Laminate Report: Laminate manufacturers are cautiously optimistic amid flagging market conditions - Aug/Sept 2022
By Jennifer Bardoner
Laminate, like every other category, is coming off a banner year, but now, like the economy itself, is beginning to lose steam. Sources tell of a slowdown at retail and are wary of the potential economic fallout due to rising consumer costs and interest rates. Still, they are optimistic. Laminate’s price point and attributes make it a competitive option-especially amid flagging market conditions-and its primary market (residential) is still above pre-pandemic levels.
Market Insights data shows that laminate consumption in the U.S. grew 11% in dollars last year, as booming remodel and builder markets led to soaring sales in every category, though it should be noted that prices also rose, so some of that growth is inflationary. “For the last 18 months, the pie has certainly grown,” says David Moore, senior product director of wood/laminate for Mohawk. “All the markets that consume [laminate] products have been experiencing nice growth.” Pegging 2021 as “probably the highest-volume year the market has ever seen,” Inhaus CEO Derek Welbourn says, “I just chatted with one of our distributors, and he’s still pretty happy with the way things are.”
Barbara Ellenberg June, president of the North American Laminate Flooring Association (NALFA) and general counsel and public relations manager for Swiss Krono, says that NALFA members “are at capacity and pumping out what they can make.” Members, which include all of the category’s major players, are diversified in their market strategies, serving both big boxes and independent dealers. Members saw sales increase by volume in Q1 2022, with consumption up approximately 50 million square feet compared to Q1 2021, she reports. “But don’t forget, in 2021, we were all choked by the supply chain-I mean really, really bad-and a very large part of the country was shut down,” Ellenberg June notes, adding that once specialty retailers were allowed to open back up, they had to work through their existing inventory, further constraining potential growth.
Looking ahead, David Sheehan, vice president of residential hard surface for Mannington, projects low to mid single digit growth. “I’m optimistic about the category’s growth and potential in the future,” agrees Moore. “I don’t think it’ll be blowing the barn doors off but still a very healthy position in regard to the category.” Moore notes that amid elevated shipping costs, domestic producers are sharing a bigger chunk of the category’s slice of the pie.
“We are a mature category, and we anticipate little change in our percentage of total floor consumption,” says Ellenberg June. “In other words, we don’t think our category will decline.”
Promising waterproof performance in wood-look visuals alongside ease of installation, LVT has come on swift and strong, forcing laminate to innovate in order to compete-but not before it lost a chunk of its marketshare to the industry’s newest flooring type. “The resilient category is what some say is sexier, trendier, despite all the advantages laminate has,” says CFL North American president Barron Frith. While he notes that LVT continues to innovate, he adds that, “Laminate still has that value proposition of fewer repeating planks designs, which vinyl still hasn’t quite caught up to, and the reputation for having a ‘bulletproof’ surface, while being PVC-free.” Additionally, laminate has addressed its primary deficits by focusing on water resistance and sound absorption.
“I think laminate will continue to be strong in the [wood-look] category for two reasons: the advances in waterproof technology around laminate, which are driving laminate sales, coupled with beautiful decors that are getting more natural,” says Kyle Brown, Swiss Krono’s executive vice president of sales and marketing. It doesn’t hurt that “laminate is the opening price point in the wood/natural wood alternatives,” especially as consumers get squeezed by record inflation, he adds.
Should the country plunge into a deep recession, laminate has history on its side. “Every product that is competitive and lower-cost is going to do better in a recession,” explains Welbourn. “That’s the same for a potato as it is for a floor-less caviar, more potato.”
Though it has retained its price advantage over LVT, laminate has faced increased costs amid supply chain and labor issues coupled with increased demand for raw materials, both from within the industry and from competitors, including builders. “The components that go into laminate manufacturing have all been difficult to get at the quantity and price we had before the pandemic,” Ellenberg June says, explaining that in some cases, materials are being divvied up between customers on a historical allocation basis. Brown says elevated retail prices are “all in direct correlation to raw material prices.” Raw materials make up the vast majority of production costs, but labor is impacting the category through raw material sourcing and transportation.
“From a cost perspective, we certainly are not in the days when every month closed with 20% [cost] growth from the prior month, which is where we were at the end of last year to the beginning of this year,” Moore says. “They’re still historically elevated but are starting to stabilize from a raw material perspective, and transportation.”
Home centers like Lowe’s and Home Depot account for roughly 75% of category sales, our sources agree, and the two indeed had benchmark sales in 2021, per their earnings reports. Home Depot, the larger of the two, also reported a record-setting first quarter this year. Q2 has historically been the strongest quarter for the big boxes-followed by a substantial slowdown between Q2 and Q3.
Following last year’s breakneck sales, the current slowdown is giving retailers a chance to catch their breath. “Retailers last year were complaining, ‘I’m ten to 12 weeks out.’ That ain’t the case now,” Sheehan says. “On or about the June timeframe is where we saw a slowdown at retail. Laminate was not spared in that slowdown.”
With record-setting sales still visible in the rearview, the drop is far from a fall off a cliff for the category. The Leading Indicator of Remodeling Activity (LIRA) shows more than two years of steady gains starting in late 2020 for residential replacement, projecting that it will grow to its peak by the end of this year. “With everything else we have to be worried about, residential remodel is like the shining star in the economy right now,” says Brown. “That big home boom from the ’90s, those houses are now 20 to 30 years old. People can’t afford to move, so they’re staying in their houses a bit longer. Overall house prices are higher, so people can borrow against them to remodel. And because demand is so high, people may settle for a house they don’t really want, so they may remodel. All indicators right now are that this home remodel boom is going to continue.”
With rising mortgage interest rates beginning to slow home sales, thereby reducing homeowners’ equity, LIRA projections are that year-over-year remodeling expenditures to owner-occupied homes will drop from 17.4% to 10.1% by Q2 2023. However, points out Abbe Will, associate project director of Harvard University’s Remodeling Futures Program, which produces the LIRA, “While beginning to soften, growth in spending for home improvements and repairs is expected to remain well above the market’s historical average of 5%.”
Sales of existing homes fell 5.4% month-over-month in June, the fifth straight drop, reports the National Association of Realtors (NAR). Yet personal spending on durable household goods grew roughly 1% above May, to nearly $495 million, its highest point since the start of 2020, according to Bureau of Economic Analysis figures. U.S. homeowners have more equity than ever: $27.8 trillion following a record 20% jump in Q1 2022, reports The Wall Street Journal. The rise in interest rates is a drop in the bucket compared to the double-digit equity growth for most homeowners, who gained an average $64,000 year-over-year, according to the CoreLogic Homeowner Equity Insights report.
On the other side of the coin, the University of Michigan shows consumer sentiment hit a record low in June, and while it inched up in July, particularly among low- and middle-income earners, it remains historically low. Like everything else, home prices have skyrocketed, keeping many would-be buyers out of the market, which means fewer renovation opportunities. According to NAR, the projected median sales price in June was a historic $423,300, a nearly 2% bump over May. Zillow, which includes only middle-tier homes in its Home Value Index, put the average around $354,000, a nearly 20% jump year-over-year. But as home sales drop, those prices should start to come down.
Residential construction accounts for roughly 20% to 30% of category sales, with the majority coming from single-family builds. However, Ellenberg June says NALFA members are reporting more multifamily sales, both new construction and remodels. She believes the shift to LVT is leading some of the renewed segment demand, explaining that laminate previously had a place in higher-end multifamily units. “As those floors are now coming up, I believe people are going back to laminate, and I think the reason is because the surface of laminate is more durable than the surface of LVT,” she says. Noting the wear-and-tear of repeat move-ins and -outs, she adds, “The [LVT] floors don’t have a little scratch or a little ding, they’re gouged.”
While single-family represented 57% of new home permits and 67% of new housing starts in June, Census Bureau figures show, the segment slid month-over-month in both regards, to their lowest point of the past 12 months. Meanwhile, multifamily permits and starts grew healthily month-over-month. “There’s still a catch-up taking place in new-home construction,” Sheehan says. “They’ve been waiting on raw materials.”
Rising construction costs are also plaguing the industry. After growing 11.6% last year, per Census Bureau data, they have continued to climb each month. That could actually be a feather in laminate’s pocket. “Builders are squeezed, especially in presale, so they’re looking for cost-out opportunities, and that’s where 7mm laminate really shines,” says Welbourn. “The builder market wants a quality product, but they’re also cost focused.”
PRODUCT INNOVATION AND OPPORTUNITIES
Water resistance may have been the single most important development for the category, our sources agree. “We launched AtroGuard waterproof laminate back in 2013; two years later, the entire industry had a waterproof laminate line, giving a rebirth to a category that was losing interest from people looking for floating floors,” says Frith.
Brown believes there is opportunity to go even further. “I do think we will get to 100% waterproof coreboard in laminate,” he says. “I don’t think consumers understand the difference between water resistant and waterproof, but I think it’s important for the viability of the flooring, and I think you can charge a premium for it.”
With performance attributes blurring the lines between competing wood-look products, such innovations will be key, especially for manufacturers. “There are a lot of different ways to differentiate your product now that we never had before,” Welbourn says, citing Inhaus’ brand-new, deep-structured short-cycle press, which will allow for even greater visual and textural realism. “Twenty years ago we were like, ‘Well, that’s about it for laminate; there are no more innovations.’ Now, they just keep happening. I’ve got ten different projects right now trying to do new things.”
Sheehan says Mannington has “gotten to the point now where we’re not using rotogravure print,” having switched over to digital, which allows for fewer pattern repeats compared to the traditional method. Now, manufacturers are beginning to eye direct-impregnation digital printing, in which designs are printed directly onto the substrate. CFL is set to be one of the early adopters and is investing in its own digital press. “The focus will rely on resilient, but we have no doubt that digital printing will be increasingly important for laminate offerings,” Frith says. “The urgency is not as high, though, since laminate designs are already superior to what is being achieved today in resilient.”
Sources agree that the real benefit will be increased flexibility, allowing for improved market focus through short runs of test visuals, without the time and costs associated with print film and decor paper. And visuals are the first step in a consumer’s buying process. “What you’re going to see on the consumer side are just great looking designs, and more of them,” says Welbourn.
While Welbourn quips that “everything is selling,” clean looks are what’s trending. Amid the pandemic’s lockdowns, customers started seeking a connection to the outdoors in their interiors, which has manifested in low-gloss, wirebrushed looks in bright or rich naturals. “For the last five years, it’s been grey, grey, grey,” says Moore. “We see that evolving into a lot more natural colors: taupes, beiges, some of the more traditional chocolate browns are coming back as well. And, I can’t believe I’m sitting here saying this, but we’re also seeing more of those reddish tones as well.”
Longer and wider boards remain popular. In terms of thickness, Ellenberg June says 10mm and 12mm are the most popular, in line with NALFA members’ reports that their premium lines have been doing well. “Thicker is always perceived to have more value,” explains Brown, though amid inflation, value could end up taking a backseat to affordability. Though a differentiator, other attributes are more important.
Consumers’ preferred price point is harder to peg down-reports may actually give a better idea of where different products fall in the cost hierarchy. Moore says, “It’s really got to be below that $3.99 range.” Brown estimates the sweet spot as $1.89 to $2.69. And Welbourn puts it at $1.39 to $1.99.
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