Rug Market Update - July 2012

By Brian Hamilton

No sector of the floorcovering industry is changing as rapidly as rugs in terms of how they are sold to consumers, and the manufacturers say it’s not at all clear where sales will dominate at the end of the decade.

the higher price points, web sales is the fastest growing channel through retailers like Rugs Direct, one of a handful of significant online players. Manufacturers are also seeing a channel shift toward furniture stores and other specialty home furnishings businesses, as well as department stores. And the home centers do a brisk business, but mostly at lower price points.

Internet sales is a natural for rugs for a variety of reasons. Rugs still tend to be an impulse purchase, and online shoppers are as impulsive as any other shopper. In addition, virtually any size product can be shipped anywhere. In fact, most customers of Rugs Direct live in cities, and UPS will deliver directly to their door, which can be especially convenient for shoppers who might not have access to a vehicle. Also, Rugs Direct, which has been in business since the late 1990s, claims to have over 110,000 rugs online—but generally not expensive one-of-a-kind products—so there’s a large selection available a few clicks away.

There are also many supporting social media features online, such as Pinterest, where virtually every manufacturer has a presence. There, shoppers can get all kinds of decorating ideas and for some people it has the effect of making the Web the only place they need or want to go. Why venture out to a store to talk to a designer when you can get hundreds of ideas, many of them from accomplished designers, while sitting at home?

It’s also worth noting that Rugs Direct carries very little physical inventory. It has a warehouse, where it stores products that are special buys. But most orders are shipped directly from the manufacturers, which are already set up for drop shipping orders. Rugs Direct has automated connections to the manufacturers’ product data bases, so when new products are added they show up immediately on the Rugs Direct website.

However, web sales bring with them a set of problems. One, the likelihood that a rug will be returned is higher, because many shoppers haven’t seen them in person. For example, an online shopper whose monitor isn’t calibrated correctly could see the wrong shade of a color—perhaps red looks like burgundy—and base the purchase on faulty information. Rugs Direct, which has two retail stores in Virginia, has to deal with this issue.

Another common problem—one that is especially pervasive in the electronics industry and elsewhere—is that shoppers often go to a retail store first to see a product, maybe even take the product home to try it out, then order online, where, among other things, prices are probably lower and there’s no sales tax. This is a well known phenomenon at Rugs Direct, because a majority of its products carry name brands that can usually be found in stores.

Shaw, Nourison and other manufacturers maintain tight pricing restrictions for online retailers because they want to be fair to the traditional stores that inventory their products, spend money promoting their brands, and generally need higher margins. They won’t allow e-commerce retailers to have fire sale prices and win the sale by price alone—though some manufacturers admit that it’s a challenge to police the pricing on the web. Other retailers, like Karastan, won’t sell to Internet-only retailers, so a company like Rugs Direct with physical stores meets its guidelines, while most others don’t. (As a side note, if you type “Karastan” into the Rugs USA search engine—another online specialist—it displays Rugs USA branded wool rugs, along with other makers, but not Karastan.)

THE PLAYERS
Shaw has begun an exclusive sales program through the Sears department store chain, which had been out of the rug business for many years. However, Sears recently introduced a special order mattress business and followed that up with a similar recliner business, both of which have been successful. Last October, Sears began a special order program with rugs.

Shaw provides displays with 96 samples, either 1’x2’ or 1’x3’. They’re all woven constructions. Orders come through Sears and are fulfilled by Shaw. Shaw also runs a similar program through mom and pop flooring retailers.

About 50% of Shaw’s rug sales, all olefin, are through home centers. Internet sales are beginning to level off but they could reach 20% of sales, while the rest are at other specialty retailers.
Although technically not a rug company, Flor refers to its carpet tile, ranging from $10 to $30 per tile, as “scalable rugs.” Consumers can take half meter carpet tiles—based on the Interface carpet tile platform—and create virtually any size or shape rug for any size space.

Flor opened its first retail store in 2008 and today has 11 outlets in major U.S. metropolitan areas, with more coming this year. The stores carry very little inventory and orders are shipped directly to customers. It also has web and catalog sales, but the stores have become the driving channel. It also sells an exclusive collection through Crate and Barrel stores. Flor has no plans to expand beyond its current channels. Industry analyst John Baugh of Stifel Nicolaus says Flor could have as many as 19 stores by the end of the year and reach $40 million in sales.

Karastan sells primarily to specialty rug stores, and furniture and department stores, but is not typically in flooring stores. Macy’s is a large account. However, it avoids the big box stores entirely. It’s also been getting some traction in stores that have specialized in higher-end, hand-knotted rugs with its top of the line products.

Karastan plans to explore other channels involved in home decorating, some of which may be rolled out later this year.

Department stores and major rug retailers are strong channels for Nourison. Furniture stores have not been a focus for the firm until the last year, when it returned to the High Point market after a three year absence. Nourison has bolstered its marketing team to handle this growing area.

Furniture and home furnishings stores are likely to grow in importance for Nourison, as the company believes that one-stop shopping is an advantage in interior decorating.

The company also supplies the home centers with products that they don’t sell in showrooms.

Nourison also believes that e-commerce will never jeopardize the position of traditional retailers because rugs are still a product that most customers want to see and feel.

Bentley Prince Street sells rugs exclusively into the commercial market, primarily through the architecture and design community. It manufactures all kind of different custom rugs using its broadloom carpet capabilities.

The firm has put renewed emphasis on commercial rugs, and is coming out with its first significant marketing kit aimed at the market. It decided that with the growing presence of hard surface in the commercial arena that rugs are a natural fit. It recently closed a deal for 1,200 rugs with a South American hotel chain.

The rugs are used for practical reasons, like sound absorption, as well as their aesthetics. Bentley Prince Street has also found that the commercial rug business is much less price sensitive than other flooring materials.

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