Building a Hardwood Brand - April 2008
By Brian Hamilton
It’s not easy these days for a typical hardwood flooring manufacturer to stand out in what has become a fairly crowded, although somewhat bifurcated and fragmented, marketplace, made up of a handful of big players, and a far larger bucket full of small, niche firms. The average consumer probably couldn’t identify more than a couple of brands of hardwood flooring, and, at any rate, brand doesn’t seem to be high on the list of purchase influences for any kind of flooring (see our Consumer Survey on page 60 of the April 2008 issue).
So it’s not clear how much value there is for most hardwood manufacturers to try to create brand awareness in the consumer marketplace, other than for huge players like Armstrong that can spend a lot on advertising. However, it’s a different story in the distribution channels. If a small firm gains a reputation for quality, innovation, reliability and/or service among its distributors and dealers, that can go a long way toward building loyalty and sales. This is where most firms appear to target their branding efforts.
The industry is dominated by Armstrong World Industries, with 2007 sales of $791.6 million, which represents a 31.7% marketshare, according to the US FlooReport, Armstrong has been the market leader since the late 1990s, although its marketshare has been higher than it is now (41% in 2001). The second largest player, Mohawk Industries, is much smaller by comparison, with a 10.3% marketshare, including the revenues of Columbia, which it purchased last year. Right behind is Shaw Industries, with an estimated 9.6% marketshare, including the revenues of Anderson Hardwoods, which it purchased last fall. The top six, rounded out by Mannington, Mullican, and Somerset, account for 65% of sales. Then there are the numerous small fry, who collectively make up about 35% of the market. Only a few have marketshares greater than 2%. But the U.S. FlooReport estimates there are 65 companies in North America with more than $100,000 in annual sales, and another 50 mills that produce unfinished flooring with sales under $100,000.
With the homebuilding market in a slump and still trending downward, it’s likely there will be fewer players in the hardwood industry in the next year or two, either due to consolidation or a weeding out of the weaker firms. In addition, the remodeling market is in turmoil because home equity has fallen precipitously, the credit market has tightened and many people simply can’t get home equity loans to pay for large remodeling jobs. In fact, every firm we spoke to, with the exception of a couple of Canadian firms, is predicting that the slowdown will continue at least through the end of the year, and probably into 2009.
While the big hardwood players probably aren’t in any danger because they have resources the small players can only dream about and can weather the slump, the smaller guys will have to fight for every foot they can sell, and that means trying to stand out more with fewer resources. Fortunately for them, the big players are generally competing in a different arena, going for the high volume business in the home centers and other large retailers. The small guys are usually selling to dealer contractors and other more specialized firms. They’re also more likely to be selling in the higher end of the market, which has been less affected by the economic and housing downturn…at least so far.
It’s worth noting that while hardwood flooring has been used for hundreds of years, it’s largely the technological advances of the last 15 years that have made the hardwood industry what it is today. Until the early 1990s, hardwood flooring was largely a boutique business, populated by specialists who installed the flooring, and sanded and finished it on site. There were only a few species of wood available, mostly North American varieties such as oak, maple and hickory, they were mostly solid wood floors, and plank widths didn’t vary much. The flooring was usually installed when homes were built—the remodeling business was small because consumers didn’t like to have their houses torn up for an extended period during an installation and deal with all the sand and finishing fumes.
But all that started to change about a dozen years ago as the new aluminum oxide finishes began to appear on prefinished wood, making home renovation with wood much more palatable to the average consumer, especially as manufacturers began offering 25 year warranties. A few years later, engineered hardwoods started penetrating the market and now account for about half of all hardwood flooring. These floors could be installed in places where regular hardwood could not, such as on concrete slabs, and offered more species, more options for designing, as well as more varied price points. The result was consumers had a much wider variety of products to choose from through more manufacturers, especially with the increasing proliferation of imported wood from Asia and South America (see Wood Cuts on page 44 for more information on imports). Also, the click systems used in laminate flooring are starting to give homeowners even more options for DIY projects. Today, 52 different species are used in wood flooring.
This has all created a wide open marketplace.
Big Players, Significant Changes
Perhaps the biggest hardwood news of the last year is the story that didn’t happen—Armstrong decided not to sell itself and instead is continuing as a public company in its current form. A sale to one of the other major companies, as was rumored for a while, would likely have created an even more dominant company.
For Armstrong, most of its brand equity for consumers is in the Armstrong name rather than in any particular label, with the exception of its Bruce line. The company uses the Armstrong name across its wood, resilient and laminate products and many retailers like to purchase all three from one source.
Armstrong got into wood in 1998 with the purchase of Triangle Pacific, at the time the largest hardwood flooring company. Today the company’s strategy is to offer the widest assortment of products in the industry, and it largely succeeds.
In 2006, Armstrong changed its wood branding strategy, essentially morphing the Hartco brand into the Armstrong brand, which is sold exclusively through independent retailers. However, it left Robbins and Bruce alone. Although the Bruce name wasn’t widely known among consumers, it was and continues to be a hit in the distribution channels, where it’s seen as a reliable go-to brand, and it continues to be available in all channels, from the big boxes to the builders.
Last year Armstrong kicked off an extensive advertising program to position the Armstrong brand name in hardwood—not just a resilient and lami-nate brand—and that effort is continuing unabated this year. Armstrong is well positioned to do this effectively. From 2002 to 2006, according to the U.S. FlooReport, Armstrong accounted for 42% of all advertising in the wood floor industry, spending $35.9 million, or just 1% of sales.
The Armstrong brand has the widest variety of wood products the company offers but that brand doesn’t compete in the highest end of the market, where you might find one of the small niche players. The Bruce brand is in the low to mid range and is big in the DIY market. That’s the only Armstrong line that carries click products. Other, more specialized names include HomerWood, which is Armstrong’s high end designer label, as well as the Robbins, Capella, and T. Morton brands, which have niche products. For example, Capella produces extra wide engineered planks and Morton specializes in custom flooring direct to consumers. An independent retailer could conceivably have the Armstrong, HomerWood and Capella brands displayed side by side.
Armstrong continues to invest in advertising and new products to make itself even more dominant when the economy turns. That’s the advantage of size.
Mohawk’s $147 million purchase last August of four Columbia Forest Products plants—three domestic and one in Malaysia—gave it a substantial domestic wood source that it could control. Columbia had been Mohawk’s major supplier of wood, but the purchase of the factories will not only help cut costs but give Mohawk the chance to offer new products and innovate more easily in Mohawk branded products as well as in its private labels.
Columbia, like Mohawk’s other major line, Century Hardwood Flooring, is actually a part of Mohawk’s Unilin division, which is better known for laminate flooring technology. Columbia is sold through independent floorcovering distributors, and Century is sold primarily through distributors that specialize in wood products, such as furniture and cabinets. The Mohawk products are sold directly to large retailers and builders, and it sells under several private labels that are shipped to home centers through its own direct distribution wholesale network. Despite the different distribution methods, it’s entirely possible to see Mohawk, Columbia and Century branded products in the same store.
After the Columbia purchase, it became apparent that Columbia’s strategy—trying to offer a huge range of domestic and exotic products at many price points—was too much like Mohawk’s. So Columbia’s branded products are getting a major, tightly focused makeover, to help them stand out in the marketplace, establish a distinct identity and avoid creating redundant products. Columbia’s new tagline is Flooring Originals and Mohawk says Columbia will be completely different from the company it purchased. Everything from the logo to sample displays have been changed to create an upscale, sophisticated image for the brand.
Columbia is dropping its exotic lines, as well as its longstrip products (which were produced in Malaysia), and will focus on domestic species. What it will offer is a wide assortment of solid and engineered products in a variety of looks and textures in the basic domestic species such as oak, maple, walnut and cherry. Later this year it will offer 5” wide solid and engineered products in what are being described as country, reclaimed, weathered, distressed, time worn, and hand sculpted looks. They’re all inspired by antique floors in country inns, barns, and old homes. Mohawk’s hope is that over time Columbia will be as big a part of its overall hardwood flooring business as the Mohawk brand.
Before the purchase, Mohawk had considered Columbia to have a good but not well known product line, which made it a good candidate for a makeover. Mohawk didn’t have to worry that it was taking the product line in a direction that no one would buy.
Century, which has always been primarily a solid line, is also being refined so that it will be about 80% prefinished solid, with a small amount of basic engineered product.
Before Shaw Industries acquired Anderson last year, Shaw was the sixth largest player in the industry with a 4% share, and Anderson, which primarily sells engineered flooring, was the third largest with a 6.2% share, according to the U.S. FlooReport. Shaw has decided not to integrate Anderson into Shaw and instead will keep a completely separate identity for Anderson, one of the most innovative companies in the industry and one of the most widely recognized names. In fact, other than Anderson’s position in the industry, it was Anderson’s expertise and ability to innovate that motivated Shaw to complete the deal.
Shaw’s sees its relationship with Anderson as the same kind of relationship it has with Tuftex, a California carpet and rug manufacturer that was part of the Queen acquisition in 1998. Tuftex, from design to sales, still operates out of California, and still markets under the Tuftex name. Anderson has the same management team and other than adapting to Shaw’s different financial reporting requirements (because it’s a public company), not much has changed.
Shaw, which says its goal is to be the style and design leader in all its hard surfaces, is beginning to incorporate Anderson’s know-how in its own hardwood lines so it can manufacture some products that it would have otherwise had to outsource. For example, Shaw’s engineered Epic line now has a handscraped product, Epic Legends, that uses processes developed by Anderson to create the look.
The Shaw and Anderson names will be kept completely separate so there’s no confusion in the market, but one challenge will be not to make new Shaw products too much like Anderson’s and cannibalize Anderson sales. To that end, Shaw’s retail and builder sales forces will continue to sell only Shaw branded products. Anderson will continue to sell through its current distribution network, where distributors can pick and choose which Anderson labels to sell. It will essentially operate and distinguish itself through style and innovation like many of the small players, but have the financial resources of a giant.
Anderson has far more capital at its disposal, which should help it flourish and continue to build the name and some observers think it will become the dominant domestic engineered producer. It can leverage Shaw’s extensive relationships in the marketplace, which should open new opportunities for Anderson’s distribution network. Perhaps the biggest downside to the deal is Anderson is no longer a member of Mohawk’s Floorscapes buying group. But short term, the additional manufacturing work for Shaw is helping keep Anderson’s plants busy during the downturn and it continues to run a full schedule.
Lumber Liquidators is perhaps the most unusual firm in the industry and its business model promises to have a major impact on how hardwood is sold. It’s part home center, part manufacturer, and part distributor and is the only hardwood company that both sources and sells its proprietary labels direct to consumers. The firm, which had its initial public stock offering in November, sold $280 million worth of hardwood flooring last year, according to its annual report, which was 69% of the company’s sales for the year. It is also opening 30 to 40 stores per year over the next several years in high density markets.
Lumber Liquidators is both a flooring finisher (for some of its products) and the only retailer of its proprietary hardwood flooring, unlike any other business in the industry. It also sells laminate produced by third party suppliers. It may also sell the products of other manufacturers when, for example, it buys the inventory of a bankrupt distributor. Most of its sales are to homeowners, but a small percentage is to small contractors. It had 116 stores in 43 states as of the end of 2007, as well as a call center, website, and catalog, and flooring can be ordered online. Customers have to be prepared to find their own installers, which is not usually the case with an independent store.
Lumber Liquidators’ brand identity is in the Lumber Liquidators name, which it promotes heavily through aggressive advertising, linking the name to quality and value. Last year it boosted advertising spending by 14.9% to $41.7 million, or 10.3% of sales. The company operates under the assumption that its national advertising drives customers to its website, or in some cases, its call center, where the quality/value proposition is reinforced. By the time a typical customer actually visits a Lumber Liquidators store, the decision to buy has already been made.
There is no such thing as a Lumber Liquidators label. Its premium line of hardwood is called Bellawood, which accounts for a third of the company’s total sales, and that name is promoted in its advertising. Lumber Liquidators also tries to market itself as the hardwood flooring expert and says its call center is stocked by experts who can handle questions. Immediate availability of flooring in its stores is also another differentiating factor. But low prices are its most noticeable selling proposition.
HIGHLIGHTS FROM THE FIELD
ArborCraft, newly formed when Tarkett sold its Johnson City, Tennessee and Montpelier, Indiana wood manufacturing business last November to Ridgefield, Connecticut-based private equity firm New Stream Capital, historically had one of the most recognizable brands in hardwood flooring—Harris Wood. The new owners are investing heavily to not only re-energize the Harris Wood name but to give it additional manufacturing capabilities so it can add to its product mix and be ready for the inevitable turnaround in the industry. It will also be able to create more fashionable products, such as the Colorcraft Distressed old paint look it introduced at Surfaces this year.
Before its purchase by Tarkett International in 1990, Harris was a 92 year old company. ArborCraft is reserving the Harris brand for the independent distribution channel and independent retailers. It has launched a new logo, signs, brochures, a flexible rack system and other marketing materials, and long-term ArborCraft wants Harris to be its core offering. Its new website was still under development in late March. Its overall strategy is to sell different labels through different distribution channels. For the big boxes it is selling under the Tarkett name but plans to eventually switch that to the Floorcraft name. It will be a gradual changeover partly because it’s simply too expensive to change all the displays and marketing inside mass retail stores all at once. Tarkett (the company) also remains ArborCraft’s Canadian distributor.
ArborCraft has also begun to look toward international sales and will probably use the ArborCraft name on those products. It went to Domotex in Germany this winter and has started to make European contacts.
Products for each channel are different, not just in name. The Tarkett line, for example, features 4’ strips to make it easier on the do-it-yourselfer, and are more price point conscious.
Roughly 90% of its flooring is produced domestically, and about 60% is engineered flooring. As this was written, ArborCraft was in the middle of upgrading its production so it could manufacture its flooring directly from logs rather than using precut lumber, which should help cut costs and control quality. That millwork operation should be running by May. In the meantime, it was scheduled to have its first click products available in March.
Mirage, the brand of Canadian manufacturer Boa-Franc, is known for consistent quality and routinely comes out on top in every hardwood survey Floor Focus conducts. Its line is more limited than some other players, selling 12 species, four of them exotics.
Mirage works hard to keep the name synonymous with quality both in its production and the way it markets and distributes its products. Beginning with the green lumber it buys, the company has an extensive quality control system that keeps its defect rate among the lowest in the industry. In addition, in its engineered products, the face is 4mm thick. Its methods also eliminate cracking and face checking.
Part of the Mirage quality is in its innovations. For example, it has a distressed look that is actually achieved by using a variable staining process rather than stressing and gouging the wood, so the surface stays smooth. Mirage claims to be the first to offer a nano technology finish, which offers great dent resistance.
Mannington, primarily a business to business marketer into the independent retail and builder channels, wants to be known for style and design, and one of the company’s mantras is “visual distinction.” For example, it has the Mannington Master brand but one of its focuses is to create smaller sub collections, such as its Inverness and Atlantis, which feature different combinations of techniques. Inverness—named after the Scottish castle—is about hand-crafted looks.
Mannington developed a five-pass staining technique for Inverness and is now using it in its base grade American Oak, so that combined with a matte finish it has a noticeably different look from other basic oak products. This is one of the ways the company tries to stand out in the market. Its products are not available at home centers, and Mannington says that strategy has been a major element of its success.
For Mannington, a major part of its brand identity is being the best company for its distribution channel to work with in terms of styling, product support, claims, and financial support.
Mullican, based. in Johnson City, Tennessee, like other mid-sized players, sells primarily to independent retailers through its distribution network. Its competitive position is based heavily on the quality of its products, as well as a variety of unusual looks. It sells both prefinished and unfinished solid and engineered flooring, and unfinished makes up 40% of its product line. It’s only been selling engineered products for about two years. It has one of the most extensive lines of solid, unfinished flooring. Mullican also uses some of the best technology in the industry and can maintain tight tolerances, which goes a long way toward keeping product quality high. It has four domestic plants outside Johnson City.
Mullican’s prefinished domestic products have been verified “sustainable” by the Appalachian Hardwood Manufacturers Inc., which Mullican believes reinforces its image of quality.
For Canadian firm Preverco, the majority of its sales are in Canada. It has only been in the last couple of years that it has begun to gain some name recognition in the U.S., where it works with distributors based in Colorado, Florida, Iowa, New York and southern California. In Canada it is the only hardwood firm that sells directly to retailers and has no distribution network. There it promises that products can be delivered within 72 hours.
Preverco wants to be known for having products that are unusual or unique in the market. For example, in its main Preverco brand is an engineered line called Engenius, which contains a seven-ply, Baltic birch backing with a 1/8” solid hardwood top layer that is neither sliced nor a veneer. It also comes in random lengths from 6” to 84”. Also within the Preverco line is PreLoc, a 1/2” engineered floor with a Välinge locking system and the Baltic birch back.
Lauzon, a Quebec based maker of high end flooring, positions itself around quality, innovation and its reliability, which are all somewhat tied together through its complete vertical integration for much of its operation. Lauzon has full control of its most of its products—with the exception of its imported exotics— from the forest to the finished floor because it has rights tied up for a specific forest for the next 25 years. That will ensure Lauzon has access to wood and will help insulate it from supply issues. It’s a major feature the company touts with its distributors and others. It also gives the company access to top quality wood, which it then takes to its own mill in Quebec, where it has complete control over every aspect, from the drying of the wood, to the precision milling, to the finishing. It also allows the company to easily offer different grades of wood. Lauzon conducts about 30 tours each year of its operation to reinforce in its distributors and others the idea of quality and stability.
Lauzon says it is the only company to use a titanium finish, which it claims is more durable than the widely used aluminum oxide because it can be incorporated in every finish coat, not just the top coat. It’s also clearer and lets the wood grain and warmth of the wood stand out. Lauzon finishes all of its products, including the exotic imports.
About 80% of Lauzon’s sales are prefinished, solid products, and 20% is engineered. It has three basic labels, Lauzon, Eterna, and Dubeau. Lauzon and Eterna both go to independent retailers through different distribution channels, while Dubeau is strictly a Canadian brand for mass retailers. The company keeps all three names distinct and separate.
Ark Floors, a new company formed in 2007 in California, is the North American arm of Anxin, one of the world’s largest flooring companies. It has manufacturing facilities in Asia and South America so everything it sells in the U.S. is imported and, by definition, all exotic. The company wants to make exotics more appealing to the average hardwood flooring customer, not just the typical high-end customer, and is targeting its advertising and merchandising to making that case. Like Lauzon in Canada, Anxin maintains its own forests and controls or supervises the production process from start to finish to help keep costs lower and quality higher. It has four different collections with a variety of looks, including handscraped, and has 49 solid offerings and 29 engineered offerings.
Max Windsor sells strictly engineered hardwood, which it manufactures in China. The company got its start making other wood products before venturing into hardwoods in the last couple of years, and it opened an office in California. The company is aggressively pushing its quality story.
Augusta, Georgia-based Natural Cork’s branding centers primarily on its environmental message, since its first product, cork, and subsequent product, bamboo, are among the greenest materials available. It now also features Bordeaux pine and European oak hardwoods. Natural Cork, which began operations in North America in 1994, does not use a distribution network—its sales force deals directly with the major independent buying groups and that’s where much of its environmental message is focused. However, it soon plans to tackle the commercial market with a commercial application.
Copyright 2008 Floor Focus
Related Topics:Shaw Industries Group, Inc., HomerWood, The International Surface Event (TISE), Tarkett, Tuftex, Mirage Floors, RD Weis, Domotex, Mannington Mills, Lumber Liquidators, Mohawk Industries, Armstrong Flooring