Executive Outlook 2022: With demand holding strong, industry executives are generally optimistic - Dec 2021
By Jennifer Bardoner
The world may look a lot different than it did last year, but much of the uncertainty that characterized 2020 remains, augmented by additional concerns after business ramped back up at breakneck speeds following last year’s shutdowns. For flooring industry executives, it’s been a double-edged sword of supply versus demand as they’ve struggled to navigate material shortages, exorbitant costs, an upended labor market, limited logistics capacity and delivery delays. What looked like a temporary situation is stretching into the coming year, but everyone is still looking for hope on the horizon. We asked industry executives about their outlook for 2022.
Shaw Industries president and CEO
Q: What do you foresee in the residential and commercial markets in 2022?
Baucom: Residential will start to level out in units, but it will increase in dollars, both because of all these inflationary pressures but also because the consumer is making better choices and upgrading. Either in wall-to-wall or near-wall-to-wall rugs, carpet has really had a resurgence, and it’s better carpet. It’s not carpet as a compromise; it’s carpet as a choice. LVT is still red hot, even though it has gone through hyper-inflation. Between the tariffs and the cost of transportation, LVT is as much as 50% higher in cost, and it’s still just as hot, which tells you that the consumer is maybe not as price sensitive as the very competitive channel is. [Overall], I think we’ll see double-digit growth in dollars, with low single-digit growth in units.
Our commercial market is seeing a lot of pent-up demand. Our backlog is dramatically higher than it was in 2019. Businesses are very intentional about how to use space, and any time they talk about reconfiguring space, it’s good for us in the short and intermediate term. We’re back to 2019 in dollars already. I see growth ahead.
Q: What do you see happening with carpet in 2022?
Baucom: I see it both continuing to grow and to shift. We’re seeing face weights going up, better yarn constructions. We’re making a $400 million investment in state-of-the-art fiber and yarn manufacturing that we announced in October.
Carpet brings a very compelling value, both in terms of the material and the installation efficiency, but a lot of what is driving the excitement in carpet comes from products that are still a great value but a little bit more expensive than just the basic. Near-room-size area rugs continue to be in demand. They’re also a unique way to get around installation issues.
Q: What about hard surface?
Baucom: Our hard surface business has been growing fast. LVT is leading, and everything else is adjusting to that.
We’re continuing to add capacity to our state-of-the-art LVT plant as we can get machinery in and installed. Within the same facility, RP1 makes state-of-the-art flexible products; RP2 makes rigid products. We continue to de-choke and de-bottleneck to get more capacity out of RP1, and we continue to add incremental capacity to RP2.
Q: How have you managed production in spite of the labor crisis? Do you see any easing of employee shortages?
Baucom: To make sure we have a ready workforce that’s healthy and can show up in the midst of our very aggressive management of the disease, we’re running at more than a 100% census.
Our goal is always, in the markets we’re in, to be the employer of choice. What we are seeing is that today’s workforce is looking for things that are beyond standard table stakes: treatment with dignity and respect; paying very competitive wages; great benefits; stability of work; opportunity for promotion. Flexibility is more important than ever for job seekers.
We’re continuing to work on how to enhance that in the environment that we’re in. Obviously, a continuous manufacturing operation doesn’t have the same level of flexibility as other industries.
Our biggest crisis is not as much in manufacturing as it is in trucking. You can’t just pick up a trucker; they have to have a CDL license. And today in most states, you can’t even apply for a CDL license until you’re over 21.
PAUL DE COCK
Mohawk Industries Flooring North America president
Q: What’s your overall outlook going into 2022?
De Cock: I think it will be a good year. There are a lot of home transactions, and when people buy homes, they want to do upgrades. And there’s a lot of pent-up demand in the multifamily sector because of eviction moratoriums. From a commercial point of view, a lot of projects were postponed in hospitality and workplace. Those will come back in ’22, ’23 and as we recover to pre-Covid levels-probably in ’23, ’24.
On the residential side of the business, I would say mid-single digits and, for the commercial market, high single digits.
I’m optimistic, but I am also aware of mitigating effects. If a homebuyer spends all their money on purchasing a house, how much is left for remodeling? There is a lot of inflation in the market, and at some point, the Fed is going to have to react.
Q: What do you foresee in terms of soft surface versus hard surface?
De Cock: We expect stable conditions for carpet. Today’s consumers, driven by high fashion and high impact, use carpet to make a statement in their homes, and so we do think that fits with the demand. We believe in the continued growth and marketshare for LVT and laminate, albeit at a slower pace than what we’ve seen in the last few years on the LVT side. The wood category will be a little bit under pressure because of the excellent visuals and alternatives that LVT and laminate provide.
The exception will be what I call performance wood, which combines the realism of wood with the performance of laminate and LVT.
We see strong demand in LVT and laminate, so we’re putting capacity in both. We’re expanding our manufacturing capacity in North America. [In September, Mohawk announced an $87 million expansion of its laminate facility in Thomasville, North Carolina.] We’re building a new facility for LVT, but we’re not talking about that yet.
Q: Can we expect any new products?
De Cock: We’ve been able to make 100% fully recyclable carpet backing that we have branded ReCover, and we’re bringing it to market in 2022. We’ll also launch our new Signature finishing technology [for laminate flooring], the most realistic wood visual we’ve ever done.
Q: What’s your outlook on the labor market?
De Cock: When the economy is good, the labor market is tight. And then we have the Covid impact on the labor market. We do see it improving as we move through 2022, but we also have to be realistic-it will stay tight.
Q: Do you see supply chain relief in the coming year?
De Cock: Things are improving as we speak and should improve as we move through 2022. The question is, When is normal, normal? And then the question is, To what level will things improve, and will the issues be completely gone by the end of 2022? I don’t know that.
It’s difficult to say what the new normal will be, and so for us, as business leaders, agility is key right now. We need to adapt our organizations to these changing market conditions, and we need to be nimble and able to move quickly. It requires a balance between driving efficiency and staying agile.
Q: Do you think domestic production is the answer to supply chain issues?
De Cock: With the impacts of Covid and the international supply chain, people are looking at domestic investment. We are looking at domestic investment. That being said, business is strong, and we’re also looking at importing where it is appropriate.
Mannington Mills CEO
Q: What will business look like in 2022?
Grizzle: We will see improvements in the commercial market and still a strong residential market. Commercial seems to be picking up some from where we were post-pandemic. Hopefully, we’re going to have some pent-up demand or a backlog that will carry over from this year, so I would say mid-single digits overall. On a dollar basis, it’s going to be a good year. On a units basis, I’m not sure when it gets back to 2019. We’re probably not there by the end of the year, but we’ll be getting closer.
Q: Which categories do you expect to see growth in 2022?
Grizzle: LVT, if the supply chain issues get resolved, is still a big growth category. It’s been hampered a little bit because of the supply chain-maybe a little more than others. Laminate, in particular, has benefited from some of those supply chain issues and has seen a little bit of a rebound.
Q: What is your strategy related to supply chain issues?
Grizzle: We’re trying to manufacture as much as we possibly can on our own. We want to onshore as much manufacturing as we possibly can. Obviously, that’s got some raw material challenges. We’re still in the final scale-up phase of our rigid core manufacturing. We’re constrained by raw materials, but we’re ready to go other than that.
We don’t have quite enough capacity to manufacture everything in our portfolio, so we still have to source a significant amount. It will take a couple more years before that changes.
Q: Do you think others will move toward domestic production?
Grizzle: It’s been a coming trend. The tariffs and then the supply chain, it all adds up to more people wanting to onshore. That’s going to be an overall market trend, but it’s going to be a while before we get close to enough being manufactured onshore because the volume in LVT is so large now.
Q: Do you foresee supply chain relief in 2022?
Grizzle: It’s probably going to be a little bit better going into 2022 than it’s been, but it’s still unprecedented in terms of the cost and availability. We’ve just come off the peak a little bit from the absolute worst, but it will probably take at least another year. It’s not just LVT coming out of Asia, it’s virtually every single raw material that we source.
Armstrong Flooring president and CEO
Q: What is the biggest challenge facing the industry in 2022?
Vermette: The speed of inflation is probably top of mind for me. It is challenging a lot of the accepted norms. There were certain price points that had been established for many years that people were used to working off of-whether in construction, retail or manufacturing. Hopefully, it will stabilize, but inflation is not done in 2022. Raw materials of every type are hard to get, from PVC resins to wearlayers to print films. It’s going to take some time to really stabilize. None of us are back to full capacity because none of us can get the full set of supplies that we want.
Q: Do you see an increased appetite for domestic production or products?
Vermette: We’re seeing requests from customers every week right now: We want U.S.-made. Everybody is requesting domestic product because none of us have the inventory to supply the demand. We’ll rebuild capacity and rebuild the stocks, and then we’ll figure out the next step capacity-wise-where do we need to be to meet demand, and where will demand really be at that time? For anybody who is going to build a plant, it’s probably 50% more expensive than it was two years ago. And there are some new plants right now that have not been able to produce anywhere near capacity since they started up, and some started a year ago.
Q: Do you see any relief in terms of the labor shortage?
Vermette: We’re seeing mild improvement. But demand is super strong, and there are more job openings than people looking. People are reassessing what’s truly important to them, what they want to do, where they want to live, what hours they want to work. There’s a lot of knowledge leaving organizations and a lot of talent that has to be retrained. We will be dealing with a talent shortage through 2022.
We have embraced fully remote work, so we can recruit nationally. We empower all our associates to manage their time as they wish to get their job done and manage their personal lives. We come together when we need to. It’s been great to attract different talent.
Q: What do you think the key to success will be in 2022?
Vermette: You can’t over-course correct, and that’s the challenge, right? I’ve been at this for 30 years. Yes, you’ve got to take decisive action, you’ve got to move, but you’re better off being measured in your approach and keeping your eye on the long term. Like anything else, this will settle.
Engineered Floors commercial division president
Q: Are you optimistic heading into 2022?
Lesslie: I don’t think there’s anything that says flooring sales are going to be bad, but I don’t see anything to say that it’s going to be a huge growth year. I would put it in the single digits. You’ve got to almost compare yourself to 2019, and 2019 was single digits. But there are a lot of things that could line up to make next year a challenging year for many in flooring. Inflation is a reality of life-labor inflation, raw material inflation-and I see nothing that’s going to change that, unless we get a different direction in how the country is going to address our natural resources.
Q: Do you think the supply chain will improve next year?
Lesslie: Ocean freight is going to stay a very tough market until, at the earliest, the third quarter. But labor next year is probably going to be a bigger challenge than the supply chain and raw materials. Labor is the new paradigm. We’re on the back end of the Baby Boomers. The last of them will be hitting retirement age in the next two to three years. That’s the largest population surge the country has seen in the last 100 years. And females not coming back to the workforce is going to keep constraining the labor supply.
Q: Have you been impacted by the labor shortage?
Lesslie: Thanks to some good decisions, our service held up during the pandemic better than any. The connectivity and focus on the mission of the company is going to be something companies have got to figure out and make employees feel part of the company and not an island. The companies that are going to win next year will win on service.
Q: Are you adding any capacity?
Lesslie: In the last ten years, we’ve invested over $1 billion in capacity, and we’re going to continue those investments. We’re putting in new capacity again next year. Our capacity is pretty flexible; we’re invested in soft surface and hard surface.
Q: Is the supply chain having any impact on what people are buying?
Lesslie: People want more reliability from U.S. products. Laminate is probably going to grow at a higher pace than LVT this year. There’s a lot of European laminate coming in, too, that doesn’t have the same supply chain issues. Laminate is going to grow because it’s a different category from LVT, yet it gives a similar look at a little better price point. We’re talking relative growth rates here. LVT is not going to slow down. LVT has got some interesting long-term technology, so I’m very bullish on the category. It’s a new technology, and new technology continues to evolve-just like there’s more to come in carpet. Everybody who says carpet is going away or shrinking is wrong.
HMTX Industries CEO
Q: How is the supply chain impacting profits?
Stone: The stabilizing of the supply chain will not only satisfy demand, but it will also improve profitability. The supply chain disruption is costing this industry and increasing the disruption in raw materials. If that all goes away, we could see improvements in delivery costs of more than 10%.
Q: Is domestic production the answer to supply chain issues?
Stone: I’m not going to make a geographic recommendation or prediction or reveal. Everybody needs to invest wherever it makes sense for them. Everybody underinvested when the pandemic started, kind of this “end of the world” thought pattern. And now we realize, the world is pretty good. Demand for flooring in the U.S. is incredible.
Q: Where are you investing?
Stone: We believe that design is an area where investment will have the greatest impact. If people find that the floors in their home make them happy and reflect their personality and emotions, they will be more willing to spend. “Fashion-forward fast” is an opportunity in the flooring business-with the digital transformation going on in this world, we can be much more responsive. I think the speed at which we are able to come to market is too slow, and I want to speed that up by several quantum leaps. That’s what we plan to do with our new HMTX headquarters.
Q: How is the price of PVC impacting your strategies?
Stone: Right now, it’s a short-term problem based on the unavailability of adequate supply. I believe it can and will be addressed in the coming quarters-I won’t say months. But that opens up the opportunity for new materials, and we’re certainly looking very hard at those. I see more sustainable materials coming on the market. The durability, strength and recyclability [of PVC] is a great positive, but ultimately, it has been a great value. If the cost goes up, it’s not as attractive.
Q: Do you see any lingering impacts from the current supply chain challenges?
Stone: The theory of “just in time” inventory will fade into the past. We will look much more toward resiliency and redundancy. Should there be a problem with one of your lines, you will have built-in backups-like you used to do in your computer system. Whether it’s warehousing, distribution and assembly, wheel and spoke, there will be a lot more appetite to be less reliant on a single line. There will be definite investment in North America. Industrial real estate in critical markets in this country is growing faster than residential real estate.
The Dixie Group president and CEO
Q: Where do you foresee growth in 2022?
Frierson: The upper end. That’s one reason our decorative products will be hitting the market in January-multi-fibers and multi-looks. There will be significant new products in both Fabrica Decor and Masland 1866. We have seen the majority move to better goods. The very high end of our product categories is doing the best overall. That’s a trend I think will continue into 2022. I believe some of it has to do with the age of those who are shopping.
Q: Any developments on the hard surface side?
Frierson: We started into hard surface flooring about four years ago, and it’s growing very rapidly for us and the industry. We will have additional offerings there, some domestic-made. I think in today’s plagued supply chain, it’s certainly advantageous if you can source domestically.
Q: What’s your outlook on the supply chain?
Frierson: It will be back in sync when we have a downturn, for sure, but you don’t want to wish for a downturn to get back to normal. All imported products are being impacted dramatically, but even in this country, there are a lot of logistics issues that will take quite a while in getting back to normal. It gets back to labor; it gets back to people. All of us are trying to do things a little better, a little smarter, but these are major issues that are not easily solved by an individual company.
Q: Will you be bringing on any additional domestic capacity?
Frierson: It’s a difficult thing today, trying to start up a new operation when you don’t have a nucleus of people who are trained and come to work every day. In selling our commercial business, we did not sell any manufacturing facilities. We did sell some tufting equipment, but that was designed to make commercial product. So now we have a facility where we were running commercial with machinery and a trained workforce, so in essence, we have increased our capacity for residential product. That was part of the strategy.
All the metrics in housing seem to be favorable going into 2022, and I don’t see what’s going to change that unless inflation just takes off like crazy. I do think as people can travel more and do things they were unable to do, flooring may get a smaller percent of the total dollars, but I still think it’s going to be very strong.
Q: What is the biggest challenge facing the industry in 2022?
Frierson: Finding enough people, and [the flooring industry is] not unique. It’s virtually any restaurant you go to, any factory. The country is still at a very low rate of people working. We don’t have a full complement of people in our office or plant.
AHF Products president and CEO
Q: What are the biggest opportunities going into 2022?
Carson: If you’re in the residential part of the business and you have products that do well in residential remodel and residential new, you’re certainly in the right part of the market. I expect demand to be strong and, quite frankly, higher than supply. There’s obviously inflation in the market, but the consumer looks like they’re continuing to buy.
I think residential is going to be strong for the next few years. It would take the builders more than a year to just satisfy the existing demand, let alone the new consumers coming in.
I think the flooring industry overall will be up 6% to 8% next year, with residential being stronger than that and commercial being less strong.
Q: What is your outlook on the supply chain, and how are you strategizing?
Carson: Things will improve somewhat next year in terms of the lead-time issues everybody has, but I don’t think things are going to normalize. The new normal is supplies are going to be tight, it’s going to be more expensive to ship, it’s going to be more expensive to make products, and it’s going to be that way for a while. Being closer to the customer is a good thing. Having your raw materials closer to home is a good thing. That’s why we’re adding capacity and getting into laminate and SPC with U.S. supply.
Q: How does your acquisition by Paceline Equity Partners position you?
Carson: The management of Paceline has tremendous experience and tremendous success in building product categories. They’re coming on board probably in January. They will bring an excess of capital to allow us to grow faster, and we’ve got plenty of ideas on how to do that.
Look at what we’ve done in the last three years. We’ve expanded the markets we participate in-we’ve entered laminate; we’ve entered vinyl; we’ve entered commercial. Our plant in Cambodia will be five times bigger next year than it was when we bought it three years ago. We’re expanding it again as we speak to service capacity. We’ve got additional vinyl capacity that will be in the United States for next year. We just entered the laminate category, and we’ve got a good supply of laminate. We combined with American OEM, and one reason we did that is they had additional capacity to make engineered hardwood right here in America. We’ve added capacity in our solid hardwood operations as well. We haven’t taken advantage of that capacity yet; we’re waiting for the lumber supply to increase.
I think Paceline is going to add additional fuel for us to grow at a faster rate.
Q: What is your product strategy?
Carson: We’ve added a number of brands. As we roll into next year, we’re going to put more product categories under those brands. Generally speaking, the demand for products is going to be higher than the supply for products, so the folks that have more supply to service the customer-either in the United States or outside the uncertainty around Chinese-based goods-the better you’ll be.
Novalis Innovative Flooring CEO
Q: Do you foresee more growth for LVT in 2022?
Wu: I believe LVT will have double-digit growth next year, but it will be more on the residential side. Commercial will probably have to wait another year until it gets back to growth. I would say single digits in 2022 and double digits in 2023.
The bigger challenge for the commercial market is most of these projects were bid two or three years ago. Now, if you have a project that you just won, you’re going to say, “I can’t do it at that price anymore,” and it will delay the project, stop the project, or you will have a very unhappy customer.
Q: What’s your view on domestic production versus imports?
Wu: Today, you can probably say domestic production is better, but you can’t find people to make the products. Tomorrow, when the ocean freight gets back to normal, imports will be better. You’ve got to be really nimble in your business. That’s why we built a U.S. factory and have factories in China and Vietnam.
Q: Have your U.S. operations been impacted by the ongoing labor shortage?
Wu: We’ve all heard about “The Great Resignation.” Unfortunately, factory work is not one of the great things people want to do in life. We’ve all tried to give out hiring bonuses, referral bonuses, and then we tried to increase pay. I have all this great resilient and SPC capacity being built, but I don’t know where I’m going to find people to run the machines.
Q: Do you see companies exploring other locations for production?
Wu: I’ve heard people saying they’re going to Mexico. Southeast Asia still has the cheapest labor. But it’s not easy to make any product in a region where it hasn’t been made before. The supply chain is not ready. China remains the country that has the most connected supply chain for making anything. If you are manufacturing in Vietnam, you still have to bring in material from China.
Q: How does inflation impact your outlook?
Wu: The consumer confidence level will determine whether we can sustain this growth, not just in terms of LVT, but overall production. If inflation is truly transitory, we will be in for a good four or five years. If there’s a shortage in demand with all this new capacity being built, commoditization of the product will drive the price down.
Having said that, LVT is the only product in which, year after year, the average price is higher. We’re able to move people to buy more expensive product. The average selling price is higher than it’s ever been.
Copyright 2021 Floor Focus
Related Topics:Shaw Industries Group, Inc., HMTX, Mohawk Industries, Armstrong Flooring, Novalis Innovative Flooring, Masland Carpets & Rugs, Mannington Mills, Engineered Floors, LLC, AHF Products, The Dixie Group