Engineered products take marketshare despite falling lumber prices - Oct 15

By Brett Miller

Most industry analysts predicted that this past year would be a gangbuster year for wood flooring, and to some degree, their assessments have proven to be accurate. The wood flooring segment as a whole grew by percentages in the middle teens in 2014, which represents the highest growth for the year out of all the flooring product categories.

Part of the reason for this exceptional growth is the rebounding building market. Even though many experts predicted a higher rate of housing development than actually materialized, growth has been strong. In fact, at the end of July of this year, total units under construction were nearly 13% higher than at the end of July 2014.

In addition to gains in new construction, the remodeling segment is expanding as well. Earlier this year, the Joint Center for Housing Studies at Harvard University reported that nationwide spending on home improvement topped $300 billion in 2014, and that 2015 is on pace to break the record of $324 billion, set during the peak of last decade’s housing boom.

The majority of new housing development has been centered in the South and the West, representing more than 65% of total housing growth. These regions predominantly favor slab construction, which has resulted in the expansion of the engineered wood flooring market.

Because of its multi-layer cross-ply construction, engineered wood flooring is particularly suited for slab subfloors, which can be susceptible to changes in temperature and humidity. Shane Smartt, marketing coordinator for Kährs International in Altamonte Springs, Florida, explains that “multi-layer construction provides more stability than solid flooring, even when temperatures and ambient humidity vary according to season.”

Smartt, who points out that Kährs is the inventor and patent holder for the very first engineered floor, adds that Kährs’ engineered flooring is more eco-friendly than solid wood flooring because “we use fast-growing wood species such as pine for our core material, thereby using less of the valuable hardwood surface layer compared to solid wood flooring.” These differences in raw materials translate to different pricing structures as well.

Paul Stringer, vice president of sales and marketing with Somerset Wood Products in Somerset, Kentucky, contends that engineered hardwood does not fluctuate with the price of lumber like solid does because engineered flooring has different components that affect cost. “Because solid flooring is all lumber, it is 100% impacted by lumber prices, while engineered is not,” he says. “Things such as lower priced cores, thinner construction, etc., make lumber cost less of the total product construction cost. The solid products can’t avoid that impact.”

Pierre Thabet, president of Boa-Franc, the Saint-Georges, Quebec-based producer of Mirage hardwood, concurs that solid is a better value today than it was a year ago, but he warns that “prices came down because of the overall lumber industry turmoil, and this could change rapidly if exports increase or production decreases.”

Some wood flooring professionals note that competition from categories that simulate wood are challenging solid and engineered products in the market. Products like wood-look LVT and ceramic tile have pushed prices for real wood products down. This effect has been most pronounced in solid wood flooring as manufacturers attempt to minimize losses based on raw material costs, but most believe that the trend will not be long term, and that solid wood flooring will experience a market correction in the near future, once lumber markets stabilize.

Solid hardwood prices also fluctuate due to demand for lumber outside the flooring industry. “The logs from which solid wood flooring planks are cut are the same logs in demand for use in pallets, railroad ties, staves for whiskey and wine barrels, truck trailer beds, and other industrial uses,” explains Harry Bogner, senior vice president of hardwood at Unilin, a Mohawk Industries company. The supply of hardwood lumber was scarcer in the past few years, so demand pushed prices higher. Although lumber production is now making gains, Bogner says prices have not yet returned to previous levels.

Peter Connor, president of WD Flooring in Laona, Wisconsin, presents the argument that pricing has nothing to with solid versus engineered and everything to do with the mentality of today’s mill owners. Connor contends that viewing flooring as a commodity is an old-fashioned concept that is causing the pricing denigration within the solid market. He says that an overabundance of lumber mills entered the flooring business during the last ten years, leading to overproduction and huge surpluses. These surpluses, which need to be turned over to produce cash, caused the slide in the market this spring.

At Sheoga Hardwood Flooring in Middlefield, Ohio, vice president Barbara Titus observed a considerable reduction in cost for some species of solid wood flooring over the last quarter of 2014. She believes this represents an opportunity for consumers to find discounted pricing on solid products. She warns, however, that “manufacturers that air-dry or kiln-dry their raw materials and thus purchase them throughout the year are at a disadvantage, as their costs are averaged over a longer period of time, and short-term reductions have less effect on their overall raw material costs.”

Sheoga’s operation also sees less of a pricing impact between the solid and engineered products they manufacture, since they have one overall cost for their blank inventory. “If an order is processed as engineered,” she explains, “we re-saw the blanks to yield the lamellas for the engineered flooring. With the addition of the underlayment and the adhesive, you typically have more cost in the engineered flooring products than in the solid. The fundamental cost of the raw material for the blanks, however, remains the same.”

Dan Natkin, director of hardwood and laminate at Mannington Mills in Salem, New Jersey, agrees that solid is a better value now than it was a year ago, but he believes the difference is marginal. “Engineered hardwood flooring uses less of the raw material [wood],” he says, “but has a higher percentage of labor content. We are also able to use multiple species in the construction, which helps to balance the cost.”

For Darrell Orrell, sales manager for Maxwell Hardwood Flooring in Monticello, Arkansas, pricing differences appear negligible as well. “Unfinished engineered flooring products generally have a more stable pricing structure than unfinished solid,” he says, but “they all include some sort of substrate and adhesive in addition to the hardwood layer. Those other ingredients, so to speak, have a cost associated with them that is not influenced by the price of hardwood lumber.”

One Tennessee mill owner argues that while solid is a better value in general than it was a year ago, “solid is never a better value over engineered unless it is low grade.” The manufacturer contends that #2 common and lower grades of solid wood can never be matched in value by engineered flooring due to the costs associated with the processing required for engineered flooring.

Still, engineered products continue to take marketshare. As mentioned previously, slab construction is a big influence in this growth, but aesthetics play a major role as well. The trend toward wider and longer flooring boards in particular has had an impact.

“Visual trends are lending themselves to engineered flooring, particularly the wide width trend,” explains Natkin. “In addition, the flexibility of engineered to be directly glued to slabs, which is the fastest growing category of subfloor, and the lower profile, which makes engineered wood flooring perfect for remodeling, helps to fuel the growth of the category.”

Another trend in engineered wood, according to Bogner, is texture. “Industry-wide, engineered hardwood flooring now offers the same quality, styles, designs, textures and species that are found in solid.” He says that engineered products in wide planks with wirebrushed textures are “definitely the hot thing right now.”

Another benefit of engineered products is that they can be used in below-grade applications, like basements, and in environments with excesses in relative humidity, like bathrooms. Because solid wood flooring historically cannot be used in these types of applications, it is extremely likely that engineered flooring options will continue to establish a firm foothold in the hardwood flooring market.

The builder market is a big influence as well. The increased pace of new construction, coupled with the growth in remodeling, has helped to drive demand for engineered products. Also, the improvement in flooring adhesives are making it cheaper and faster to install an engineered floor. And many adhesives are now a 3-in-1 product, which is a moisture barrier, an acoustic barrier and an adhesive.

Historically, to install solid on a slab, it was necessary to glue and ramset plywood or OSB to the slab, roll out felt or plastic, and then nail down the flooring, necessitating more labor and materials. Installing 3/4” solid hardwood next to existing carpet and ceramic tile created transition issues as well, requiring additional molding and carpentry labor. The new process, using adhesives and slimmer engineered profiles, saves significant time and money.

Stringer also acknowledges the “hurry up and install” attitude of both builders and installers today. His belief is that the reduction in numbers of experienced installers compared to historical levels has made engineered products a safer alternative, “especially when the environment it is to be installed in is questionable,” he says.

Titus warns, however, that “manufacturers of engineered flooring have a responsibility to ensure they are sourcing their substrate and adhesives from reliable sources.” She believes that the largest impediment to increased sales of engineered flooring is the bad press surrounding companies that try to cut corners and use the cheapest products in their raw material mix. “Eventually,” she says, “this practice makes the news and hurts everyone in the industry.”

The good news is that wood represented the largest percentage of flooring market growth in 2014, and is poised for continued strong growth in the foreseeable future. As Natkin notes, “The long range forecast for wood has the category growing in the 8% to 10% range for the next few years.” That is growth we can all live with.

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