differ from store to store and community to community. Many independent flooring retailers say laminate is holding up well in their markets and the category offers a good opportunity for profit despite the almost relentless downward pressure on prices since the 1990s, which continues today as the category adjusts to falling prices for competing surfaces like LVT and engineered hardwood. (The only recent price increase has been by Armstrong in June, while Mannington raised prices last winter.)
Even though laminate is often described as an install-it-yourself product, thanks largely to the advancement of glueless locking systems, the majority of laminate buyers don’t actually take it upon themselves to do the work, and that’s where full-service retailers can shine, especially at the higher price points.
Nevertheless, some industry observers believe that laminate today is essentially a cash and carry product for the home centers, and, to a lesser extent, players like Lumber Liquidators and Costco, even as manufacturers put their efforts in higher priced products and elegant looks. Charlie Dilks, chief product officer of CCA Global Partners, in an interview for FloorDaily, described laminate as primarily a mass merchant product, while acknowledging that his member retailers still sell laminate successfully, just not as much as they used to.
Eight years ago, says Travis Bass, executive vice president of sales and marketing at laminate maker Kronotex, specialty retailers sold about 65% of all laminate, with the largest retailers selling the rest. Today, that ratio has completely turned around and specialty flooring retailers sell 30% or less. Home centers have benefitted from the economic downturn as many customers are still shopping price first. They also have a structural price advantage because they don’t have to go through distribution, thereby cutting out costs.
“There is a percentage of business where this shift will stop but I don’t know what that percentage is,” Bass says. “There are always going to be consumers who don’t mind paying for service.”
Mannington, which manufactures laminate exclusively for independent retailers, believes that share is likely to hold fairly steady.
Both Home Depot and Lowe’s have taken steps in recent years to bolster laminate sales. Both are offering $397 whole house installation specials for higher priced products—Lowe’s makes this offer for products $2.98 and above and Home Depot has a similar offer for special order products—and this has helped the home centers take marketshare at a time when the overall laminate market has been flat. They’ve also significantly beefed up their higher priced special order laminates offerings. For example, Home Depot now has fewer than 20 stocking items but offers about 80 special order items.
The substantially better selection, along with the new emphasis on installation, has given customers fewer reasons to go to a traditional flooring store to buy laminate.
Retailers like Lumber Liquidators are also seeing a fair amount of success. Since 2007, laminate has grown from 10% of sales to 24% last year as the firm has put more emphasis on the category, especially at the higher price points. On its website, Lumber Liquidators’ best 12mm laminates, which feature the most trendy looks, sell for under $3 per foot.
Tony Sturrus, outgoing CEO at Clarion Industries, a maker of private label products, believes laminate will see steady growth this year and faces good prospects for the next several years. In part, he believes the growing trend toward apartment living, where laminate can be a good fit, as well as laminate’s improving performance characteristics, will help drive sales.
Over time, he says, laminate makers are also likely to solve the two main objections consumers have—the hollow noise issues and its inability to be used in wet areas. Some manufacturers say their 12 mm products don’t create the distinctive laminate sound.
“If we’re able to open up bathrooms, kitchens and basements, it’s a growth opportunity,” Sturrus says.
Sturrus says that recent Clarion research has found that shoppers are not getting enough information about the characteristics of laminate when they consider flooring. Retailers may be focusing too much on laminate as an economical alternative to wood rather than on its performance, greater durability and easier maintenance.
“This product has moved from being a less expensive alternative to wood to a very good product,” on its own, Sturrus says. “I think the product’s characteristics will expand opportunities.” He believes laminate will grow marketshare because growth in LVT will flatten out, and, like other hard surfaces, laminate will take some business from carpet.
Nevertheless, laminate today is facing a stiff challenge from LVT, which has many of the same installation advantages as laminate and one less drawback—it can be used successfully in wet areas. Many people also believe it’s more realistic looking, and its ceramic tile designs can be grouted, giving it added realism. Generally, it’s also cheaper than laminate.
“Flooring stores have used the lower cost of LVT and its superior look to battle the laminate sold at home centers,” says Santo Torcivia of Market Insights/Torcivia.
For now, laminate is still primarily a residential remodeling product. It doesn’t have much presence in either the builder market or the commercial market. The builder market is still dominated by engineered hardwood, and LVT is used in commercial areas where laminate might be a good option. Torcivia said that if he had to bet on either laminate or LVT he’d take LVT, partly because laminate hasn’t been able to crack those markets.
Some players are making noise about pursuing more commercial business. For example, Unilin recently unveiled a five year light to medium commercial warranty on almost all displayed Mohawk, Columbia, and Quick-Step products.
Pergo also has a Pergo Pro line but it’s not clear how much emphasis the firm puts on marketing those products.
Laminate may also get an additional boost as the economy recovers. It’s likely hardwood prices will move up substantially (see this month’s Wood Cuts column), and LVT is far more dependent on the price of oil, which is also likely to rise as the economy recovers and demand for oil rises. Although laminate is a wood-based product, the coreboard incorporates post-industrial waste, the cost of which may not rise as fast as wood in general.
Laminate designs are more realistic than ever, thanks to advancing printing, surface texturing and edge technologies. Manufacturers are producing distressed and character wood looks, as well as exotics, which have grown in popularity in engineered hardwoods. They also have styles that mimic tile and stone. High quality laminate is generally much more durable than wood and can hold up much better to environmental challenges such as dogs. Välinge’s new powder technology may one day have an impact. One of its strong points is that it offers texturing capabilities not available in other methods. However, as a new technology, it’s still relatively expensive, but the cost should eventually come down.
Pergo, whose North American operations may be sold by the time this issue is published, is one manufacturer that has seen its U.S. sales grow in the last year or so. The reason is that it has increased its presence at the home centers and now has about 20 skus in those stores. Pergo has managed to push some of its competitors out of that channel, Torcivia says. About 90% of its sales are to mass merchants.
Pergo hit bottom in 2010 when parent company Pfleiderer began a reorganization and Pergo lost a little shelf space. That’s when it introduced new higher quality products for the home centers—Pergo XP for Home Depot and Pergo Max for Lowe’s—and sales began to take off, to the point that it was having problems filling orders earlier this year. However, operational changes are fixing bottlenecks on its production line and later this year it expects to update its press.
Pergo is also rolling out new products and displays this month for specialty retailers.
Unilin, one of the vertically integrated companies, sells three brands of laminate, Quick-Step, Mohawk, and Columbia, touching on all channels, from independent retailers to big box stores, and it has products through all price points. Unilin doesn’t dumb down its products for mass retailers because its proprietary Uniclic locking system requires a certain level of quality in order to function correctly.
Unilin has new products in the mid and upper range, all aimed at providing the popular character looks. The new mid-range products are on an 8mm platform, while the new reclaimed wood looks are on a 12mm platform.
Roger Farabee, senior vice president of marketing at Unilin, believes laminate can compete with LVT based in part on a greener profile. He notes that about 80% of LVT by volume in this country is imported, almost all of that from Asia. Some of those products, he says, have been found to contain heavy metals and other banned substances, because they use recycled content from older vinyl flooring.
Mannington sells exclusively to independent retailers. Last year the firm put its emphasis on a high end collection featuring thicker, wider products, and this year it added three new patterns.
Dan Natkin, Mannington director of wood and laminate, says laminate sales will continue to grow, although not at the rate they did ten years ago. He anticipates that LVT will grow in the single digits and taper off toward the end of the decade, at least in the residential market.
He also likes laminate’s green story, saying it’s significantly greener at a lower price point than any other flooring.
Kronotex manufactures the Formica brand of laminate for specialty retailers as well as separate products for home centers and other large retailers. It has a large private label business.
The firm over the last two years has added 60% to its capacity as part of a $45 million investment to add a third line to its Barnwell, South Carolina facility.
Previously Kronotex had imported its high end looks from Europe but the new line allows Kronotex to manufacture all its products domestically, with the exception of one long-plank product that it imports from Germany.
LAMINATE AT RETAIL
CC Carpet in Dallas, Texas has been selling laminate since it was first introduced in the U.S. About 65% of its flooring sales are hard surface and the majority of its business is remodeling. Vice president Mark Fitzgerald notes that when laminate first appeared in the U.S., the transitions were metallic, which was more in line with European tastes. Once wood transitions were developed, and U.S. wood species were incorporated in the designs, sales began to grow.
“The realism and detail are phenomenal,” Fitzgerald says. “It seems like there might be a little decline in sales but laminate is still a good performer for us.” He says Mohawk and Mannington, in particular, “have made remarkable improvements.”
CC Carpet used to have a huge inventory, as much as 250,000 square feet at one time. However, a few years ago it began cutting back on imported products, partly because of product inconsistency and time delays, and went more with domestic manufacturers.
Today, many of CC Carpet’s laminate customers are replacing sheet vinyl. “What people do like is the wood look and the price point can be easier on the budget,” Fitzgerald says. “At the same time, it’s not vinyl. Vinyl had a stigma put on it since the 1980s because it cut and gouged easily. Even though the new products have a good warranty, people still think of vinyl as cheap.”
Fitzgerald says laminate is generally being used in kids’ bedrooms, dens and offices, while carpet tile and hardwood are more commonly used in living rooms. He said customers need to be wary about using laminate in an office where there are a lot of electronics because of static issues. “If you put a computer on the floor, the static can wipe out a hard drive,” Fitzgerald says. “A lot of people don’t know that.”
CC Carpet has very little cash and carry business and installs nearly all the laminate it sells. Fitzgerald says he has few post installation problems with laminate. “I attribute that to the understanding of the product,” Fitzgerald says. “Once I had installation clinics, the installers changed their thinking and the service issues went away.”
Laminate is generally competing against hardwood and LVT. Fitzgerald says that if a customer is thinking ahead to a potential home sale, they’ll often want hardwood over laminate because they think a buyer will perceive it as higher quality.
“If I’m a realtor and I have one house with wood and another with laminate, I’m going to show the wood home first,” he says.
LVT is growing in popularity at CC Carpet, especially Mannington’s Adura and Mohawk’s DuraCeramic (manufactured by Congoleum), but often it’s being sold as an alternative to tile. An elderly person often wants a tile look but something that’s not so hard.
Fitzgerald says all his hard surfaces are picking up share from carpet, partly because people mistakenly, in his view, believe that hard surface is a healthier option. Plus, he says, “In my market, I’d rather sell carpet for the margin.”
Avalon Carpet Tile & Flooring, with 14 locations in New Jersey, Pennsylvania and Delaware, has seen growing laminate sales in the middle to high end. The economic downturn has caused many shoppers to become more value oriented, says product manager Justin Baldwin. July was Avalon’s biggest month for laminate sales since 2008, and he noted that his margins are generally better with laminate than either wood or LVT.
“It’s all about perceived value, as laminate gets better looking,” Baldwin says.
Customers often choose the handscraped, rustic laminates when they fall in love with the look but can’t afford authentic wood product. “It’s come down to ‘how much can I get for $4.’ To me it’s all about the aesthetic value and pricing.”
Baldwin says he makes sure that most of the laminate Avalon sells is domestically produced because it’s not uncommon for his customers to ask for a Made in America product. The only imported laminate he sells is a high gloss product. “One customer liked the high gloss look but when they found out it was made in China they looked at a Mohawk product instead,” Baldwin says.
Some laminate manufacturers tout the sustainability story, since the coreboard is generally composed of manufacturing wood waste. But Baldwin says he doesn’t believe it and Avalon doesn’t promote it. “To me, it’s one of the least green products because the surface is melamine and that takes a long time to break down.”
Avalon uses floor vignettes to sell laminate, with anywhere from six to ten different 12’x12’ displays, and these, he says, are effective.
For many of Avalon’s customers, the decision often comes down to laminate or LVT because the looks and performance characteristics are similar. However, most customers come to an Avalon store only knowing they want a hard surface but aren’t sure just what. Avalon uses a qualifying questionnaire for customers, asking about specific rooms the product will be used in as well as lifestyle questions. That generally narrows the choices. “If they have two pitbulls and a kid, we’re not going to show them hardwood,” Baldwin says. “That’s why we don’t get a lot of call-backs.”
About 40% of Avalon’s laminate sales is for DIY and almost all of those projects are for one room only. Nearly every job installed by Avalon is at least two rooms and sometimes an entire house.
Home furnishings retailer RC Willey, based in Salt Lake City, Utah, has seen rising laminate sales recently although it makes up a small portion of overall flooring sales, which are roughly 80% carpet, partly due to the colder environment.
“For us, engineered wood has taken the biggest hit,” says buyer Eric Mondragon. “If you go back two or three years, sales are off about 40%.”
Willey’s average laminate sales price is $1.99 but it sells a lot in the $2.99 range and it installs about 90% of all the laminate it sells. Its primary competitors are the home centers, but Willey never apologizes for having higher prices because it sells full service and financing, Mondragon says.
“We definitely offer solutions with laminate, not a price point,” Mondragon says. “We give customers an installed price.” Nevertheless, he says, the choice to buy laminate among his customers is based almost entirely on what it looks like, Mondragon says. “Performance is still an issue but it’s like buying a car. You ask all the questions but what it comes down to is, ‘I look good in that car and that’s what I’m going to buy.’”
At Willey, laminate doesn’t really compete much with LVT, Mondragon says. Most of Willey’s LVT sales are for ceramic looks because real ceramic gets too cold and is too hard for many people, and it’s often going into a wet area. For wood looks, he says, laminate is less expensive than LV planks.
“Laminate has come a long way and I think it’s still a very viable product for the consumer, and manufacturers have done a great job with trends,” Mondragon says. “Laminate has some of the best visuals out there.”
A BETTER HANDLE ON SALES
The North American Laminate Flooring Association has formed a committee spearheaded by Dan Natkin of Mannington to try to get a more accurate gauge of how much laminate is being sold in the U.S. There are third party reports available, and NALFA has provided annual industry estimates. However, because not all members shared their numbers, the accuracy of the NALFA estimates has been suspect. Now the members, which include Mohawk, Shaw, Quick-Step, Mannington, Pergo and Torlys, have agreed to share their figures. The biggest players who aren't NALFA members include Clarion Industries, Kronotex and Armstrong. The first report, which should help companies with strategic planning, should be available by Surfaces next year. Non-members who provide numbers will also receive a copy. "When you talk from one domestic manufacturer to another, our estimates are all about in the same range," Natkin said. "But when you talk to importers, the size of the market might vary by 50%." To get a better handle on imports, NALFA has hired a legal firm that represents the office supply industry, which faces many of the same issues in terms of determining accurate numbers. Its current estimate for laminate volume—962 million square feet.
Copyright 2012 Floor Focus