Area Rug Report: Sales have slowed but change continues for the area rug business – Dec 2023

By Jessica Chevalier

Following exceptional performance from 2020 through 2022 as consumers updated the homes in which they were quarantining, 2023 was a year of rightsizing for the area rug business. However, while demand was soft, this remained a pivotal time for area rug players, as technological advancements have wrought significant change in how rugs are both made and sold, necessitating that manufacturers and importers reassess their offerings and paths to market.

CURRENT CONDITIONS
“The current market is challenging but, overall, okay,” reports Alex Peykar, president of Nourison. “On a broad scale, the home category is sluggish. Coming out of the Covid boom, it was a pleasant surprise to many of us that, while people were locked up, they paid a lot of attention to their homes, and businesses did phenomenally, probably a 20% to 25% increase overall.

“Once that finished, demand became a deflating balloon. People got back to spending on travel; like birds that had been locked in cages, they flew wherever they could, and the home category went back to reality. This is still the story now based on the conversations I have had with major retailers, who are complaining that they are having a tough time getting consumers into stores. Some are doing better than others.”

Peykar reports that Nourison was aiming for an increase in 2023 and will likely end the year flat or up single digits. “I am happy with that,” he reports.

Bart Hill, senior vice president at Mohawk Home, concurs, “The industry had demand challenges in 2023. I believe it will be off 8% to 10% in dollars with units a little bit better, down 5% to 7%.” He anticipates Mohawk Home will finish 2023 in line with the industry.

“Every channel was down,” Hill continues. “The club side held up more than most. Department stores were worst. Mass suffered as well, as its consumers were pinched the worst. Home centers were down but maybe a little better than some segments. Discounters held up too.”

Mohawk Home sells rugs from the low end to the high end; from ecommerce to specialty retailers; from Foss, which it acquired in 2022 at the low end, to Karastan at the high end. Sixty percent of its offering is made in the U.S. and 40% is sourced.

Austin Craley, vice president of sales for Loloi Rugs, notes that sales in 2020 to 2022 “set the bar very high, and, in 2023, as consumers got back to normalcy, they paid less attention to home décor because their focus was on everything they had put off for the last few years.” This created headwinds through 2023, which Craley characterizes as something of a correction from the Covid boom.

Len Andolino, vice president of The Dixie Group’s decorate segment, divides the U.S. rug business into three parts: traditional hand-knotted, a market that is facing obstacles right now; premade rugs, both machine and hand-tufted, demand for which varies greatly at present; and custom fabricated, demand for which is generally strong.

Price-wise, interviewees are in agreement that the higher end of the area rug business held up best in 2023, and some companies even saw some nice growth in it, as higher-end consumers weren’t as impacted by inflationary factors.

Stanton’s Geoff Siebold, national vice president of sales, says that 2023 brought “nice sell-through on fabricated and a nice bump in pre-mades” for his business, but notes that, in 2023, the order cycle elongated, reporting, “In the heyday of the pandemic, consumers would come in, place an order and be done. Now, they come in, get an idea, get a quote and wait six to eight weeks until ordering.”

He addition, he says that some consumers traded down in dollars, opting for a less costly option than they may have previously.

FABRICATION FLOURISHES
Kaleen announced a significant alteration to its strategy in 2023-exiting the low-end, machine-made area rug business that it launched a few years ago, which targeted e-commerce and big box sellers. Kaleen will now focus on its higher-end products in four areas: customization, carpets and broadloom, its handmade area rugs and its Luxe program.

The company’s core business is premade rugs sold through both e-commerce and brick-and-mortar, explains Monty Rathi, owner and COO of Kaleen. Its standard rugs are 100% wool with its Home & Porch indoor-outdoor collection 100% PET. Luxe, launched in 2023, is a custom fabrication program from Kaleen’s hand-knotted broadloom collections, which are made in the company’s Indian facilities. Luxe offers quick turnaround of ten days, as its broadloom is fabricated into area rugs here in the U.S.

The Dixie Group’s entire area rug offering is fabricated from broadloom. “I have been in the rug business for 40 years,” says Andolino. “I remember the days when we would go into a retailer and sell them a 6’x9’ for an arm rack. Some would have up to 500 hanging rugs in stock, including 8’x10’s and 9’x12’s, and then they would hope. They were purchasing on speculation. With our fabricated program, there is no rug commitment, no inventory. You can offer the products wall-to-wall, put them up a staircase, down a hallway, or you can make an area rug out of it. Our fabricated rug business experienced great growth in 2023.”

Andolino reports, however, that a successful fabricated area rug business hinges on an effective sales system that makes the process feel clear and simple to both the RSA and the consumer. Key to that is a manufacturer sales team that educates RSAs about how to utilize the system. “Like anything else, it can take some time for RSAs to feel comfortable,” says Andolino. “If they don’t feel comfortable, they won’t gravitate towards that. All you need is for one RSA to have a little success, and that is contagious.”

Dixie provides POS materials that display finished product, as well as a rug calculator in its dealer portal to make pricing quick and simple.” Dixie’s fabricated rugs are all processed through its facilities in California or Georgia.

Andolino doesn’t believe that, for many customers, price is the key factor in area rug sales. “If a consumer just put down a $50,000 hardwood floor, they want something that is dynamic and beautiful to put atop it. They don’t want a postage stamp rug because it’s cheap. People buy a Mercedes because it says something; it’s the same buying philosophy here.”

The lion’s share of products under the 1866 by Masland and Décor by Fabrica brands are imports, though some are manufactured by Dixie. Wool is the main fiber used, with some collections featuring UV-stabilized polypropylene and PET.

Some of The Dixie Group’s new products are suitable for outdoor use; however, Andolino resists the “indoor-outdoor” label, believing it to be derivative due to the level of sophistication offered by his brands, which feature woven and Wilton constructions. “I am catering to the person with a massive outdoor dining area, who needs a rug for that space,” he says.

Nourison’s Craftworks enables retailers to display 300 to 400 SKUs in a ten-square-foot space, and Peykar explains that the program doesn’t just speak to the consumers’ desire to have exactly what they want but offers aesthetics more in line with modern fashion. “Area rugs used to be bold or Persian designs, but fashion is moving to more contemporary looks, and that has allowed this business model to do very well for us,” he notes, explaining that popular designs have strong texture stories or smaller-scale patterns, and those translate well to swatches.

Nourison’s Calhoun facility features a dedicated area for its Craftworks program, offering two-week delivery on all orders. “The orders just keep coming,” says Peykar. “For flooring and furniture retailers, this program could give them the highest sales per square foot of space, especially if a retailer allows RSAs to be trained and incentivized.” Craftworks’ offering is mostly middle to higher end, and the majority is wool or wool blend. Sizes can be up to 15’ wide in virtually any shape. “It is priced well,” notes Peykar. “It’s trending very well for flooring stores, and it’s not available on e-commerce, so it can’t be shopped, ensuring proper margins for retailers.” Most of the SKUs are handmade.

“There are always customers that want a unique product, something special, and others that somehow, despite thousands of choices, can’t find what they want,” says Craley. “Both of those customers start to look into fabrications, whether a lower-end piece fabricated from broadloom or an upper-end custom-made handmade. We focus more on the high-end handmade custom part of the business, and that has been very successful.”

Hill notes that it’s important to remember that many retailers have their own cut-and-sew operations, fabricating area rugs in-house from material purchased from a manufacturer as broadloom, meaning the popularity of fabricated rugs-and the amount of broadloom being fabricated into rugs-is even greater than it appears in the numbers.

THE ‘WHERE’ MATTERS
For the area rugs business, it’s just not what’s selling that’s changed, but where.

Craley believes that area rugs are still a viable offering for brick-and-mortar retailers, but notes, “They can’t be using the model that worked ten plus years ago. They have to be giving the consumer what they are looking for, which is a home décor experience, freshness, color, fashion. They need to make a statement. People look to retailers and designers for confidence and affirmation. You don’t have to be a leading designer to be able to provide that; you just need to have a retail store that speaks with confidence, saying that you know how to tie it all together for the consumer.”

“The world has changed,” says Peykar. “Years ago, one of the major areas for sales of area rugs was department stores, but now there aren’t many left. Then there were specialty stores, and some of those are gone too. The business has shifted more towards ecommerce and furniture stores, which are doing better with it than they were in the past.” Peykar believes that selling area rugs gives furniture retailers an opportunity to enhance their vignettes and increase their sales, creating a pedestal that makes the furniture look better and thereby increasing their furniture revenue. “Many of them are beginning to understand that,” he notes.

Peykar reports that there are still pockets of the country that prefer traditional area rugs-particularly in areas that feature more traditional living styles and homes.

THE BUSINESS OF RUGS
Loloi sells a wide variety of area rug products. “We try to cover most of the price points in area rugs today,” says Craley. “We have some very low end, proprietary product that we sell online and to mass merchants. We have some entry-level geared towards brick-and-mortar, then we go up and do the same in mid-price points and higher-end price points for better-end furniture stores and design firms.” The company also offers home décor items, such as pillows, wall art, poufs and ottomans, and has many license partners, including Magnolia Home, Amber Lewis, Angela Rose, Jean Stoffer and Rifle Paper. The company utilizes all fiber types across its offerings and both makes and sources rugs.

Craley notes the biggest change for his business over the course of the last decade has been a “focus on how we bring product to market ready to ship. How do we keep inventory in stock so that we are always ready to go? That came to the forefront in Covid. People who had inventory in the supply chain had success, and those who didn’t struggled.”

Ultimately, Craley believes that an area rug purchase is still style-driven. “And when I say style, I primarily mean color,” he says. “There is an old saying that is more true today than even before, ‘The top three reasons a customer selects a particular area rug: color, color and color.’ After that, it gets into price point, budget, design, fiber, but if Ms. Consumer falls in love with a shade, and it matches her décor, she’s in. It’s an emotional purchase.”

Peykar points to the fact that technology has made high design available at expanded price points, noting that the technology of looms has gotten better, and the creativity of manufacturers has enabled products that are beautiful yet durable and affordable.

Hill agrees, noting that with the emergence of area rug on the Internet, area rug sales became more price focused. “Prices have gone down,” he reports. “Natural fibers were replaced with synthetics like polypropylene and polyester. We still have some good handmade wools, but machine-made synthetics are so good today that they almost look handmade.”

Hill suggests that when consumers purchase rugs offline, the market becomes about washability, pet-proof, durability, as they can’t touch and feel the hand.

“Rugs are still a fashion item. I believe 25% of the market is just after price, but the majority of the market for rugs still has to be considered a fashion environment,” Hill says. “If it’s not the right color and design, she won’t buy it. But, today, rugs are less pattern oriented; they are texture-based with subtle designs. They are greys and blues and soft colors that are easy to decorate around. Consumers aren’t looking for a 20-year rug. The disposability of rugs has decreased from eight to ten years to three to five.”

Peykar notes that the greatest challenge Nourison has faced over the last decade is maintaining the company’s historic roots in mid- to higher qualities while not missing out on the opportunities of e-commerce. “We got involved in lower price point categories, and we now have about one million square feet of distribution between Calhoun, Vegas and New Jersey,” he says. “Service has become the most challenging issues-getting it delivered and shipped quickly.”

Stanton has had pre-made rugs-fabricated from its hand-loomed broadloom-for several years, scattered among its brands, and in 2023, decided to launch a formal rug program, allowing it to better leverage products and inventory. The new display piece is a 7’-tall rotating square displaying a variety of constructions, including indoor-outdoor, hand-tufted and hand-loomed, which accounts for the majority. All the products are hand-serged.

Stanton has already shipped 1,000 displays, first offering them to existing customers. It will next target the furniture channel, in addition to offering the display to Surfaces customers. “We found some opportunities in markets where we didn’t sell fabricated rugs because of the small footprint and value proposition, and it being a clean, concise program,” says Siebold. The display offers more than 350 SKUs with fast turnaround times. The company recently formed a partnership with Universal Furniture at High Point to co-op space for a new furniture collection, pairing 27 rugs for its vignettes. “We’re seeing exposure at the furniture level that we haven’t had before,” says Siebold.

Stanton is both an importer and distributor on the pre-made side. The bulk of its imported products are made in India. Fabricated rugs, made from its broadloom, account for almost half of its broadloom sales now, and some of those SKUs are made domestically. The company utilizes a wide variety of fibers, including 100% wool, wool-nylon blends, polysilk, jute and LION (luxury indoor outdoor nylon). The goal for Stanton Rug Company is to leverage the best-selling styles from its broadloom at present but develop specifically for the rug business in the future.

“You can satisfy a portion of the community with cut sizes, but people really want what fits their space,” says Siebold. “We have responded to that, adding more cut tables, and have exponentially more rugs than ever before.”

BIGGEST CHANGES TO AREA RUG BUSINESS IN THE LAST DECADE
Rathi: The business of machine-made changed the whole game. For some manufacturers, it’s about how much can they make rather than what they can sell. In addition, the number of retailers is shrinking. There are only a handful of large dealers left, and as they go south with price points, there is not enough money to be made on machine-mades anymore. The cost to the manufacturer might be $20 on a machine-made, whereas on a handmade it’s $140. That’s a huge difference. I would rather sell fewer rugs and make better margins.

Craley: Instant gratification. If you go back several years in this business, people were very willing to wait; sometimes a consumer would place a rug order with a retailer and wait three or four months for it. And it wasn’t unusual for manufacturers or importers to introduce rugs at market that wouldn’t be out for a while. Today, people want things in stock to take home that day, so retailers who have inventory can be more successful than those who ask the consumer to place an order. The consumer might place an order, but they will walk out of the store, go to another and then cancel their order if the second store has something in stock.

Andolino: The Internet has significantly changed the business, no question. It is has destroyed parts of the business. So many brick-and-mortar dealers that I visit today who were selling rugs ten to 15 years ago can’t do that anymore because of the Internet. For that reason, at Dixie, we avoid any type of product that could be sold that way.

Peykar: The explosion of technology in loom-woven products has enabled beautiful design and color to be achieved at far lower price points than it could be previously. Having said that, there are retailers that don’t look at anything that is power-loomed because their clientele is elite and doesn’t want loomed not matter how good it looks, so handmade and custom both have their place.

Siebold: The willingness or need to inventory product. There were far more area rug galleries in the past decade. That has gone the way of kiosks and smaller inventory commitments. Today, many retailers want to have samples and ship direct. There are no more stacks of rugs or 1,500 hanging pieces. That was Marshall Fields, Macy’s, Bloomingdale’s. The market dramatically changed with ecommerce.


Copyright 2023 Floor Focus 


Related Topics:The Dixie Group, Karastan, Kaleen Rugs & Broadloom, Mohawk Industries, Masland Carpets & Rugs