Commercial Market 2007 - June 2007


By Darius Helm

It was inevitable that the commercial flooring business wouldn’t be able to keep up with the red hot growth it experienced in 2005. Nevertheless, last year was another very good one for the commercial sector, with total sales up about 6.5%. Growth was led by the sizzling hospitality sector and continued strength in healthcare. The corporate sector, which accounts for the biggest share of total sales, also grew, although at a slower rate than in 2005. The education sector remained strong, particularly higher education. Even the retail sector, normally sensitive to the ups and downs of the residential business, showed positive growth.

The total commercial flooring market, not including area rugs and rubber flooring and mats, grew to $6.5 billion last year, up from about $6.1 billion in 2005, and specified business went from $4.1 billion to $4.35 billion. 

That 6.5% growth rate, compared to about 10% the previous year, reflects a moderate slowdown in commercial market growth. It’s not yet clear if the slowdown reflects the fulfillment of pent-up demand or a slowing economy. Shockwaves from the besieged housing market have already hit the nation’s largest retailers, and may well affect the retail store planning segment this year. So far, though, there are no signs of a negative impact on other commercial market segments. In fact, the weakness of the dollar against the euro creates a variable in the U.S. economy we’ve never seen before. It could, in fact, end up bolstering the commercial market.

Carpet, which accounts for two thirds of total commercial flooring sales, was up nearly 8% last year, from $4 billion to $4.3 billion, and specified carpet sales went from $2.9 billion to $3.1 billion. Carpet tile continued to gain on broadloom; it now accounts for nearly a third of all commercial carpet and is closing in on $1 billion in sales. More and more mills are coming out with carpet tile lines, competing with the bigger mills for a piece of the growing pie.

For the third year in a row, hospitality led all sectors in growth. Business and leisure travel is up, despite rising fuel costs, and hotels are busy refurbishing, not just because the work was long overdue but also because of increasing competition. The strength of the euro also makes the U.S. a prime destination for European travelers these days.

Condo hotels, a luxury niche, continue to surge, while the traditional condo market languishes, and four and five star hotels are in a serious growth mode. In the hospitality sector, and in the commercial market in general, higher end business has been stronger than the budget side of the market.

The hospitality divisions of many manufacturers have also been targeting the senior living market, though most of that business is still classified as healthcare. In either case, it’s a booming business. Senior retirement campuses are going up all over the country, and many resemble big hotels and resorts, complete with country clubs, restaurants and retail stores.

The senior living market is sure to remain strong for a decade or two. The oldest baby boomers, those born in 1946, are just a few years from collecting Social Security. The youngest, those born as late as 1964, won’t be retiring for nearly a quarter of a century. All together, that’s 78 million Americans, making up 29% of the population, nearly 40% of the workforce and an even greater share of disposable income. 

According to census projections, 58 million baby boomers will still be alive in 2030, and they’ll all be over 65. This generation represents an unprecedented economic force that will shape the future. It’s already shaping the healthcare industry, including both the senior living and acute care sectors. Today’s senior citizen population is over 35 million strong. Hospitals are already preparing for a sharp rise in those numbers and in the quantity and quality of care that will be required.

Growth in the acute care sector is also being fueled by obsolescence, new technological demands and better healthcare models, so there’s no reason to expect much of a slowdown in business in that sector.

The corporate market, whose slump in 2001 drove many mills to target markets like healthcare and education, has been growing since 2004, first in tenant improvement installations and then in full fledged specified corporate projects. Following dynamic growth in 2005, the momentum continued for much of 2006, though several mills suggested a moderate slowdown toward the end of the year. Office vacancies were down last year, reflecting the overall health of the market, but expectations are that vacancy rates will moderate this year.

Most mills reported that business to the education sector was strong last year, driven by growth in higher education projects. Universities are competing harder than ever to recruit students and this has led to many huge renovation projects. Dorms are being redesigned so they look more like apartments, while today’s student centers are more like entertainment areas and hip places for students to hang out.

Carpet tile has rapidly been gaining share from broadloom and six foot goods in the education market. The heavy traffic and high maintenance in schools and colleges is a perfect fit for carpet tile, where single damaged tiles can be swapped out by school staff at a much lower cost than putting down new carpet and without disrupting students or closing off sections of the school.

The only sector that underperformed last year was the retail store planning sector, which recorded marginal growth. Though some national chains like Federated have been doing massive renovation projects, the sector as a whole has been somewhat quiet. Many industry experts expect it to remain sluggish in 2007, as consumers take a more cautious approach to spending their money, forcing many retailers to hold off on investing in major projects.

The biggest trend in the commercial market in recent years has been in green initiatives, particularly in the carpet sector. Every major carpet mill offers a range of green products with post consumer and post industrial recycled content. At the same time, reclamation efforts have stepped up, and cooperation between mills is leading to the development of a very fluid reclamation industry and innovative concepts for reclaiming and reusing old carpet.

The recent opening of Shaw’s Evergreen Nylon Recycling facility in Augusta, Georgia has spurred the industry even more, since turning nylon back into face fiber is key to maximizing the waste stream. The rising cost of crude oil, which is the source of fiber and other plastics used in carpet as well as the major source of energy needed to produce carpet, has also boosted green initiatives. In fact, many of today’s successful green programs may not have gotten off the ground if not for the rising cost of making carpet.

These days, greener business models and greener products often cost about the same or a little more than old business models and products made of virgin materials. That narrowing gap has allowed green industry to gain a solid economic foothold to effectively compete. 

Green leaders like InterfaceFlor are coming out with carbon neutral carpet and tapping landfills for methane. Shaw, which is already set up for closed loop recycling, is in the midst of taking its EcoWorx carpet tile backing to the broadloom side of the business. Tandus is one of the leaders in reducing sample waste. Milliken, which also uses landfill methane from the LaGrange, Georgia project, is coming out with a new fully recyclable backing with a high recycled content. Mohawk’s new Encycle PVC-free backing also features a high recycled content, and it uses nearly 30% less raw material than the old backings. Mannington’s Loop process is reclaiming both carpet and drywall and recycling them into backings. 

The next couple of years will bring more green breakthroughs, as mills step up their efforts to reuse nylon 6,6 and bio based fibers are tweaked to meet the high performance demands of commercial carpet. Rising demand from consumers should help drive that growth.

For a close look at the top 15 specified carpet manufacturers, see the June 2007 issue of Floor Focus Magazine.

 

 

TOTAL COMMERCIAL CARPET SALES

Today there are 23 manufacturers producing commercial carpet in the U.S., compared to twice that number a de

    2006 2005
   

$$ millions

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.

SHAW
MOHAWK
INTERFACE
BEAULIEU
TANDUS
MILLIKEN
J&J INDUSTRIES
MANNINGTON
THE DIXIE GROUP
ATLAS CARPET
CONSTANTINE
LEXMARK
BLUE RIDGE
TEMPLETON
BARRETT
CLAYTON MILLER
ROYALTY
BLOOMSBURG
NORTHWEST
GULISTAN
BURTCO
FORTUNE
C.W. INDUSTRIES

1,290
975
475
303
228
224
170
126
91
75
58
52
47
47
33
32
30
28
26
21
18
15
8

* Revised Estimate                
** Does not reflect Canadian production
           





**

           

1,172
923
428
290
203
199
157
120
86
71
50
40
43
41
31
28
28
25
24
20
18
15
7

           




*
*







*



*


Related Topics:Mannington Mills, Interface, Beaulieu International Group, Shaw Industries Group, Inc., Mohawk Industries, The Dixie Group