25 Years of Change: Industry veterans look back on the past quarter century - Aug/Sep 2017
By Kim Gavin
Twenty-five years ago, when Floor Focus launched its inaugural issue, carpet was king of the flooring industry, commanding a 75% marketshare with a healthy number of players. Consolidation had already begun, as had vertical integration, but the most rapid change was yet to come. “More changed in the last 25 years than the 25 before that,” notes Julian Saul, former president of Shaw Industries and former CEO and chairman of Queen Carpet Corporation, which was acquired by Shaw in 1998.
Floor Focus asked industry executives to look back on the last quarter century and cite some of the highlights and the low points of an industry in transition. It’s a story driven by technology, changing market forces, shifting consumer demands and plain, old-fashioned hard work.
Prior to the flurry of consolidation, the suppliers in the flooring business backward integrated in an attempt to take more cost out of the components, explains David Polley, who spent his career first in flooring retail, then manufacturing, working for Burlington Industries, World Carpet, Mohawk Industries and most recently The Dixie Group. He retired as vice president of marketing and now has his own flooring business, VSP Flooring. “Manufacturers were buying dye houses,” Polley says. “They were buying yarn plants.”
By 1992, the trend was in full swing.
Shaw Industries, for example, started as Star Dye Company and later became Star Finishing. The company purchased Philadelphia Carpet in 1967 and went public as Shaw Industries in 1971. Shaw started its own truck fleet in 1982 and got into the yarn spinning business in 1983. The company added fiber extrusion in 1992 with the purchase of Amoco’s polypropylene facilities.
In 1992, fiber companies dominated the business. DuPont, AlliedSignal, BASF and Hoechst Celanese were large, sophisticated manufacturing businesses supplying a small, largely unsophisticated industry, recalls Frank O’Neill, founder and former publisher of Floor Focus.
The 1990s saw a rush into fiber production by the carpet industry. That was an upgrade for the consumer. Saul notes, “We could give the customer a better value by making the fiber ourselves. That was a big change.” However, it also led to the demise of national advertising that the fiber companies had done. “The only ones advertising now are Lowe’s and Home Depot,” he adds. “There are no national carpet ads like we used to see. So integration was good for the mills’ profitability, but it caused carpet to disappear in the eyes of the consumer.”
Consolidation and vertical integration happened simultaneously. Shaw, for example, started on a rapid growth trajectory when it acquired the carpet division of WestPoint-Pepperell-Cabin Crafts-in 1987. Shaw purchased Evans and Black from Armstrong in 1989 and Salem Carpets in 1992.
Mohawk followed a similar path. Then-CEO Dave Kolb-a veteran from the fiber side of the business-orchestrated the purchases of Horizon Industries and Galaxy Carpet Mills in rapid succession. He then created a deal to bring Mohawk and Aladdin Industries together in 1993, though there has always been some debate about whether Mohawk bought Aladdin or Aladdin bought Mohawk.
When Floor Focus first started, O’Neill recalls, there were still over 100 carpet mills, though that number was down from 400 in the 1970s. “It was very fragmented and unsophisticated,” he says. “People made carpet in their garages. Kind of like how Bill Gates and Steve Jobs started.” The industry was manufacturing driven. People made what the machines were capable of.
“Consolidation has had a negative impact on the sales of soft surface,” notes Peter Spirer, founder and former chairman of Horizon Industries, and later executive with Max Windsor Floors. As the industry consolidated, manufacturers felt less competition. “Turning over marketing to three or four major influential companies and removing the basis of competition has led them to feel less attacked, more comfortable and able to initiate price increases,” Spirer explains.
Spirer believes that higher carpet prices drove away consumers who no longer wanted or could not afford to invest that much money, and it caused other producers to use polyester to engineer carpets at lower price points to supply that demand. “As carpet prices continued to rise, it opened the door for alternative products,” Spirer continues. “People look at it and calculate they can buy a more durable hard surface alternative for less money. It may be coincidental that style aspects changed at the same time, but suddenly hard surface began to fascinate the consumer. When engineered wood came along, it blazed a trail to make carpet sales more difficult.”
THE SHIFT TO HARD SURFACE
“When we started Floor Focus, the industry was basically the carpet industry,” recalls O’Neill. “Carpet had 75% of the market. Carpet was pretty much the industry, with some vinyl thrown in.”
Carpet dominated through the 1990s, but the decline that started then escalated quickly. “The consumer started getting interested in hardwood again,” says O’Neill. One thing that drove that resurgence was the addition of interesting textures like distressed, hand-scraped and rustic looks. O’Neill gives Anderson Hardwood and its former president Don Finkell a lot of credit with pushing these forward. “Hardwood sales really jumped,” O’Neill adds. “Then a new product came out of Europe called Pergo. That made a bit of a splash too.”
Tom Davis, retired CEO and president of Mannington Mills, believes that the new floorcovering categories that have come on in the past 25 years are a milestone in their own right. Laminate and, more recently, LVT have “changed the landscape and pushed people away from carpet,” Davis says. He also notes that a lot of these new categories came from outside the U.S.-laminate from Europe and LVT from Asia.
Polley believes a big turning point came in 2000, when Mohawk CEO Jeff Lorberbaum cut a deal with Congoleum to distribute its hard surface flooring products. “To my knowledge, that’s the first time a carpet mill ventured into the hard surface business,” he says. “Cutting the deal with Congoleum was a very interesting and far-seeing move because it put Mohawk in the hard surface business where the volume was already out there. Once he created the sales force, and they had the volume for Congoleum, he could put other products in there.”
Mohawk Industries purchased over a dozen soft surface companies between 1992 and 2000, but the company defined the future of the industry when it purchased Dal-Tile in 2002. Three years later, Mohawk purchased laminate producer Unilin to take a leading position in that category. Columbia Hardwood followed in 2007. Mohawk would go on to buy Marazzi and IVC Group, among others.
Not to be outdone, Shaw Industries moved into hard surface, first by converting a yarn plant in Tennessee into an engineered hardwood facility in 2006. The next year, Shaw purchased Anderson Hardwood Floors, followed by Zickgraf Hardwood in 2008 and Stuart Hardwood in 2010. The company just last year added US Floors to its mix, further diversifying its product offering.
THE RISE OF CARPET TILE
The introduction and growth of carpet tile in the commercial sector is one of the key milestones of the past 25 years.
“It was pretty boring early on, but it was great from a utility standpoint,” says Davis, who also worked in the carpet sector for Milliken prior to joining Mannington. “You could put it on an elevator. You could replace damaged tiles without having to rip up the whole floor. That’s what gave it a foothold.”
Over time and with greater design input, tile grew into a design product in its own right. That has driven it to take share, say both Davis and John Wells, who retired as CEO of Interface Americas in 2016.
Wells says, “I have this tunnel vision because my career was spent trying to develop this category called carpet tile,” which was a new thing in the 1990s. Ray Anderson, chairman of Interface, pioneered bringing the product over from Europe. “It used to be a small niche related to under-floor access and functional needs.”
What changed all that was fashion and a few visionaries who decided to stop trying to make tile look like broadloom and instead celebrate it for what it was.
“David Oakey was the guy that took the graphics tufting machine and turned it upside down and figured out how to make carpet tile out of it,” Wells says. It was hard to make broadloom and cut it into tile, but that was the industry’s first direction. “Oakey stayed on that. Then it became fashionable.”
The other part, Wells notes, was that things changed dramatically when the industry stopped trying to hide the seams. “Oakey said, ‘Let’s accept that and work with it.’ That was a hugely liberating thing. That’s why it’s one of the most dynamic soft floorcoverings.”
So why hasn’t carpet tile leapt into the residential market in any significant way? Price points are one reason. Wells says, “The cost of it compared to hard surface makes it fit into the top of the market.” Used as a rug, though, it’s in the middle of the market. “I still think it’s an opportunity,” he notes, “but cost and availability make it hard for the consumer.”
DuPont shook the industry to its core in 1986 with the launch of the Stainmaster brand. Stainmaster was built on stain-resistant technology. But it wasn’t so much the technology that was the revolution-that had actually been around for a while-it was the fact that DuPont spent what was then, and would be now, considered a massive amount of money advertising the product to the consumer.
Tom McAndrews, then-president of DuPont Flooring, was responsible not only for getting the new technology to market, but also for the advertising that created an overnight brand in carpet. McAndrews recalls that the fiber giant was concerned with carpet’s decline in marketshare even then. “There were no strong brands,” he said.
That was about to change.
“Our market research people had been working on the fact that consumers didn’t have any reason to go to retail stores,” McAndrews says. “When they did go, they would buy on price and color. We decided to form a top secret team focused on finding out if we could develop a brand presence in a market that was so diversified.”
They experimented with the Antron brand, which was big in commercial but not very well known in residential. Through promotional testing at retail, they discovered they could indeed move the needle of recognition. That prompted McAndrews to go further and get outside help. The team hired BBD&O, as well as consultants that had experience with consumer branding.
The field team returned with a report that one of the consumers’ big issues with carpet was staining. While the stain-resistant technology wasn’t new, it was new to carpet. DuPont had a chemist named Armand Zanato who had knowledge of dye-resistant product in consumer apparel used to protect clothing from acid dyes. The technology worked on carpet but created a yellowing problem, which was unacceptable. They worked that out.
The team signed agreements to test with a handful of carpet mills, including Shaw Industries, Salem and Burlington. It was time to go to market. One of DuPont’s group vice presidents objected to McAndrews plan to spend $5 million on advertising, but the move was later approved.
McAndrews bought a 30-second commercial on the American League Playoffs in September. The “Little Ricky” ads debuted that night.
“The next day, the phones of the DuPont Corporation went into meltdown,” McAndrews recalled. “Consumers and retailers all over the country were calling our plants, our labs.” Engineers at the company’s facilities in South Carolina, Virginia and Delaware went into overtime to expand capacity.
The initial $5 million in advertising grew to $15 million. McAndrews challenged BBD&O to put the ads everywhere. “It was a massive success,” McAndrews said, catching fire not only in the U.S., but also in Europe, the United Kingdom, Australia and Japan. The company continued to spend, and in 1989, when McAndrews left the company, it had spent $85 million to advertise Stainmaster since its initial launch three years earlier.
Of course, DuPont’s move did not go unanswered. Allied introduced Anso Worry Free. Monsanto fired back with Wear-Dated. Then the carpet mills got into the act with their own versions of stain-resistant carpet. Within a year or two, untreated nylon products were very difficult to find in the residential market.
“Stainmaster certainly had a major impact and led the way to a more sophisticated way of promoting the product,” recalls Spirer. “At the same time, it has an adverse effect on business from a long-term view.” In Spirer’s opinion, overselling the consumer with long warranties and the promise of no stains led to consumer dissatisfaction with carpet. “People at the time warned that it was not a good idea to provide customers with the thought that they were buying something that lasts forever.”
TECHNOLOGY AND INNOVATION
Improvements in technology have been the story of most every product category in the industry, and the pace of innovation has quickened in recent years with the increase in competition among the categories.
Ceramic tile has seen dramatic changes. At the end of the 1990s, strong glazes were developed that allowed the porcelain market to expand. Next came isotactic pressing, which allowed production of a more precise tile. “Now we could make larger than 12” tile,” reports Svend Hovmand, former president of Crossville Inc.
Other technologies followed-like roller printing that enabled glazing to be both simpler and more sophisticated. The industry began to produce tile that looked like real stone. In 2010, according to Hovmand, digital printing techniques added the ability to use up to 12 different colors to produce a tile. “You can vary 200 to 500 different tiles,” he notes. “Once you have 150, it looks pretty natural.” Digital printing also helped improve wood-look tiles. Recent advances by ceramic tile machinery producers like Sacmi and Laminam (part of the Systems Group) have changed again the way tile can be made, enabling ever-larger formats and varying thicknesses that can be used as cladding and countertops.
The hardwood category has experienced notable advancements as well. David Wootton, former president of Columbia Hardwood, points out that when he started in the business, unfinished hardwood was the only option. Then the industry applied wax. Later, unfinished strips led to prefinished engineered floors with an explosion of looks.
One of the big innovations in the industry came from European company Pergo, which introduced laminate to the U.S. market, says Wootton. “It’s a piece of paper with a piece of plastic on top,” he points out. “I remember saying, ‘That will never fly.’ Everyone should thank Pergo, and our good friend Jim Gould, former president of St. Louis-based distributor, Misco Shawnee, who dug it up.” Later, laminate evolved into click flooring systems, another major technological advancement that changed not only laminate but the wood and vinyl categories as well.
LVT, which has been around for decades but really gained traction just a few years ago, and WPC have taken the market by storm. The products’ inherent durability and resistance to water damage appeal to consumer’s concerns, and innovation with regard to visuals means that their appearance more closely resembles the real product than ever before.
But innovation hasn’t been limited to hard surface. An important change to the area rug business, which saw increasing use with the proliferation of hard surface flooring, was afoot as well. O’Neill recalls a sea-change coming from Oriental Weavers, an Egyptian company that made area rug designs out of cost-effective polypropylene. “The middle-class homeowner could now afford area rugs,” says O’Neill.
In carpet, innovation from fiber drove technological advances for years. As Steve Griffith, who retired from Invista as chief marketing officer about a year ago, recalls, “The introduction of the Stainmaster brand, and the fact that it is still the most recognized brand in the industry, is probably the single biggest thing from my perspective.” Stainmaster endured, Griffith reports, because it focused on the consumer and allowed carpet manufacturers to make innovative products.
Another factor was the launch of the DuPont Flooring System in 1996, which, according to Griffith, “fundamentally changed the way consumers thought about carpet.” Griffith believes that Tactesse was the first major fiber innovation from DuPont. Soft 6,6 nylon with a differential feel caught the consumer’s fancy. “That fiber as a launch was one of the-if not the-largest for growth in sales in the history of Stainmaster. It was around for ten years before the carpet mills launched their own versions of soft nylon.”
That the flooring industry is a leader in the sustainability movement might surprise some. But it is one of the key developments in the business over the past quarter century. Some of it was driven by necessity. Repeated and prolonged droughts in northwest Georgia in the late 1980s and early 1990s forced the mills to rethink the way they manufactured product to use less water.
Maturing as businesses also forced the mills to look at ways to manufacture more efficiently, including the raw materials and resources that they used. They looked for ways to reduce energy costs and water use and make carpet more affordably.
At the same time, Paul Hawken was writing The Ecology of Commerce, a book about sustainability and the responsibility of business for the environment and future generations. The design community was one of the first to jump on that bandwagon and start demanding that its suppliers consider the impact of their products.
Many give most of the credit to Ray Anderson, former Interface chairman. Wells is certainly in that group. “When we came to Interface, the company was not doing that well. Incoming president Charlie Eitel told Ray he needed to get out of the way,” Wells says. “That was important. Ray took a year off to find his mission. It changed him. At first I thought it was a gimmick to sell more carpet. But he really believed it. And it did sell more carpet.”
Wells says Anderson raised provocative ideas to customers, industry experts and analysts-anyone who would listen. “That was a remarkable moment,” Wells notes. “The environmental community wrapped their arms around him because they finally had the CEO of a company agreeing with them.”
Through Anderson’s work, Interface made a big impact on the movement. He made the first keynote speech at Greenbuild to a crowd of maybe 70 people. When he received an award the year he died, in 2011, there were 30,000 in the audience, according to Wells.
Of course, many other flooring companies committed to the sustainability march. And the total carpet industry came together at the end of the 1990s through the Carpet and Rug Institute to create an industry-wide initiative with a Memorandum of Understanding. That led to the creation of the Carpet America Recovery Effort in 2001. Since then, over 4.6 billion pounds of carpet have been diverted from landfill.
The industry hasn’t been without its hiccups over the years. Some were big, some small. Three really stand out.
• Mannington Gold: On the heels of DuPont’s launch of Stainmaster, Mannington Mills hit a home run of its own-or so it thought. The company launched a loose-lay vinyl product called Mannington Gold. Mannington even hired McAndrews away from DuPont to oversee marketing of the new product.
The marketing was fantastic, but the product was a failure, and one that threatened Mannington’s financial health. The company survived, covered all the claims from the product, recovered and built on its reputation. In short, it thrived.
Tom Davis believes it was both a mistake and a win. “It was a huge lost opportunity because it was so successfully researched and marketed, but there was a huge product failure,” he says. “The big win was the way Mannington handled it.” He had just joined the company when the claims started to come in. “The size of the problem in relation to the company was enormous financially. But we stood up to it. The lesson for me was that when you do what you ought to do-what you would want to have done for you-you build tremendous loyalty and trust.”
Davis says that, prior to the Mannington Gold issue, the company culture was not designed to encourage dissenting voices, adding, “It’s important in an organization to create a culture that if someone knows something is wrong, they feel comfortable raising it.”
• Manufacturers Moving Into Retail/Contract Dealers: The decision on the part of carpet mills and a fiber producer to get into the retail/service end of the business was viewed by most as a mistake. “That was a big one,” says Wells. Interface was one of the companies that went into it, driven in part by the fact that Shaw Industries made it first.
“We owned Bentley and Prince Street and started getting word from those dealers that they were in the process of being sold to Shaw Industries,” Wells recalls. “We all got into it. You cannot make the case for it financially, but there was some learning out of it-particularly for Interface, whose whole existence was driving demand around dealers.” The company started to learn first-hand service and installation, which reshaped how it did business.
“To me, we learned a lot by making this move into someone else’s game,” Wells reports. “When you know who you are and are true to it, it’s okay. The minute we got into someone else’s game, it was dangerous.”
• Not Getting a Leg Up on the Installation Crisis: Manufacturers can produce the best product in the world. Retailers can market and sell the products to the best of their ability, but the product is not a floor until it’s installed-and the industry has a shortage of quality and experienced installers that is getting worse with each passing year, as fewer young people are willing to enter a physically demanding job that may not pay very well. Different industry groups are tackling it now, but, with some retailers already reporting that the shortage of installers is impeding their workflow, it’s clear that the issue should have been tackled sooner and with more fervor.
A CHANGING PATH TO THE CONSUMER
How product goes to market has been changing over the past 25 years, with manufacturers going direct and distributors sourcing their own private label products, along with the rise of home centers and fewer specialty retail outlets. In addition, the Internet has changed the way consumers shop for everything from flooring to toilet paper to prom dresses.
“One of the biggest challenges is how to use the Internet as a positive, rather than trying to combat it,” Wootton says. “There are always people who want to go into a store to see and touch the product.”
Younger consumers are comfortable shopping online, a number of industry executives noted; they are not sure where that ends, but it clearly will impact the market. “What’s going on in brick-and-mortar retail is frightening,” Davis says. Jobs are disappearing as consumers find new ways to shop. Discount stores are the only ones doing well.
Wells counters with a different perspective. He believes that the new technology in visualization offers a wonderful opportunity. “The ability to give designers and consumers the ability to envision floors in real time is the thing that will continue to drive demand,” he notes. “People don’t shop anymore, even with a tactile, textile product. The ability to visualize it will help make things aspirational.”
Davis notes that a significant challenge is changing consumer demand, including a trend toward smaller home sizes and the movement of young people back into cities. In addition, young buyers are likely to be more concerned about the environmental impact of a bigger house. Davis points out that these factors are largely out of the flooring industry’s control, adding, “The industry has a lot of thinking to do about the kinds of products it brings to these consumers. What products can you bring that add value and are profitable?”
“There is a tendency to always put price as the way you win,” notes Davis, “It was true 25 years ago, and it’s still true. I see it at all levels of the business. There is a tendency to commoditize flooring. The industry has paid a price for that and will continue to do so. Innovation suffers. Profitability suffers. How can we get the industry to understand the problem?”
That’s one of the disadvantages of consolidation and size. Larger manufacturers are trying to exploit that advantage and gain efficiency, and in that scenario, styling will suffer. “When you have consolidation, you can’t help but lose some of that,” Davis says. “It’s hard to create a culture of innovation in really large companies. Innovators can be hard to manage.”
Consolidation itself is a threat. Size makes it difficult to be innovative. Customer-centric cultures are harder to create in large companies. Davis points out that the recent innovations in laminate and LVT came from fringe players.
Griffith says the biggest threat he sees is “the end result of pumping out lower-cost, lower-performing fiber and selling it as if it were great quality. The role that the carpet mills played in driving lower-cost and efficiency has taken a toll on the industry.” He adds that the time might come when the only soft surface is a mat or area rug, noting, “Low-cost carpet in the bedrooms and in lower-cost homes is still the case, but on the main floor and in rooms where fashion and style are featured, area rugs and hard surface have taken over. It’s a threat come true.”
Saul agrees, adding, “I think we made mistakes. It was a mistake to sell FHA carpet into good homes.” Part of the problem may have stemmed from the fact that the flooring went in last and, therefore, was most vulnerable to having its budget trimmed, Saul says, but in markets all around the country, builders put FHA-grade carpet into $400,000-plus homes. “People who lived with it got a bad taste of carpet,” he says. “Apartment buildings are guilty too.”
Saul says the misconception spread by the medical community that carpet is bad for allergies also hurt the industry. “Carpet holds the dust,” he notes. “If you vacuum on a regular basis, it’s much better than hard surface. I thought we got unjustly accused of that.”
Jack Bandy, one of the founders of Coronet Industries in 1956, notes that “hard surface has always been in the market, and tufting has competed well. When you compare carpet to hard surface as an installed floor, carpet comes out better, I believe, and it’s my opinion that carpet will stand up well in the market long term.”
Polley feels that one of the main reasons the flooring industry has shifted from soft to hard is because of industry leaders who think of carpet as a commodity and not a style item. He recalls attending a meeting where the leader of one of the biggest mills said, “Carpet is nothing more than a sheet of color on the floor.” He adds, “I remember a CRI board meeting, where Julian Saul stood up and said, ‘We’ve got to increase the specs of FHA. The product is uglying out, and consumers are upset.’ He got voted down. The carpet was uglying out, and I think that was the thing that drove us to hard surface. My opinion is soft surface lost because industry leaders went to the lowest common denominator.”
Wells notes, “I feel like the carpet industry today is paying for the fact that it didn’t make the product aspirational enough. The big threat and the big opportunity have to be rethinking carpet and soft floorcovering, both residentially and commercially, and quit being the commodity, boring player. It doesn’t have to be that way.”
While the flooring industry has had and continues to have its challenges, things are looking better now with the Great Recession behind it.
“Floors aren’t going away,” says Polley. “If you keep on putting hard surface down, you will extend the replacement time, and you will reduce the volume of the industry. If you treat it as a fashion industry as opposed to a commodity, you will get replacement.”
There are opportunities ahead for the industry, even the large, consolidated companies, says Davis, who believes that “innovation comes at the fringes.” However, he feels that the ones who will benefit are the companies that keep their eyes open to the little companies around the world. He recommends “going to markets and tuning in to the next carpet tile or laminate-type products-seizing upon them and making them better. I also think companies are going to have to work hard at displaying customer-friendly culture. That’s huge today. It matters to more people.”
Davis sees opportunities in functional areas like healthcare and housing for the aging population. Creating floors that are less likely to break a hip, for example. The companies that figure out how to address those issues can win.
“Retailers must make the experience of coming to the store, buying the right product and getting it properly installed so extraordinary that the consumer would not dare consider another route,” Davis says. “A lot of them get it, but a lot of them do not. They have to show their customers what they bring to the party and the value they add. If they don’t, people buy it elsewhere and find someone to put it in.”
As the composition of the industry changed, so did the channels to market. In the early days of the carpet industry, manufacturers sold to distributors who sold to retailers. The distribution revolution of the 1980s and 1990s saw some major things happen.
• The carpet mills bypassed regional distribution to go direct to retailers.
• The buying/marketing groups emerged and gained power.
• Shaw Industries, Interface and DuPont decided to forward integrate by buying retailers and commercial dealers. Viewed largely as a mistake by most (see Missed Opportunities box), the move turned the industry on its head for a time.
• The rise of the big box/home center stores took share from independent retail.
• The rise of the Internet and online shopping have challenged the industry to rethink its concept of service and quality.
Copyright 2017 Floor Focus
Related Topics:Crossville, Shaw Industries Group, Inc., The Dixie Group, Mannington Mills, Interface, Daltile, Marazzi USA, The International Surface Event (TISE), Armstrong Flooring, Engineered Floors, LLC, Mohawk Industries, Greenbuild International Conference and Expo, Anderson Tuftex