Hardwood Update 2009 - October 2009

By Brian Hamilton

For the first time in quite a while, a few hardwood companies are starting to sound a little bit optimistic about their short term future. Some of them have seen an uptick in their business, but it’s not clear if it’s a seasonal bump or something more sustainable. Generally, the manufacturers who depend less on the builder business are the more optimistic of the lot. They’re seeing signs of more interest in remodeling, especially as existing home sales start to creep up.

All of them are bullish about the long term future of the wood industry. There’s plenty of evidence that hardwood is still at the top of flooring shoppers’ wish lists, and there’s likely a lot of pent up demand that will emerge once the economy turns and stays turned. Prices and selection are also better than ever for wood consumers.

However, even the optimists in the industry admit that it could all still turn lower and for that reason they aren’t quite ready to declare the long nightmare over. High unemployment remains a problem and flooring executives say it will probably take a sustained turnaround in the job market before wood sales rise significantly and stay there. Some executives also expect some consolidation in the industry, and say some small companies almost certainly won’t make it through the recession. Industry sales this year will likely fall below $2 billion for the first time since 2003, according to Santo Torcivia of Market Insights.

The cost of materials could also soon become an issue, especially for the solid flooring producers. That’s because some domestic saw mills have gone out of business because much furniture manufacturing has been shipped overseas, so there’s not as much wood available. Consequently, if demand picks up, prices could move higher in a hurry.

Some manufacturers also say low cost products from China are still a factor, primarily on the West Coast, where the bulk of Chinese flooring enters the country.

Manufacturers are also wondering what the long term impact of Lumber Liquidators will be. The firm has staked out its position by dealing directly with saw mills, handling its own distribution, selling to consumers through the Web and a call center, and setting up its stores in industrial or other low cost areas. It also advertises heavily, spending about 9% to 10% of net revenues, which is far above anyone else in the industry. Manufacturers admit that Lumber Liquidators is stealing marketshare and its earnings report confirms that. While most manufacturers will likely be down in double digits this year, Lumber Liquidators saw its sales rise in the second quarter by nearly 12%, with same store sales falling just under 2%, and for the year the company is on track to do more than $500 million in retail sales, representing more wood flooring sold than anyone but Armstrong, which had wholesale sales of $547 million last year. Lumber Liquidators continues to expand aggressively and added 18 new stores in the first half of the year.

What is also unmistakable is that the recession has changed what shoppers are willing to buy for now. Price is still the primary issue. Nevertheless, many shoppers are demanding something better than base grade oak, so many manufacturers have stepped up to create products like lower priced handscrapes and other typical higher end looks. Some are cutting costs, for example, by using thinner veneers or have found less expensive ways to finish their products. There’s also anecdotal evidence that shoppers are preferring domestic brands over imports because they want to help the American economy.

There’s a growing trend toward faux exotics, in which U.S. domestic species are stained or heat treated to give them an exotic look. This trend may become more pronounced, depending on what happens once the Lacey Act amendments, which outlaw the importing of illegally logged wood from anywhere in the world, take full effect. The law holds the entire supply chain accountable, and the penalties are severe. There has been some initial concern overseas that the law is nothing more than a tool to limit competition in the U.S., and it could well have that effect if it keeps illegal wood out of the country. Major manufacturers say that it will probably take a high profile test case to really put the bite in the law.

As part of the industry’s commitment to combat illegal importation, Mullican and Anderson are participating in a pilot program to become certified under the National Wood Flooring Association’s Responsible Procurement Program. The pilot project is testing the audit phase of the program, and the audit is being conducted by Scientific Certification Systems. The NWFA program was established to recognize wood flooring companies that work to sustain forests worldwide and it features three tiers of certification. It’s backed by the Forest Stewardship Council and the FSC Family Forests Alliance.

As far as consumers are concerned, interest in sustainable products is growing, but, for the most part, most shoppers won’t pay more for a greener product in this economy.

Fostoria, Ohio based Seneca Millworks, part of Roppe Corp., is somewhat of a barometer for what’s happening in the hardwood business. It makes wood trim and molding for hardwood floors, matching the flooring of all major manufacturers with its in-housing finishing system. They’re products that flooring manufacturers don’t want to make themselves, but they’re needed for every job. Seneca sells through distribution and has some home center business.

Seneca says that business is starting to pick up at distribution. Although there’s still an interest in exotic looks, it’s seeing a trend toward more oaks and maples, as consumers are reverting back to more simplistic wood products. The theory is that a lot of baby boomers, as they begin to downsize or remodel for retirement, want the look of flooring that they grew up with, which is standard wood species.

CORK SALES STILL SMALL BUT GROWING

Cork flooring is the smallest niche in the hardwood business. It's produced from the bark of the cork oak tree, most of which is initially harvested in Europe for the wine bottle stopper industry. Cork supplied for flooring is the leftover from this process. It's a rapidly renewable product and the harvesting of the bark does not kill the tree. Many cork oak stands have been in families for generations, and about half of them are in Portugal.

Cork sales make up about 2% of all U.S. hardwood sales, according to the U.S. FLOOReport, or about $40 million last year, and there are only a handful of companies doing business here. Nevertheless, it's a growing industry in this country, due in part to its green profile. Unlike other wood and wood-like products, including bamboo (which is a grass), it also has sound deadening properties, which make it an ideal floorcovering in places like churches and libraries. It's a little more expensive, in general, than linoleum, which it often competes against, but cork comes at a variety of price points across the industry.

The industry is trying to move away from its traditional, monolithic look, and design is becoming a much more important element. For example, exotic and even stone looks are becoming more common, and geometric block patterns are available. Glueless systems developed over the last five years or so have helped cork become more mainstream and have given it a presence in home centers.

Until recently, all cork flooring was imported but that changed when US Floors, (formerly Natural Cork) began manufacturing in Dalton, Georgia late last year. Nevertheless, all raw cork is imported, which takes a little luster off its environmental profile.

cork flooring firms say they probably haven't been hurt as badly in the downturn as the traditional hardwood players, but there really aren't any statistics to back up those claims.

Most of WE Cork's sales are residential, although many of its products are also suitable for light commercial applications. Its Timeless collection, which features full length 7-1/2" by 36" beveled planks and 24" by 18" tiles in three patterns, including stone and slate looks, and five colors, has been its best selling product line recently. These products have been designed for consumers who don't want the traditional and distinctive cork look.

WE Cork said that one significant issue has been the fluctuating value of the dollar to the euro over the last couple of years. Earlier this year, the company had a price decrease due to the strength of the dollar, but since then the currencies have reversed course. 

WE Cork sells through distribution and its products are in independent retail outlets.

Capri Cork offers two basic cork flooring products. Mediterra is a glue down cork floor tile, which is its most popular product, and Eco-Clicks is a glueless cork floating floor. Both have homogeneous and veneer patterns. Its Mediterra Rigato collection is an unusual pinstriped look. The firm's emphasis is on homogenous products, which are good for medium and high traffic commercial applications, and can be sanded and refinished. It also has a hybrid cork/rubber product.

Capri's products are constructed for commercial applications with three coats of polyurethane finish, although its residential business is not insignificant. Its products are winding up in restaurants, retail stores, yoga studios, and even some corporate spaces.

Early this year, Amorim, the largest cork producer in the world, took a stake in US Floors, and now supplies all the raw material for US Floors' cork products. With a reliable, stable supply, the company has the ability to control its product inventory closely. It also gives the firm vertical integration back to the forest. US Floors has been running its stain and finish lines since February and its milling line is just getting started.

Its best selling products are its narrow plank looks in New dimensions, a residential line that also contains four wide tile looks.

The firm has just gotten into the commercial arena with its USF Contract, a series of homogeneous tiles in six patterns, with 36 running line colors, and a custom coloring option. The firm is targeting the A&D community with these products and believes they can be used in nearly any commercial setting, with perhaps some healthcare applications the exception. Samples should be available early this fall. Assisted living projects should be a fertile ground for cork's softness and acoustical properties.

US Floors is focusing heavily on its colors and is developing a bank of colors that it believes will be the most comprehensive in the industry.



THE PLAYERS
Canadian firm Mirage continues to see interest in products that show character and color variations, along with those that are locally harvested and manufactured as consumers grow more conscious about the impact of flooring on the environment. Products such as its new Bali Coco, a domestic exotic that’s created using local species but finished to look like an exotic, are selling well. Mirage believes interest in domestic products will continue to grow. It’s also seeing a trend toward what it calls “casual glamour,” where homeowners want to go upscale without being ostentatious.

Among its best selling products are its Sweet Memories, which offers maple flooring without the disadvantages of handscraped products, such as more difficult cleaning. Its Mirage Lock, an engineered product with a locking system that was introduced two years ago, is also gaining traction, and the firm is continuing to add to the line. Slow sellers are oak in narrow widths, as well as regular exotics. Like other manufacturers, it is seeing consumers move to lower priced products from the mid tier of products.

Mirage says consumers are still gravitating toward darker colors, and it recently introduced two new colors, Brownie, a mellow dark brown, and Black Jelly Bean, which has the look of aged barnwood. Its charcoal color has become a mainstay.

Mirage plans a reasonably large product introduction at Surfaces next year, but is focusing more than usual on value products.

As Shaw Industries continues to integrate engineered specialist Anderson and solid specialist Zickgraf, the two companies it purchased in the last two years, along with its own production in South Pittsburg, Tennessee, the company believes its offerings and merchandising are now as comprehensive as any in the industry and will get even better as it continues to fill the few remaining holes in its product line. Driven by its new manufacturing and research and development capabilities, which have given the firm more in-house capabilities, Shaw had its largest January product introduction ever with 89 new SKUs as it continues to reinvent its hardwood business. Since then, Shaw has been focused on expanding its merchandising to handle the new products. It’s running neck and neck with Mohawk for the number two marketshare spot behind Armstrong, and it plans to expand a couple of plants within the next few months.

Unlike a couple of years ago, Shaw has far more control over its wood business, everything from manufacturing to quality control to product scheduling to distribution. Its products are now in more channels than ever.

Technology from both Anderson and Zickgraf are helping the Shaw branded product lines, and that becomes more evident with every product introduction. Zickgraf and Anderson are also benefiting from each other. Shaw, whose solid business has been fairly limited, now sees a lot of opportunity to expand this part of its business, especially in textured solid floors, borrowing some techniques that are used for engineered products. It is manufacturing a solid line for Anderson to help it compete in places like the Northeast, where solid is the preferred flooring.

Shaw, like other manufacturers, has seen some price compression. Scrapes and other higher end looks that used to sell for about $8 wholesale are now selling for about $5. It is also pursuing lower price points—especially in solid offerings—than it has before with higher style products, partly because of its increased capabilities.

Shaw’s Epic engineered products continue to be among its best sellers, especially its Pebble Hill Hickory. Sales of its high end Grand Canyon 8” solid has been the biggest surprise.

Mullican says it is seeing a seasonal increase in remodeling sales, especially in its prefinished solid oak products such as St. Andrews and Quail Hollow, and it has added some production lately after cutting capacity early in the year. In general its mid to lower price points, starting at about $3.99 per foot retail, are selling the best, while the high end has fallen off. The firm is bracing itself for another slowdown in the winter, and anticipates that conditions will pick up again in the spring.

New this year is Grand Haven, initially offered in a solid, but the company is coming out with an engineered version later this fall. Grand Haven is certified FSC Pure, which means that all Grand Haven wood comes from an FSC certified forest.

Mannington, which sells only engineered products, isn’t seeing much sign of a turn in the market. It lives and dies by its builder business, and that segment is just 40% of where it was at the peak in 2006. In general, products that were selling for $6 two years ago are now around $4. Mannington, the only company to offer every major category of flooring, says the wood category has suffered the most during the downturn, not only because of depressed homebuilding but because low cost Chinese imports are still causing a problem, especially on the West Coast. Mannington says it also has to go farther to get enough wood because less wood is being cut in general. Now it has to go about 200 miles rather than the more normal 50 miles.

Its best sales have been in Texas, and the worst in Florida and California, with the Northeast somewhere in between. The Midwest has held up well.

Mannington’s top sellers are handscraped and rustic looks such as its Inverness handscraped and its Marrakech II, the latter a variable width product that was introduced this year.

Mannington plans to follow this year’s 24 new SKUs with 25 new products next January. It’s also rolling out a completely overhauled website this month that is designed to drive shoppers to stores and give them much more access to product online.

Mohawk Industries, which sells under the Mohawk, Columbia, and Century Flooring brands, says its domestic exotics are its current best selling products. Saddle Back Hickory from Columbia, which is available in both solid and engineered in 5” widths, is enjoying fairly brisk sales, and these higher end looks make up about 30% of sales. It is trying to develop products like its FSC certified reclaimed Antique Elm Chestnut.

Sales to homebuilders remain depressed, and the 21/4” solid and 3” engineered oaks, which make up the bulk of those sales, have seen prices decline at a faster rate than any other products. To help retailers differentiate themselves at this low end of the market, Mohawk and Columbia are emphasizing their finishes that contain an ingredient from 3M, which Mohawk believes offers superior resistance to stains and grime. Mohawk is using Scotchguard in its Revival and Lineage collections, while Columbia has a finish called SuperiorShield that it is using on all its traditional oak flooring and domestic exotics.

Mohawk’s brands have seen the strongest sales in the northern half of the country, which was least affected by the homebuilding slowdown.

ArborCraft, makers of the Harris Wood brand, won’t roll out more new products until late this year, in preparation for Surfaces next February. It has been working on bolstering its distribution, which now covers about three quarters of the country, and lacks penetration in parts of the Midwest and Northwest. It just signed NRF Distributors to cover New England, as the Northeast has suffered since Hoboken went out of business nearly two years ago, and NRF has been moving displays to retailers. For the most part, it says its current sales are pre-sold orders and distributors are not adding inventory out of caution. Most activity has been at the entry level with 3/8”oak. ArborCraft’s Home Depot business, which sells under the Tarkett name, has performed reasonably well this year. Its high end products, including the painted Hamptons Colorcraft, have held their own. Its Traditions Springloc, which contains Välinge’s 5G locking system, debuted in January and has also sold well. About three quarters of its products are engineered.

Anderson has recently completed a new finishing line at its South Carolina plant, which should help it cut some costs. After a fire three years ago, Anderson completely rebuilt its plant near the old one, and the finishing line was the final addition. Anderson, like other firms, has seen some price compression, but it believes the situation is temporary. Nevertheless, taking advantage of the efficiency of its new finishing line, it has developed a higher style of base grade flooring, adding lower priced scrapes that target consumers seeking value and style. These products, which include its Hickory Forge collection of 3/8” engineered, 5” products, as well as its Casitablanca Spanish Hickory products, have been among its best sellers. Also selling well is its Exotic Impressions line, which uses domestic species and specialized finishing techniques to mimic exotic woods. Anderson believes there’s a customer preference toward U.S. made products and it has developed a label for its samples in the field, touting its domestic lineage.

In June, Armstrong had the largest product introduction in company history as it introduced 135 new Armstrong-branded SKUs across 13 hardwood product lines, all for independent flooring retailers. Armstrong, the industry leader, estimates that it has about a 34% marketshare, and the product line expansion, along with a new display system, is an attempt to boost that number as many of its competitors are simply riding out the downturn. Armstrong’s new products focus on five categories, including exotic and specialty handsculpted, distressed, traditional, and performance hardwood. The company’s strategy is to develop unique looks that will give retailers something different to show consumers.

Armstrong says it has seen a lot of trading down and a shift toward lower price points, and that some flooring shoppers who might have purchased wood in the past are now looking at its vinyl products. Builders are also tending to use more sheet vinyl and carpet. The company is continuing to do a fair amount of volume at the lowest price points, where the competition is most fierce. This includes its Bruce brand, which is sold in the home centers, as well as its “off products,” small quantities that come off the lines that don’t quite meet specifications and are sold at a discount.

Highgrove Manor, the firm’s new traditional oak, maple, hickory and cherry, is a 3/4” solid, in widths of 4” and 5” and is selling well, as is its engineered Rural Living, in the same widths.

The firm’s current emphasis is on launching new products in its Bruce brand, such as rustic and handscraped looks, but these won’t be available in the home centers.

Earthwerks, the engineered wood flooring sold by Texas based distributor Swiff Train, has been one of the bright spots for the company this year, as the firm says sales should be off only in the mid single digits. The firm has been selling Earthwerks branded wood for about five years. For now, the product is sold through its own distribution system in the Southwest, but Swiff Train plans to add a couple more distributors later this year, likely those who are also selling its Earthwerks branded LVT in the Virginias and Carolinas. Earthwerks products are made in China and members of the Train family work closely with the manufacturers on styling and quality. Its products start out at a retail price point of about $3.49 and go as high as $9.50 for its Highland Walnut. Earthwerks has 44 SKUs, but that will increase to 54 by early next year, when it will add some 5” and 7” handscrapes, along with a new display tower.

Until recently, the multi-family sector was a lucrative market, but that has slowed considerably. However, the firm says it’s starting to see a pickup in retail business. The hottest sales for Earthwerks are in handscrapes, and hickory has been its most popular species. Colors are trending darker.

Canadian firm Model says that while sales are still depressed, business is about 30% better than it was in the spring. Earlier this year it was averaging one good day per month—now it’s one per week. The company says customers want trendy, high quality products but price is still a major issue.

For Model, birch is its cheapest product, and, for now, also its best seller. Solid birch outsells engineered. Maple is also selling well, and its customers are preferring lighter golden brown colors. It’s also seeing more interest in narrower 21/2” products rather than wider planks.

Since 2005 the company has made the commitment to introduce one new collection each year. This year it was the E Series, an FSC certified, eight SKU series that also uses about 15% more of each log than a typical manufacturing process. The company said the series broke the company record for samples requested. Model is planning to add to the series next year. It also introduced Modelloc, an engineered floor with a locking system for quick installation. It comes in widths up to 53/16” and is available in eight species, including two exotics. Most of the sales of Modelloc have been for high rise construction.

Model sells direct to high end specialists, although it does have a little distribution. About 60% of its sales are in Canada, and 25% in the U.S., with most of the rest going to Asia.

Canadian high end hardwood specialist Lauzon has seen some encouragement in the market recently but says next year will likely be as slow as this year. Nevertheless, it believes the U.S. market has hit bottom. The situation in Canada has been more positive, as sales in Vancouver, perhaps because of the build up for the 2010 Winter Olympics, haven’t slowed and retailers there say they are having their best year ever. Also, boomers in Canada who are downsizing are opting for higher quality wood floors, which is helping to buoy sales. In addition, the Canadian government has offered incentives for the purchase of home improvement products. Lauzon is also reporting improving sales in Florida and California, where high end engineered exotics are in demand by customers who want something different and aren’t constrained by budgets, the kind of customer that hasn’t been hurt much by the recession. The firm is also selling more maple in the U.S than its usual 7% of sales, likely because all its maple products are FSC certified.

However, Lauzon sales overall have suffered because it doesn’t compete at the low end and many buyers are priced out of the market.

Lauzon’s most popular products this year have been products with the Arabica color, which is available in both solid and engineered collections on maple, birch, and oak. Its Cigarillo color, which was introduced at Surfaces and is available in both solid and engineered red oak, has sold well. Its Ash Reserva, an engineered product with an exotic look, is one of its top selling products.

Relatively strong Canadian sales have helped offset lackluster U.S. sales this year for Canadian firm Mercier. That has allowed the firm to keep its manufacturing operation running fairly strong and its only layoffs have been in sales. The firm is seeing a spark of activity from its Toll Brothers homebuilder account but overall the builder market has been slow.

Like other firms, it’s seeing strongest sales in value products and lower wood grades and is selling a lot of standard oak and ash products. It’s finding consumers are staying exceptionally conservative in both spending and taste.

The firm has added two new colors this year to its Design+ program, which allows consumers to choose their species, stain, grade, and width. Eclipse, a bluish grey, and Arabica, a dark brown, are selling relatively well. However, it’s seeing more interest from designers for natural tone colors and neutral colors.

WOOD SPORTS FLOORS

Wood has a significant niche in the sports flooring world.

Hard northern maple dominates the competitive basketball court business in the U.S., from the professional level down to high schools, unlike the international market, where synthetics are often preferred. The floors are made of strip flooring that is nailed to a sophisticated sub-floor. With proper care, a maple floor should last about 40 to 50 years, or as long as many high schools. A good wood floor could run from $7 to $15 per foot on the low end on an installed basis.

The wood comes in three grades, which only affect the appearance, with the lowest grade more often the choice for high schools and the highest for professional teams. It comes in three basic strips--random length, which is the most common, finger-jointed strip, and parquet.

According to the Maple Flooring Manufacturers Association, the industry's primary trade association, there are six main mills in Wisconsin, Michigan, Ohio and Illinois that produce the majority of flooring for this industry, and several are fourth and fifth generation family businesses. About 70% of all sport floors are constructed of maple, and the vast majority of them are northern hard maple. About 17 million square feet are installed annually in the U.S., with the average court about 7,000 to 8,000 square feet. Very rarely is any other species used for a basketball court and much of that is a matter of tradition rather than necessity although maple is known for its dimensional stability and limited contraction and expansion. However, the bamboo industry is making a push into the sports flooring market, which the maple industry is fighting tooth and nail, partly by questioning bamboo's country of origin, sustainability and longevity.

In addition to being the preferred floor, maple courts also cost the least to maintain, according to the association, with an annual cost of about $.79 per foot, compared to $1.10 for poured urethane and $1.15 for PVC. Although wood and some synthetics have a comparable lifespan, vinyl floors tend to have a shorter life.

High schools are the largest market for wood competition courts. The sales cycle tends to be fairly long, sometimes up to four years, depending partly on whether a bond issue is involved for financing. These firms sell primarily through architects and general contractors. 

Installation of the floors takes about a week, and it requires a specialist. In fact, the MFMA has its own installation certification program. Applying the airbrushed graphics and finishes is one of the most demanding parts of the job and is beyond the realm of most flooring contractors. As one manufacturer said, "No matter how good the designs are, if you don't have a good installer, they can really screw it up. Flatness and moisture content, among other things, have to be taken into account."

Connor Sport Court, based in Arlington Heights, Illinois, is the largest firm in the business with about 75,000 installations worldwide. It provides courts for major events such as college basketball's Final Four tournament. It has several different floors, differing mostly by sub-floor construction, aimed at elementary schools and recreation centers on up to professional teams. In addition to wood, it also has rolled rubber and sheet goods, along with PVC sheet and poured urethane.

Robbins, based in Cincinnati, is also one of the largest firms. It has provided floors for everything from the Olympics to the Pan Asian games. It sells both under its own name and does some private label manufacturing. It also offers a variety of synthetic flooring, as well as FSC certified wood.

Hardwood firm Junckers sells prefinished wood products for applications like racquetball courts, and even the floor for the Dancing With The Stars television program. It has several different offerings, distinguished primarily by the complexity of the sub-floor, and it also markets a portable floor. Because its products are prefinished and more expensive, it doesn't sell much into the competitive floor market. However, because its products can be installed in about a third of the time, they're well suited for smaller jobs. This kind of flooring accounts for about 30% of Junckers' U.S. sales.


Copyright 2009 Floor Focus 


Related Topics:Mirage Floors, Tarkett, Swiff-Train Company, Shaw Industries Group, Inc., Roppe, Lumber Liquidators, Mohawk Industries, Armstrong Flooring, NWFA Expo, Mannington Mills