Hospitality: State of the Industry - May 2010

By Darius Helm

In 2009, conditions in the hospitality market deteriorated to levels not seen in nearly 40 years, as both leisure and business travel activity slowed to a crawl. The good news is that hospitality indicators like occupancy rates, revenues per available room and average daily rates have moderated this year, and while this will have little impact on the bottom line of hospitality flooring manufacturers in 2010, it’s good news for business in 2011. 

The beginning of 2009 started okay, largely because of overflow from the fourth quarter of 2008, but in the second quarter hospitality flooring business rapidly dried up and the market has remained sluggish so far this year. By some accounts, business is down 50% from where it stood in 2008. With unemployment still high and banks still wary about lending, the first half of 2010 has so far shown few signs of life.

According to Smith Travel Research (STR), a leading source of hotel research, occupancy will increase 1.9% this year to 55.8%, average daily rates will decline another 2.3%, and revenues per available room will go down 0.5%. The good news is that these predictions all represent upward revisions from earlier estimates.

STR also anticipates that supply will grow 2.2% this year, up from the previous forecast of 1.8%, with 1% growth next year. And PricewaterhouseCoopers predicts that demand will rise 1.5%.

Last year there were some interesting dynamics, as supply actually increased 3.2% in terms of number of rooms because of new construction already in the works, while demand dropped 5.8%. Average daily rates fell 8.8%. Occupancy levels fell from 60% in 2008 to just below 55% and revenues per available rooms fell 16.7%—both record lows for the past 38 years. Most of the activity last year and this year is focused on the limited service sector as the general movement has been upscale customers shifting downwards. 

With the U.S. market just about saturated, new construction dropped 64% last year, and 90% of that pipeline was hotels with fewer than 200 rooms. This year it will fall another 16%. In 2009 only five hotels valued at over $100 million were built, compared to 13 in 2008. These statistics suggest that as the market comes back, most of the business will be on the renovation side, and it will be a couple of years before there’s much in the way of new hotel construction.

However, that pent up demand on the renovation side is steadily growing—hotels simply can’t afford to look run down, especially in the face of such fierce competition for reduced leisure and business travelers. That means that 2011 and 2012 should end up fairly healthy for hospitality carpet manufacturers, even if the economy doesn’t come roaring back. And with growth in related markets like assisted living, where demand should continue to grow for at least the next decade, carpet mills can realistically expect more robust conditions.

MANUFACTURER UPDATE
Like most flooring players, Shaw Hospitality has seen most of its activity in the limited service market—midscale hotels without food and beverage—and the firm has also been targeting the assisted living market. 

Currently, there are about 16,000 assisted living facilities in the U.S., compared to about half a million hotels and motels, so not only is there huge demand for new assisted living facilities, but many older facilities are badly in need of renovation to accommodate the baby boomers. Shaw’s hospitality carpet has also been doing fairly well in the military lodgings market, as well as movie theater renovation with custom printed carpet. 

Both military lodgings and assisted living facilities are shifting away from utilitarian designs to looks that are closer to country clubs, hotels and high end residences. However, while the assisted living market will be growing for the foreseeable future, military housing is active because of base upgrades and will probably start tailing off in the next year or so.

Shaw serves both the public space and guest room sides of the business, mostly with broadloom and entirely with nylon face fiber. New to its public space program is Eco Evolution, a printed cradle to cradle broadloom using the firm’s EcoSolution Q nylon fiber. Shaw already has a cradle to cradle guest room carpet, and both are third party certified. 

Despite the poor hospitality market, demand for green hotels is still growing as prominent hotel brands try to distinguish themselves from the competition. Sustainability can be a big draw for business travel and conventions since a growing number of companies have green standards and they’ll seek out hotels that help them lower their environmental footprints.

Shaw Hospitality is also taking advantage of its hardwood offering to make it a one-stop shop for clients, as a growing number of hotels are using hardwoods both in public space and in the foyers of guest rooms. Carpet tile is also more frequently specified than in the past, usually in hotel brands targeting younger clientele, largely in public space and corridor applications.

Milliken has been expanding its hospitality business, which just a few years ago was largely based on its printed broadloom offering—which it terms “dye injected” to distinguish it from less advanced printed carpet programs. Over the last year, the firm built its first plant for solution dyed carpet and it also added CYP (computer yarn placement) capability.

In addition, last year’s acquisition of Constantine has broadened the firm’s target markets to include higher end guest rooms and public space—traditionally, Milliken has been strongest in the limited service market.

Overall, carpet tile is little more than a niche product in the hospitality market, though its share continues to grow. However, Milliken has been making carpet tile for the hospitality market for two decades through its cushion backed Grand Plaza line of 80/20 wool/nylon and 100% nylon dye injected carpet. In fact, it’s been used in the ballroom of Orlando World Center, Marriott’s highest traffic hotel in the world, for 18 years. 

At this month’s HD show in Las Vegas, Milliken is introducing a new carpet tile program that the firm feels will have a significant impact on the market. Wake Up Call, a 20”x20” dye injected carpet tile program for guest rooms and corridors, offers price and performance as well as design capabilities heretofore unavailable in hospitality carpet.

Wake Up Call is a cushion backed tile with a moisture barrier as well as the StainSmart treatment available on all of Milliken’s dye injected carpet, so it should be able to deliver the performance expected of guest room carpet. In addition, it’s about half the price of the average carpet tile, which has been one of the biggest barriers to carpet tile penetration in the guest room market. On top of that, its adhesive back (and the fact that it’s carpet tile and not broadloom) makes for a much easier installation and lower labor costs.

Then there’s the issue of waste. Installing carpet tile in a guest room, where there are all sorts of odd shapes and corners, creates much less waste than doing the same installation in broadloom, though it’s not such a big deal in corridors, where widths ranging from 6’ to 7’6” can be accommodated by broadloom ranging from 12’ to a custom 15’ width. 

The new carpet tile program is perhaps most interesting in its design opportunities. Traditionally, corridor carpet has little relation to the guest room carpet just inches away. Not only are the designs different, but so are the construction methods. However, the new tile program with its custom dye injected capabilities allows for designs to flow from corridors directly into guest rooms to create a look entirely new to the industry. 

Add to that Milliken’s Pure Color system, its Etage layering technology and its online custom visualization tools for designers, and it sounds like Milliken is positioned to compete beyond the limited service market to full service and beyond.

Mohawk’s Durkan Hospitality has offered a wide range of carpet programs since the late 1990s, when Mohawk bought first Durkan and then Merit. The firm makes printed products, CYP carpet and Merit guest room carpets, covering all hospitality applications in a wide range of price points. Most of what Durkan does is broadloom, with its carpet tile largely used in back-of-house operations.

A couple of years ago, Durkan came out with Synthesis, a textural overprint program for public space and corridors. The program offered four textural bases upon which designs could be overprinted. The program has been hugely successful and now accounts for nearly 15% of printed carpet sales. At this month’s HD show, Durkan is adding eight new textural bases.

Durkan Print is the biggest part of the firm’s hospitality business, and it has a dominant position in the limited service sector, which has helped it maintain its share in today’s market, while its Merit and CYP programs help the firm dominate in the upper tiers. Durkan got its CYP capabilities in the Merit acquisition—Merit had two CYP machines—but it was the 2003 acquisition of Lees, which added four more, that really helped the program take off. CYP’s solution dyed nylon public space carpet competes at the upper end with woven Axminsters, and it’s preferred over printed carpet in tropical and sunlit environments because of its light fastness.

Merit covers a range of guest room price points, and within the brand, Merit Select targets higher end rooms and suites with stylish higher weight carpet.

New to the Merit brand is EcoSense, a rooms carpet dematerialized to 26 ounces, though it’s also available at 32 ounces. It comes in a patterned cut and loop running line style, Clean Grid, in 12 colors without a minimum yardage requirement, as well as custom patterns from the same color palette with 1,500 square yard minimums.

California’s Bentley Prince Street, which makes both carpet tile and broadloom, does about 10% of its business in the hospitality sector and just about all of that is with broadloom products. Most of the firm’s hospitality business is in corridors, public space, higher end suites and other feature areas.

While domestic business is down, Bentley Prince Street has been able to pick up international business in locations like India with the Westin Group, as well as work with Starwood, which has been investing in the revitalization of its Sheraton brand. Also, the firm has come up with work in both Canada and Latin America—mostly Brazil.

New at Bentley Prince Street is the Global Vistas Collection, a solution dyed program with a compelling Wilton look. The collection offers the look of Wiltons with the performance of solution dyed Aquafil nylon, making it ideal for hospitality settings like ballrooms and banquet halls, as well as assisted living environments. Basically it’s Wilton looks without any of the disadvantages, so it can go into high traffic areas where traditional Wiltons would have trouble performing.

Brintons is the dominant player in the Axminster business, competing with firms like Tai Ping and Ulster. About 90% of the carpet the firm sells in the hospitality market is 80/20 wool/nylon Axminsters. Its product goes into public space applications, including corridors, and it has a huge share of the casino carpet market, in part because of the fire retardant properties of its wool constructions. Brinton’s Axminsters also go into the marine sector, a natural for hospitality carpet since cruise ships are basically floating hotels.

Back in 1998, British headquartered Brintons purchased U.S. Axminster, making the firm the largest Axminster producer in the world. However, the firm closed its Mississippi location about seven years ago and now makes all of its carpet in its U.K., Portugal and India locations. By the end of this year, the firm will also start manufacturing in China to better serve the East Asian market.

While U.S. business has been very slow, Latin America has been more active, including Brazil, Argentina and Peru, though they’re still only a small part of the business. Even though some of those regional economies are also struggling, they’re still building and renovating hotels. Overall, business in the Americas is down 25% from where it stood 18 months ago.

Though Brintons serves the limited service market through brands like Marriott, most of its business is in the upper tiers. With those markets showing little activity, Brintons has been picking up the slack with Indian gaming work as well as assisted living.

Even though there’s little business in higher end hotels right now, Brintons anticipates an uptick next year due to shorter renovation cycles in upper tier locations because of demand for quality and fashion forward styling—pent up demand builds faster in those higher end brands.

Templeton Hospitality Carpets makes running line and custom broadloom for both the public space and guest room sides of the market. Though its guest room business is bigger, the firm’s public space carpet is doing better right now due to new machinery like Card-Monroe’s ColorPoint Cut and Loop. All of its carpet uses solution dyed nylon.

Templeton goes to market through both the A&D community and the FF&E (furniture, fixtures and equipment) distributor network. FF&E distribution is a turnkey service that has a stronger position in limited service and economy business than in higher tier markets. While the bigger part of Templeton’s business is specified through the design community, the firm has recently been putting a focus on FF&E because of the relative strength of the limited service market.

The firm considers its range of manufacturing capabilities to be one of its biggest strengths, enabling it to fit most of the aesthetic and budget requirements in the hospitality market. It’s large enough to have good economies of scale but small enough to be flexible and customer reactive.

Like most hospitality specialists, Templeton was down by double digits last year and expects 2010 to be another down year, though not by as much. In fact, over the last month there have been signs of increased activity, with more projects coming on stream.

Beaulieu’s Aqua Hospitality serves the market with broadloom for both public space and guest rooms, and it also offers carpet tile for public space applications. Most of what Aqua does is solution dyed nylon with lifetime stain and colorfast warranties, though it also offers some printed carpet. 

All of Aqua’s broadloom features 25% post-consumer content derived from both the backing and face fiber. The Aqua brand was launched in 2006, replacing the firm’s Consort brand as part of its strategy of serving the higher tiers of the market with its Chromojet and Optifects technology.

Aqua’s biggest focus is brand business, and the firm has made a lot of headway establishing itself as an approved vendor for a range of prominent hotel brands. Last year the firm was busy for the first six months before projects dried up, and this year it anticipates the second half will be busier, before a modest recovery next year.

Burtco made its name through its association with the development of the Tapistron CYP machine, though these days CYP business accounts for less than half of its business, as the firm also offers carpet made from a range of other equipment, including graphics machines and multilevel loop Infinity technology.

Burtco’s focus is on the full service tier of the hotel business, and because it’s a leaner, more nimble firm, it has managed to stay busy in that market. While the bigger players like Durkan and Shaw have pricing advantages, Burtco has been able to leverage its ability to service its clients in terms of design, sampling and custom production, though there’s more pressure than ever to deliver quickly. So far this year business has been spotty and there have been no clear signs of steadily increased activity.

This year, Clayton Miller, a hospitality specialist, celebrates its tenth year in the business. Founder Clay Miller is an industry veteran, having started Merit, which was sold to Mohawk in the late 1990s. Most of its business is on the guest room side, focusing on both the higher tiers of the market and limited service.

Clayton Miller serves the guest room market with Infinity multilevel cut and loop products, and public space carpet is produced on CYP and ColorPoint technology. Here and there the firm is feeling some improvement in the market, though so far it doesn’t feel like it’s sustainable. However, the good news is that conditions this year are better than they were a year ago.

Lexmark does most of its business in guest rooms, though it does a modest public space business. The majority of its carpet goes through FF&E distribution, though it also works with designers, corporate accounts and flooring contractors. Last year, the firm, which extrudes its own nylon, moved all of its heatsetting, extrusion, twisting and tufting operations under a single roof.

Last year the firm’s business didn’t drop off until the third quarter, and business since then has been off about 30%. Most of the firm’s carpet goes to the limited service market and above.

Despite poor conditions, the firm has continued to invest in increasing its capabilities, and later this season its new 12th gauge scroll machine will come on line. Lexmark has also added yarn capacity, which should position it well when the market turns. At this month’s HD show, the firm is launching six new products for both guest rooms and public space.

Tai Ping, a big player in the Axminster hospitality carpet business, is one of the greener players in the hospitality market. The firm is also the parent company of Edward Fields, a luxury firm known for its hand tufted products that Tai Ping acquired about five years ago.

Tai Ping was one of the first firms to sign on to use Laneve, the specialty fiber brand recently introduced by Wools of New Zealand. Laneve comes from verified responsible sources and it complies with third party sustainability standards. Last month, Tai Ping announced that it has been certified for silver rating under the NSF 140 sustainable carpet assessment standard. 

Copyright 2010 Floor Focus 

Related Topics:Mohawk Industries, Shaw Industries Group, Inc., Beaulieu International Group