Laminate Report 2020: Manufacturers hope to carve out a value proposition they can build on - Aug/Sept 2020
By Meg Scarbrough
It’s been over a quarter century since laminate arrived into the U.S. flooring market from Europe. It was a year marked by unusual events and headlines-figure skater Nancy Kerrigan nearly had her Olympic dreams dashed after being clubbed in the leg; famed NFLer O.J. Simpson led police in a chase on a Los Angeles freeway; the World Series was canceled for the first time since 1904-but for laminate, 1994 was a year of early success. Offering wood-look flooring at affordable prices, it immediately found a niche in the U.S., and sales went from millions of dollars to billions in almost no time. And now, 26 years later, faced with mounting competition from luxury vinyl tile and a lingering negative reputation, the category is working to stop its share loss in the market. Manufacturers, however, remain hopeful that its overall story-its affordability, durability and ease of install-will bring retailers back for another look.
STATE OF THE INDUSTRY
Laminate has never dominated the flooring market like carpet or hardwood; at its peak in 2009, the category held 6.2% of the total U.S. flooring market, according to Market Insights. The category did a respectable job holding onto that share over the years and, in fact, saw revenues increase in 2016. But in recent years, its footprint in the market has started to shrink, slipping ever so slightly year over year, and in 2019, laminate accounted for just 4.3% of the U.S. flooring market (in dollars).
Here’s a breakdown of the category:
Market segments: Residential replacement is the dominant market segment for the category at about 87%. Dan Natkin, vice president of hardwood and laminate for Mannington Mills and president of the North American Laminate Flooring Association (NALFA), says that trend has held steady for some time but notes that there have been some dramatic shifts occurring in the last six to seven years amid a rise in new residential use within the builder market. The smallest segment in the category is in commercial. Natkin says commercial laminate use has been more popular in Europe, but says “it’s a longer row to hoe to get the U.S. to come around, as well.”
Production and consumption: The bulk of laminate production comes from Asia, which is also the largest consumer of the product. But the U.S. is home to its own manufacturing facilities, including Mohawk, Kronospan, Swiss Krono and Mannington.
In recent years, industry professionals have seen an increase in demand for flooring products made in the U.S. Part of this was based on costs as tariffs on Chinese-made products pushed prices higher, sending those in the chain seeking less expensive alternatives closer to home. But the recent COVID-19 outbreak also has rekindled that mindset, economists say. With supply chain disruptions for products coming out of China happening early on in the crisis, consumers and retailers began to seek out replacement products.
Most of Mohawk’s laminate, which includes brands like Pergo, Quick-Step and RevWood, is made in the U.S. Adam Ward, senior product director for laminate at Mohawk, says, “I definitely think [having facilities here] helped us. Supply chains for all product types got tight, not just flooring-food, toilet paper. The fact that our plant is right here in the U.S. helped us to respond to changes in demand.” But there was also a sense that U.S.-made products are “safer.”
Distribution: Most of the laminate category is sold under private label brands held by major retail chains like Lowe’s and Home Depot. While home centers dominate sales and distribution-49% in 2018-independent flooring stores still do a fair amount of laminate sales and represent 34% of the retail channel.
Pricing: Mounting pressure from LVP and LVT has pushed laminate to offer more competitive pricing. Natkin says the category bifurcated some time back, and consumers are seeking out either the lower end at about $1/square foot, or the higher end at $3-$5/square foot. Manufacturers say they’ve seen increases in demand for the lower end during the current DIY movement driven by COVID.
CHALLENGES AND RESPONSES
Laminate has faced a number of challenges over the years, from both inside and outside forces. LVT, which already posed a significant threat, is ramping up its production efforts stateside. Chinese-owned LVT manufacturers have doubled down on their U.S. investments, setting their sights in and around Dalton, Georgia, the carpet capital of the world. In the last eight months, five Chinese rigid LVT companies have committee $188 million in new manufacturing capacity, which is expected to come online next year.
As if LVT competition weren’t enough, laminate has also had to repair damage to its reputation. In 2015, CBS’ “60 Minutes” aired an episode in which it reported that independent testing of Chinese-made Lumber Liquidators laminate flooring revealed 30 of 31 samples to be noncompliant with formaldehyde emissions standards. It was a scandal that rocked the flooring industry and cast a pall over laminate. Lumber Liquidators ultimately agreed to pay a $33 million penalty to settle federal charges in 2019, and earlier this year, the company rebranded as LL Flooring amid pressure from investors, who urged a name change to combat its negative reputation. In the years since the scandal, manufacturers have worked to rebuild trust and assure consumers of the product’s safety.
The most recent challenge to growth in the laminate category has been from COVID-19, which saw retail sales of all flooring dip early in the crisis. Most domestic laminate factories remained operational, but slowdowns did occur in China, where the COVID-19 outbreak was centered. But the news isn’t all bad for laminate.
While the new LVT projects on American soil signal optimism within its category and for its future in the U.S. market, laminate producers have been making their own major investments in recent years. In 2015, Swiss Krono, which largely produces private label products, launched a $350 million project to expand its existing plant and add a high-density fiberboard facility in South Carolina (production at the new facility began in 2019); Austria-based Kronospan announced it was investing $463 million into production in Oxford, Alabama; and Mohawk expanded its Unilin plant in North Carolina in a $35 million investment. Plants like Swiss Krono’s in Barnwell, South Carolina, are set up so that lumber and other materials can come in one end and laminate out the other, but not all of the production is solely for flooring. Travis Bass, executive vice president of sales and marketing with Swiss Krono, says, “If you look at the factories that have gone up and the additions and improvements that have been made, whether it’s Kronospan, Swiss Krono, Unilin, Mohawk, it’s significant.”
Additionally, laminate manufacturers say they see LVT headed in the same direction that laminate did 20 years ago. When it made its way to the U.S. in the ’90s, laminate cannibalized the resilient sheet floor category, led largely by an aggressive marketing campaign by Pergo, the Swedish brand that brought the product to the U.S. (and was bought by Mohawk in 2012). As its popularity grew, so too did the number of products competing for consumers’ attention, and with it came steep price competition. According to Natkin, “There were tons of competitors, everybody had a line, and everybody was making wild claims about the product. Then it all settled back out. Some of the smaller guys fell out of the market, and the industry consolidated back down into a few key players whose products stood the test of time.” Some believe that the LVT category will soon experience a period in which capacity outpaces demand, and that could ultimately do harm to it.
As for its negative reputation, Natkin contends that while he still gets the occasional question from consumers about the safety of laminate, it’s “safer than it’s ever been,” adding that “the bad actors have shaken out of the category.”
And even amid COVID-19, there’s been a silver living for laminate. Independent retailers and major big box chains have both reported an increase in DIY flooring sales during the April and May shelter-in-place mandates. While sales initially slumped, consumers slowly began emerging from their homes, armed with money they had saved and a desire to update their home. Ward says he’s seen strong laminate sales recently and says the DIY boom has helped the category. “You get a lot of people who have stayed home and may have been putting off those remodel projects and have time on their hands,” he says. “It’s an easier product [to install], and a product they felt they could do on their own.”
INNOVATIONS AND TRENDS
The category has come a long way since its early days in Scandinavia. Natkin says he was an early supporter of the category, and he’s spent much of his career advocating for its use. But he admits that the laminate of the ’90s wasn’t a superior product, adding that “it was smooth and had no real texture.”
But thanks to technological advances over the last 26 years, the category has become a much more refined product, and that’s a story manufacturers hope translates to retailers and consumers.
Styling and design: Wood looks continue to be the dominant design in laminate, and recognizing that, manufacturers have sought out new technologies that could elevate the look and make it more appealing to discerning buyers. Natkin says it revolves around realism-not only creating the look of wood, but also the feel. “Particularly, we’ve been deploying digitally printed paper, which gives us fewer repeats and creates much crisper realism,” he says. “And then you combine the embossed-in-register technologies along with that and other technologies, and a lot of times, it’s hard to discern the difference between laminate and real wood.” Bass adds there have been products that offered other looks like tile, “but that died out, and [Swiss Krono] hasn’t seen enough interest to get back into manufacturing anything other than wood looks.”
Durability: Among its greatest assets is the fact laminate, if you take ceramic tile out of the equation, is the most durable flooring product in the market, more so than hardwood. The process by which it is manufactured combines four layers: the wear layer, the design layer, the substrate and the backing. Under high pressure and heat, a product is generated that stands up to scratches and wear and tear that are often seen in other types of flooring. “It’s always been the leader in durability,” says Derek Welbourn, CEO of Inhaus, which is headquartered in Vancouver, British Columia, and operates a laminate plant in Germany.
It’s so durable, manufacturers say it’s gaining traction in new home construction projects. “We’ve seen a lot of builders begin to gravitate toward the category as they look to speed up production of the home and reduce callbacks,” Natkin says. “The number one callback item for most builders is wood flooring because the trades come in and they scratch and dent it and they try to replace planks. And what they found is laminate is far more durable to trade damage.” He estimates that ten years ago, Mannington’s business was around 85% new remodel and 15% builder. “Today, our business is north of 30% to 35% new home construction within the category.” Most of what Mannington makes-96%-goes into the residential market and comes from its plant in High Point, North Carolina.
Thickness: As consumers split their preferences between higher- and lower-end products-effectively limiting the middle ground, which is 8mm and 10mm-it’s reflected in the thicknesses that are being sold. At the higher end are the thicker 12mm products, which offer better acoustics; and the lower end is 7mm. According to Bass, “Ten years ago, 12mm was 5% to 10% of the mix, and today it’s probably 45% to 50%.”
Acoustics: A chief complaint about laminate is its acoustical properties, which some have characterized as being loud or hollow-sounding. It’s one of the reasons it’s not considered a preferable product for large-scale commercial spaces, manufacturers say. There have been advancements that have helped soften the sound, and as previously mentioned, thickness can also play a role: the thicker the product the better the sound. Bass says that aside from thickness, it’s important that consumers invest in a good underlayment. “Don’t buy a nice floor and then go cheap on your underlayment,” he says. “There’s a distinct difference in sound transmission.”
Water-resistance: Another selling points for laminate has been its water-resistance story. Retailers report seeing an increase in consumers coming into independent flooring stores seeking products that have water-resistant or waterproof qualities, whether it’s because they have pets or children or are just looking for a floor that will withstand the spills and drips of everyday life. Bass says, “It’s taken over with a vengeance. And it was a natural reaction to the threats from vinyl products. Swiss Krono went from making 10% of its product [water-resistant] to 80%.”
The coating of laminate-melamine-makes it hydrophobic, but its core is comprised of a medium- or high-density fiberboard-basically wood byproduct-which absorbs water, and therefore can’t technically be considered waterproof.
Natkin sees technological advancements continuing in incremental phases as they have over the years, noting the shifts that have already occurred from continued performance improvement, moisture resistance, scratch resistance and scuff resistance. He says, “Further innovation around moisture resistance or rendering the product virtually waterproof will continue to be the trend.”
Bass says that the only technological advancement that rivaled water-resistance over the years was when the industry went to glueless locking systems. “Prior to that, everything was glued together, and you had straps that held it together,” he says. “We thought it would be a two- to three-year transition, but it happened in months.”
LAMINATE IN THE MARKET
Manufacturers admit there are still hurdles to overcome, and one of them is getting independent retailers on their side.
Adams says, “There are definitely consumers and retailers alike that may be thinking of laminate from ten years ago. But it’s changed a lot. There’s probably some lingering effects from the Lumber Liquidators issues, and it may be thought of as a bad product. So education is one of those areas we focus on to educate them on what’s new in laminate today.”
And Welbourn adds that while LVT is a hot topic, “what laminate is offering is real. It’s not a warranty. It’s just a fact.”
Tiffany Hooyman, interior designer at Macco’s Floor Covering, says consumers will come into her store asking for waterproof floors and want LVT or laminate floors, but not really understand the differences. “Educating people on the terms is key in helping them understand what the products do and offer,” she says. And she notes once a consumer understands the differences, they’re still going with laminate.
Natkin sees promise for laminate in the independent retailer again. He says, “I think some people on the independent side are coming back to the category now that there are fewer competitors and recognizing the performance attributes and the way that it holds up over time. Another piece of it is the innovations that we’ve made. … I think all of those factors have brought people back around. I can’t tell you how many retailers that had abandoned the category have come around in a big way.”
Bass adds, “It ain’t your grandma’s laminate.”
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