Area Rug Update: Can e-commerce and brick-and-mortar stores strike a balance? - Dec 2017
By Beth Miller
While the area rug market itself is fairly healthy-with continued steady gains driven largely by the growth of hard surface flooring, which has increased demand for rugs-there have been significant upheavals downstream over the last few years due to the channel shift from brick-and-mortar stores to an e-commerce model. It’s a model that better suits the emerging consumer demographic, and everyone from manufacturers to retailers have had to devise new strategies to compete and succeed in this new retail environment.
There have also been developments on the commercial side of the market, where rugs have traditionally played a fairly small role. As it did in the residential market, the growth of hard surface flooring, combined with design trends, is driving rug business in various sectors, including hospitality. This trend is leading to adjustments in how rug producers go to market, like adding hospitality divisions, a change Rizzy Home recently made.
For years, the majority of area rug sales took place in furniture stores-where they were paired with furniture and home decor-along with department stores and full-line flooring stores. However, with the addition of the e-commerce channel, brick-and-mortar retailers fear they will lose this revenue stream. And when it comes to specialty rug retailers, some may well end up having to close their doors.
This is not the first time businesses have experienced this level of fear. In the ’90s, Walmart forced a major shift in how small businesses operated. Many were forced to close, while others figured out how to restructure and thrive. This same fear is looming once again with Amazon moving into the grocery sector through its purchase of Whole Foods and the speculation that it seeks to enter into the pharmaceutical business. Walmart is working furiously to compete with Amazon. The growth of these two retail giants impacts consumers’ shopping habits, and this impacts everyone.
Area rug suppliers are watching all of these trends closely and adjusting their product offerings, manufacturing methods and marketing strategies to ensure they are set up to support the right channel. Those who are thriving indicate that their success is the result of an investment in research and simply listening and paying attention to what the consumer wants. They recognize that change is inevitable, and it is how you accept and adapt to change that makes the difference between obsolescence and relevance.
This seems to be the year for the area rug suppliers to commit to new licensing agreements. Licensing has always been around; however, the area rug industry has become strategic with whom it chooses to partner. More than ever, suppliers are doing their homework to ensure the pairing is a good fit.
Rachel Fasciani, director of marketing and public relations for Momeni, explains, “We put a ton of time, resources and research into choosing who we license with. The key piece that’s important to us is looking at someone who has a particular look that’s not just popular to audiences but is also different.” According to Fasciani, Momeni collaborates intensely with designers to develop pieces that are unique to the look and feel of that particular partner. Momeni launched the Novagratz collection in 2017 that signaled its re-entry into a licensed line. At the High Point Market in October, it introduced the Erin Gates collection, which is characterized by muted tones and soft neutrals-situated at the other end of the spectrum from the Novagratz products, which are vibrant and filled with pops of color and wordplay. Each license was chosen to offer a wide variety of styles and looks.
Kaleen also introduced a new partnership at High Point. Blake Dennard, senior vice president of Kaleen Rugs, indicated that one reason Kaleen chose Rachael Ray was in order to enter the furniture store channel through Ray’s collaboration with Craftmaster Furniture and Legacy Classic Furniture stores. The partnership allows Kaleen to go further with the development of its product lines and places it in more furniture stores than before. Dennard explains, “It’s very difficult for a wool company to break into those stores, because it’s been a machine-made world for a long time.”
In addition to the push into the furniture store channel, Dennard says, “No matter how many designers you get in, it’s hard to get out of [the design rut]. Rachael Ray opens the door to new palettes of color and new patterns.” Dennard expressed that the partnership is a great fit; Ray and her team are very committed to working alongside Kaleen to develop area rugs to be placed in the vignettes in furniture stores.
Rizzy Home has been partnering with Donny Osmond Home for the production of textiles, with a rug line to come next year. And in June of this year, Rizzy announced a partnership to produce accent pillows. An upcoming licensing partnership with Connie Post, a retail design strategist, will be introduced next year.
E-COMMERCE VERSUS BRICK AND MORTAR
Brick-and-mortar retailers, in order to be successful, must create, at the very least, an online presence. How far they are willing to go with that presence is up to them. Those who are participating in e-commerce are experiencing significant growth. However, with significant growth comes significant cost, not only in terms of product costs but also in terms of digital marketing research, online store management and social media management-elements that are overwhelming to many retailers. Finding a balance between e-commerce and brick-and-mortar stores has proven challenging; however, area rug suppliers tell a different story. They indicate that now is an opportunity for brick-and-mortar retailers to re-invent themselves.
National Real Estate Investor (NREI) reported in November that e-commerce is responsible for industrial development reaching a new high in 2017. It goes on to report that e-commerce sales “have increased by 16% year-over-year and now account for 9% of all U.S. retail sales.”
The Harvard Business Review website published an article that notes, “Research shows that physical stores boost online purchases: one European retailer, for instance, reports that it captures nearly 5% of online sales in areas near its physical stores, but only 3% outside those areas. Online and offline experiences can be complementary.”
Steve Roan, managing director, the Americas with Rizzy Home, says, “Retail is not dead. Retail is going to evolve. I don’t think it will go away, but you’ve got to be pretty smart about how you do it.” The trend now is the shopping experience-a movement attributed to Millennials. “[Shopping retail] does have to be an experience,” Roan adds. “People don’t want to walk into a sterile environment; they want to be able to enjoy talking to others, have a cup of coffee and walk around.”
Echoing Roan, Brandon Culpepper, vice president of specialty sales with Mohawk Home and Karastan, says, “This is an opportunity to separate yourself from obsolete retailers that can’t compete right now. If you can figure your way through this, you can thrive, and you can beat Amazon every time if you develop your own omni-channel presence.” According to Culpepper, retailers need to first and foremost have a digital identity as well as a strong brick-and-mortar identity, with each capturing their target market.
There is no arguing that the Internet has changed how consumers shop, but if Amazon thought it could satisfy the consumer with e-commerce alone, would it be pursuing its own brick-and-mortar Amazon Pop-Up stores, where customers can physically place hands on products? It currently has 67 pop-up stores located in various states. Of those, nine are seasonal, meaning they are only open during the holiday season. The majority of the pop-up stores can be found in California, followed by Illinois.
As mentioned earlier, retailers must adapt their environments to accommodate the evolving consumer. In answer to this, area rug suppliers indicate that retailers are modifying their stores to include restaurants, cafés and lounge areas to help create a welcoming environment and ultimately keeping shoppers in the store longer. At the end of the day, a retailer must be able to provide a great value to the consumer as well as create an experience that will foster brand loyalty. This is also true for online stores.
Online retailing is not devoid of challenges. According to Kaleen’s Dennard, accurate representation of area rugs is critical to the sale. How the products are merchandised online can ultimately mislead customers if the product is oversold. “If you make that product look too good, and it’s a $149 retail rug, your returns kick up,” he points out. “That hurts us. That hurts our e-commerce customers because they are paying freight both ways and restocking [fees].” Ultimately, misrepresenting a product damages brand loyalty and pushes the consumer to buy elsewhere.
Another factor that gives rise to brick-and-mortar success is the use of a minimum advertised price (MAP). In an effort to protect brick-and-mortar retailers, suppliers like Rizzy Home impose a MAP on all of its products so that no matter where you look, the product price is the same. Roan says, “[Rizzy Home] has a company that it employs that does nothing but troll websites everyday. We have 4,500 SKUs that they trace and look for MAP violations. We are extremely aggressive in maintaining our MAP for our brick-and-mortar stores.” However, Roan notes, “Manufacturers like Safavieh and Surya, they don’t have a MAP. That’s how they sell so much online.”
Oriental Weavers’ Witt, agrees with Roan that by protecting the MAP, the brick-and-mortar store is also protected. However, he encourages these traditional retailers to “take advantage of expanding their available assortment online because, especially in rugs and even more so inside a flooring store, not a lot of square footage is devoted to our category.”
The bottom line, Roan points out, is “people need to touch and feel a rug. They need to see some examples, and if some of that gets translated back to the Internet, they’ll come preview it in a store and then buy it online.”
According to Witt, brick-and-mortar stores and e-commerce need each other. Momeni’s Fasciani adds, “The advantage that the [brick-and-mortar stores] have over the Internet and the reason people will come back to you is because they have a relationship with you, and you’ve provided them with an experience.”
Just exactly who is the consumer? Baby Boomers are now being surpassed by Millennials in sheer numbers. This shift in buyer demographics is greatly impacting how suppliers and retailers market their products online and in-store. Traditionally, Baby Boomers flocked to brick-and-mortar stores, and as Millennials entered the buying market, they focused on shopping online. While area rug suppliers continue to see this trend, this, too, is shifting. Millennials are gradually making the transition to the in-store shopping experience, ditching the handheld in favor of an actual person with whom they can interact.
According to Roan, Millennials are tough to nail down. “There is not one pattern for Millennials,” says Roan. According to Mohawk’s Culpepper, by breaking down the demographics and placing them into black and white boxes, suppliers are, in essence, misrepresenting each group. He admits, ‘[Mohawk] is seeing a little bit of everything in each age group.” And Momeni’s Fasciani says, “There’s a lot that gets dumped on Millennials-changing our society and the way we buy. When those studies are done, they show that that’s not actually the case.” However, Dennard reports that Kaleen is still seeing Millennials shop 100% online.
While area rug suppliers have conflicting feedback when it comes to demographics, it is important to note that this does not mean they are wrong. In fact, it is another indicator that the demographics are gradually changing places, making it difficult to accurately study each group. Something to consider is that older Baby Boomers are reaching the age where they no longer want to spend hours and hours standing and walking, which supports those who are seeing Boomers shop more online.
Tarkett recently entered the area rug market with a commercial line of rugs that it sells direct to the public through its website. Christian Kuswita, director of product marketing, says, “We developed our online configurator where in five steps the customer can choose the area rugs they want, the colors they want, the serging colors that they require, and then be able to complete the process quickly.” While the products being sold cater primarily to a commercial market, anyone can purchase rugs from Tarkett. Kuswita reports that Millennials are attracted to the web-only interface.
According to Kaleen’s Dennard, Millennials are impacting the online stores’ price range. When choosing between an area rug online that is, for example, $500 and one that is $250, they are choosing the less expensive product. Dennard says, “Price dictates e-commerce purchases, but color remains the leading decision-maker.”
Mohawk Industries produces and sells area rugs under the Mohawk Home, Karastan and American Rug Craftsman brand names. Many of its Karastan products are made in Eden, North Carolina, and most of its focus is in the residential market.
Mohawk reported growth in 2017 due to aggressive goals within each of its channels. The bulk of Mohawk Home and American Rug Craftsman products are sold in home centers and mass merchants like Home Depot and Walmart. Karastan products are sold in department stores like Macy’s, a channel that is not faring so well. Tremendous growth is taking place in the furniture retail channel, such as Rooms to Go, Havertys and Nebraska Furniture Mart. Specialty rug retailers are another source of growth for Mohawk in stores like Rug and Home in Gaffney, South Carolina and NW Rugs & Furniture in Portland, Oregon. Rug sales in carpet stores are flat in comparison to last year.
Already producing nylon, polypropylene and wool rugs, Mohawk began making area rugs with its proprietary SmartStrand Silk in 2014. The firm also produces rugs from EverStrand PET polyester from recycled bottles. The motivation behind these two fiber types was to create a product that is super soft, super durable and costs considerably less than its wool equivalent.
Currently, Mohawk is experiencing its highest volume of sales in the $199 to $499 range for a 5’x8’. The firm reports that anything above the $799 price point falls into a boutique niche, which continues to be active, but the market becomes very specialized.
Intense colors are popular in both traditional and transitional area rugs-a sort of “boho chic” look found in a traditional Persian design using very dramatic pinks, yellows and blues. On the other end of the spectrum fall very muted tones in subtle browns, taupes and ivories that play into the whole idea behind the Danish term hygge, which is defined as a quality of coziness and comfortable conviviality that engenders a feeling of contentment or well-being. In the middle of the area rug color spectrum lie traditional spice tones, greys and metallics in transitional patterns.
Oriental Weavers (OW) based in Egypt, with additional facilities in both the U.S. and China, is the world’s largest producer of rugs. Its U.S. headquarters is located in Dalton, Georgia.
OW reported that Q1 for 2017 was the largest quarter in the history of the company in terms of customer shipments and domestic production. In contrast, the second and third quarters were challenging. And moving into Q4, OW is back on an upward trajectory. For the past three to four years, OW has experienced around 10% growth each year plus or minus a point or two. For 2017, OW estimates it will end the year with 3% growth.
Approximately 4% of OW’s total area rug sales are made in flooring stores, where the area rug industry is experiencing about 3% sales. OW estimates that furniture stores make up 11% to 12% of the industry’s sales, but OW’s growth within that channel is 8%. The Internet is the fastest growing channel in the area rug industry. OW indicates that the Internet makes up approximately 16% of area rug sales for the industry as a whole, but for OW it accounts for a much higher percentage. While polypropylene continues to be the backbone of the fibers used in OW’s machine-made rugs, there are a few nylon/polypropylene and polypropylene/chenille blends being offered. A variety of handmade rugs are crafted using natural fibers such as wool or jute, with one collection constructed of hand-hooked polypropylene.
OW continues its major licensing programs with Tommy Bahama as well as with Pantone to highlight the Color of the Year in its rugs.
Styling trends within OW’s offerings are blues and textures. Neutrals continue to be popular, moving more toward greys and browns. The Andorra collection boasts different yarn constructions-polypropylene and nylon-to provide a variance in texture.
Looking toward the future, OW plans to continue to invest in its U.S. capacity. Over the last three years, OW has invested in new looms and yarn equipment, equating to about a 30% increase in capacity and, for 2018, it plans to add at least two more five-meter woven looms to increase U.S. production. With these new additions, it is projected that capacity could easily spike another 10% to 15% by the end of 2018.
Tarkett, headquartered in France with multiple U.S. operations, launched its commercial area rug program in June 2017 at NeoCon in Chicago, Illinois. According to Tarkett, the new program was very well accepted. The motivation to begin producing area rugs for a commercial market was driven by the fact that there is no way to easily purchase a custom area rug online.
Tarkett’s commercial area rug program home page offers a button for customers to click that takes them to the five-step process that promises a 15-day turnaround period. A finished product image is provided, along with a total price that includes the padding and shipping. For example, the Windsor in Ground Fog with Scarlett serging in a 5’x8’ costs $600. Sizing is completely customizable, up to 12’x45’.
Dynex nylon 6 was chosen for its durability for use in high impact sectors such as education, corporate and hospitality, where there is great demand for a high quality product. The colors offered are variations of grey, charcoal and brown with vibrant color options for the serging from yellow to bright green to red.
Nourison, based out of New Jersey, acquired its first domestic manufacturing facility, Hagaman Carpet Industries in Ft. Oglethorpe, Georgia, in 2015. For 2016 and 2017, Nourison reported modest growth over previous years but indicated that both years have been challenging. In 2017, over 40 area rug and broadloom collections were released by the company.
Echoing other area rug suppliers, Nourison is seeing the majority of it sales volume in the middle price points. However, the higher end has shown steady growth over the past few years.
Nourison has several licensing partnerships that continue to perform well. Calvin Klein is the largest partnership. Other major licenses include Kathy Ireland, Waverly and Barclay Butera-a high-end interior designer based in California. In September, Nourison announced its new licensing agreement with Christopher Guy-a British luxury furniture designer-that specifically targets the luxury segment.
The demand for contemporary and transitional styles is increasing with abstract patterns growing in popularity as well as tribal and bohemian looks. Neutrals and greys continue to be strong, but interest in color is growing. Blues and blue-greys continue to be in high demand.
Rizzy Home’s U.S. operations are based in Calhoun, Georgia, where it manufactures handmade and machine-made area rugs. Rizzy indicates that it is in a growth mode currently and is continuing to experience significant gains each month compared to last year.
While Rizzy’s presence in the furniture store channel is growing, it reports that so far the sales are not reflecting this growth. Rug specialty stores are currently flat but are remaining steady. The Internet is where it is seeing double-digit growth, with the mass merchant channel quickly becoming Rizzy’s new focus. Flooring specialty stores for the most part have not been Rizzy’s focus until now. Rizzy Home and Carpets of Dalton plan to release the details of a new relationship in 2018.
Rizzy Hospitality, focusing on the hotel/restaurant marketplace, was launched this year, targeting Sandals Resorts and Marriott properties. It reports that it is a certified supplier for IHG and Ritz-Carlton.
The current partnership between Donny Osmond Home and Rizzy Home will be adding a rug line in 2018. Also, Rizzy announced its partnership with Simply Southern at the 2017 AmericasMart Atlanta Rug Market to produce a line of accent pillows, and it plans to introduce a rug line at the 2018 Atlanta Market. Top-of-bed offerings will be launched at the 2018 spring High Point Market in North Carolina. Rizzy will be announcing a partnership with Connie Post-a retail design strategist, author, trend translator and developer of both products and brands-next year. In addition, the Andrew Charles designer collection will be renamed as Andy and Kim Hilfiger in 2018.
Kaleen, a rug producer operating out of India and Dalton, Georgia with a reputation for high quality wool rugs, reports significant growth in Q1 and Q2. However, somewhere between Q2 and Q3 sales dropped due to an issue with Google Analytics that drastically altered product searches. Sales have picked back up, and Q4 looks to bring significant growth. Kaleen also intends to introduce 17 new products at Surfaces in January 2018.
Despite the search engine setback, the Internet channel, which includes Wayfair and Overstock.com, is approaching 40% of Kaleen’s area rug sales. The carpet store channel is pretty much flat to down overall. And furniture stores, one of Kaleen’s newest channels, are proving to be a growing segment.
According to Kaleen, price points are shifting downward in the e-commerce segment due partly to the influx of shoppers buying inexpensive area rugs online rather than in-store. It is much more difficult to sell a $399 and up area rug online versus one for $99. The quality of the rug cannot be examined by the consumer, in comparison to a brick-and-mortar store, where the customer can speak to an experienced salesperson as well as touch the product. Kaleen reports an upward price point shift in the brick and mortar stores.
Kaleen entered into a licensing agreement with Rachael Ray in February 2016, which is its first attempt at collaborating with furniture makers. The Rachael Ray Home Collection works with Craftmaster Furniture and Legacy Classic Furniture to produce upholstered furniture for her collection-and now with Kaleen to produce matching area rugs. Three lines were introduced at the October High Point Market. The Rachael Ray Upstate collection is a traditional machine-made area rug constructed with polypropylene. A 5’x8’ costs $299. A handmade, cross-tufted, space-dyed wool Rachael Ray Highland area rug retails for $399 in a 5’x8’. The transitional Rachael Ray SoHo is a polyacrylic, hand-tufted product that sells for $299 in a 5’x8’.
Kaleen points out that price dictates sales in the e-commerce segment, while color remains the decision-maker in the brick and mortar stores. Currently, there is a great demand for greys-medium greys and silver specifically-not so much the dark, charcoal grey. Blue is moving up; the soft, denim blue and teal are trending. Kaleen is not seeing a demand for red and burgundy as is found in many traditional area rugs. The trending colors predicted for 2019 are soft greens that resemble hues found in nature.
Momeni is a wholesaler and manufacturer based in Carlstadt, New Jersey. The majority of its business is based in the residential sector; however, Momeni does offer custom rugs in the commercial sector on a case-by-case basis. The custom rug program provides area rugs cut from its broadloom products. However, Momeni does not have a program strictly devoted to the commercial market.
Novagratz by Momeni was launched in 2017, along with the Erin Gates collection, which was introduced at High Point Market. The Novagratz products are defined as mid-century modern and appeal to an audience ranging from 25 to 45 with its pops of color, wordplay and storytelling. At the other end of the design spectrum, the Erin Gates collection is defined as traditional/modern with subdued tones. Both collections allow Momeni to offer a wide range of styles and textures to a large audience.
Texture is the biggest trend in the area rug industry, according to Momeni-texture as it plays out in high/low constructions as well as in patterns within that construction. The Novagratz and Erin Gates collections both offer products with a great deal of texture. The products within the Erin Gates collection represent the high/low effect with flatweaves with top stitching. Hand-carved details make up the textural elements in the Novagratz collection. When it comes to color, Momeni is witnessing a trend toward warmer tones and a resurgence in pops of color. Orange was big for 2017. “Money colors”-colors associated with sophistication and wealth-such as purples, reds and deep blues, have also been popular.
Wool continues to be Momeni’s most important fiber; however, it does offer rugs using polypropylene and polyester face fibers. In addition to these fibers, printed polyester chenille with cotton backing has been introduced. The heat-set printing prevents the colors from running. Despite the delicate nature of past chenille products, Momeni’s chenille doesn’t pill but is capable of maintaining that level of softness unique to chenille.
U.S. News and World Report published an article in September titled, “Is Outdoor Living Space Always a Good Investment?” The article reports on results released by the American Institute of Architects in its second quarter 2017 Home Trends Design Survey. It states, “Requests for outdoor living have increased for the sixth consecutive year. In fact, 70 percent of the 500 architecture firms surveyed reported an increase in requests for outdoor living from clients.”
The outdoor living segment is the fastest growing category for many area rug suppliers. Jonathan Witt, president of Oriental Weavers, attributes this to people staying home more following the recession. Witt says, “Forty percent of rugs marked for outdoor are being used inside. They are at a great price point, have a nice texture and are worry free-take them outside and hose them off.”
Momeni also carries indoor/outdoor rugs, and according to Fasciani, Momeni is always looking to expand with different textures as well as offer a product that is high performing. “It’s something we consistently look to maintain and achieve within each of our products, not just indoor/outdoor. No matter what the price point, people still expect high quality,” says Fasciani.
Copyright 2017 Floor Focus