Laminate Report: Laminate may be poised to regain share due to its value and availability - Aug/Sept 2021
By Jennifer Bardoner
If you ask Dan Natkin, vice president of hardwood and laminate at Mannington Mills and North American Laminate Flooring Association (NALFA) president, what the biggest challenge facing the laminate floor industry is right now, you won’t get a rehash of the category’s long-term battles with water resistance or its hollow sound underfoot. Following recent strides in moisture resistance, acoustics and aesthetic design-and ongoing supply chain disruptions across the flooring industry as a whole-the real issue now is, “How do we keep up with demand?”
SUPPLY AND DEMAND
Adam Ward, senior product director at Mohawk, the largest laminate producer in the U.S., says residential remodel remains laminate’s largest consumer base. And as people hunkered down at home as a result of the pandemic, the sector saw a surge in activity. According to the Improving America’s Housing 2021 report by Harvard University’s Joint Center for Housing, U.S. homeowners spent an estimated $271 billion sprucing up their spaces in 2020, up from $262 billion in 2019, and that figure is expected to climb to $281 billion this year.
“When the Covid wildfire started, everyone took that breath, [then] all of the sudden, things went crazy as people began to feather their nest or get that home office ready,” says Travis Bass, who’s set to retire at the end of the year as executive vice president of Swiss Krono, the third-largest laminate producer in the U.S. “We’re just now beginning to see some indication that things are calming down a little-not backing off, but stabilizing. I think some of that could be the whole strain on the global supply chain.”
Shortages of truck drivers and warehouse/factory workers as well as bottlenecks at the ports have caused transit delays, hamstringing inventory on both ends, and demand for the reduced capacity has led to price increases felt at every point along the supply chain.
Citing figures provided by Hapag-Lloyd, which is responsible for much of the shipping container traffic globally, Inhaus CEO Derek Welbourn says the logjam means 20% more ships are now needed versus last year to maintain the same level of inventory. And space on those ships is more expensive as manufacturers across virtually every industry compete to ramp up production amid the economic rebound. That is having a direct impact on Inhaus, which manufactures laminate in its vertically integrated factory in Germany.
Natkin says these supply chain issues are also driving up demand for laminate, which is less dependent than LVT on product traveling from Asia and hence not as impacted by shipping constraints.
Shipping issues “started in Q3, Q4 last year, because everybody predicted that trade would be slow throughout 2020,” Hapag-Lloyd CEO Rolf Habben Jansen said in an early August 2021 interview with CNBC. “But then we saw demand coming back very strong in Q3, Q4, and of course then, despite the fact that everybody tried to do everything to make as much capacity available as possible, demand was simply stronger than expected. … Demand is still very strong, and right now it’s difficult to provide the capacity that’s needed, so I do expect that the price…will remain high.” He expects the reduced capacity and resultant price increases to last well into next year, citing the current stress on the supply chain, which makes it “difficult to carry much more goods than we did a couple of years ago,” as well as potential savings in consumers’ pockets from stimulus efforts around the world that could continue to drive up demand. “I think inflation is going to go up. How much that is going to be remains to be seen,” Jansen said, also pointing to ancillary costs like fuel and ship-charter fees.
“People are now paying up to $20,000 for a container out of China, where they paid $4,000 a year ago,” Bass notes.
With even domestically produced laminate plagued by raw material shortages and freight issues, it’s a struggle to keep up, Natkin says. “We’re sort of white knuckling it right now with supply and demand,” he reports.
Eric Fuller, CEO of U.S. Xpress, one of the largest trucking companies in the country, forecasts domestic freight challenges also lasting well into 2022, fueled by driver and truck shortages and driver pay issues that will be hard to surmount. In an interview with Yahoo Finance in early August 2021, he said many drivers are opting to work closer to home to be with their families, and some are still leaning on unemployment benefits. Despite those benefits beginning to dry up, getting enough drivers to return to the road could likely mean higher pay-possibly another 20% to 30% on top of the 30% to 35% increase over the past 12 months-he said. Coupled with nine- to 18-month delays on new tractors and trailers needed to haul inventory, Fuller said contract prices are likely to remain at least 10% to 15% higher when they get reset next year.
“We don’t see container freight or domestic freight abating before maybe June or July next year at the very earliest,” says Natkin, though he estimates that logistics issues account for only 40% of the problem. Raw material shortages are the main issue laminate producers are facing, he says.
The wood byproduct used to create laminate can be either softwood or hardwood, but “the softwood [price] decrease that you’re seeing is primarily in framing lumber, not necessarily in the type of logs used to create laminate,” Natkin says of the dramatic inflation that has hampered the construction industry. Still, he foresees some relief in terms of laminate-related lumber prices, though the cost of resin, which is used to bind laminate together, remains high following a fire at a major resin producer in Texas. “The wood piece of the raw materials should start to get better moving into fall,” he says. “You have the type of lumber used for framing and then you have the rest that’s used in products. They will follow the framing lumber trend.”
Natkin cites industry-wide end-user price increases and the consistent value of laminate as selling features for the laminate category. Hikes in the cost of materials and logistics have led to an 8% to 10% increase in laminate prices over the last 12 months, Natkin says, but with costs rising across all flooring categories, he adds, more and more are turning to laminate, which has always maintained a lower price point than most other flooring options. “It’s driven people who had maybe sidelined laminate back to the category,” says Natkin. “In laminate, the price increase has been more modest than some of the other categories,” which also have to contend with tariffs and other import costs, in some cases.
“While we’re getting business that would’ve gone to WPC or LVT products,” Bass says, “I would say laminate is more holding its own or taking back a little ground. It’s not a significant takeback.” However, while Santo Torcivia from Market Insights says domestic laminate sales are up 12% this year, his data reflects larger gains by other categories.
Cost is beginning to drive homeowners back to more value-end, thinner product, reversing the trend toward thicker laminate, as consumers look to cut costs with both their purchase and their choice to install it themselves, Bass says, but it’s a slow turn. “We have seen the trend toward 12mm products reverse course in the last 18 months back to 8mm products,” he says. “It’s not dramatic; maybe where we had 12mm figured at 40% of the market, now it’s at 34% or 35%.”
Amanda Teeter, merchant in laminate and hardwood flooring for Lowe’s, confirms the trend toward thinner product. National home improvement stores like Lowe’s and Home Depot account for half of laminate sales in the U.S., according to Torcivia.
“Our best-selling laminate products are 7mm to 8mm in thickness mainly due to customer price point sensitivity, but they also offer durability in performance,” Teeter says. However, she notes, “LVT vinyl flooring continues to be a strong category for Lowe’s with significant year-over-year growth. Hardwood is still idealized and desired by the consumer, and we see parts of the country gravitate to hardwood over other flooring categories.”
Due to the fact that most consumers who purchased flooring in the pandemic bought from home centers, it makes sense that products at the value end of the laminate spectrum won out, since thicker laminate products are generally sold by independent retailers.
Welbourn contends that the prevalence of LVT in the market has helped customers become more comfortable with thinner products, and notes that Inhaus is set to release a new line of laminate that will max out at 8mm. “We always joke in our industry that 12mm was invented by the logistics companies because they want to charge us more for shipping,” he says.
Thinner product also means fewer trees cut down and a reduced carbon footprint to transport the product, and with more and more Millennials poised to enter the housing market, Bass sees laminate’s sustainability profile as a way to lure those buyers, who grew up in an interconnected world and often align their purchases with causes that resonate with them, like climate change.
Nevertheless, Welbourn sees potential challenges in fully bringing customers around to thinner laminate after the improved acoustics and strength of thicker grades have been touted for so long. “People have been selling thicker laminate for a long time. It’s hard to undo that thought process,” says Welbourn, noting that people measure in terms of quality-bigger is better, thicker is better-even though that’s not necessarily the case. Thinner laminate is already trending in Europe, he adds, where Chinese manufacturers have less of a presence. “Twelve-millimeter didn’t catch on in Europe like it did here,” Welbourn says. “Chinese producers really brought 12mm to light in the U.S.”
Despite constrained housing stock forcing up prices, Millennials represent the largest segment of buyers at 37%, according to the National Association of Realtors’ 2021 Home Buyers and Sellers Generational Trends Report, released in March. And as more of America’s largest and wealthiest generation save up for that white picket fence-which they are far and away favoring over condos and townhomes-it could offer more opportunity for laminate producers as those buyers move into their first fixer-upper. But whether laminate will be able to siphon off a significant amount of marketshare from LVT, which is regularly hyped on popular media and has huge momentum behind it, remains to be seen.
In the short term, continued inflation in the flooring industry could lead to a tipping point in terms of the number of homeowners willing to take on a remodeling project. “We know certain consumer price points start to push consumers out of the market, but we haven’t really discovered those yet,” Natkin says, though labor shortages and price increases on the installation side could compound the issue. “We don’t know where the tipping point is.”
POTENTIAL NEW MARKETS
While homeowners looking to remodel remain the largest segment of buyers, Natkin says that “increasingly, over the last dozen or so years, we’ve seen more and more homebuilders come into the category as well. They understand the value proposition of [laminate].” The rush to build homes for the new generation coming of age and those looking to escape big cities has ebbed as builders have faced dramatic material shortages and cost increases as of late, but the National Association of Realtors estimates that at least 5.5 million new units need to be built over the next ten years in order to meet demand. Natkin sees the country’s lagging housing stock as a significant opportunity for growth.
“The market is probably, on a really aggregated basis, about 70% remodel and 30% new-home construction,” Natkin says. But looking at NALFA numbers, he says that with hard surfaces accounting for about $11 billion of the $17 billion spent on wholesale residential flooring, “I would say there’s easily half a billion dollars in the laminate category to go after on the home construction side.” He sees entry-level hardwood and lower-grade LVT as prime for displacement as cost increases begin to diminish those products’ price point competitiveness, but he admits the builder market is one that the category has been chasing for a long time.
Natkin says Mannington partners with a number of large builders, and two recently visited him to discuss laminate. “It’s to a point where they’d started moving in the direction of LVT and are now coming back to laminate because of price increases,” he says.
Mohawk, meanwhile, is pushing into commercial spaces like hotels and restaurants with its new RevWood Contract line, which debuted earlier this year and features an AC4-rated wearlayer with an aluminum oxide finish. “Obviously, we do see a market for [commercial]. Later, we’re launching a line into Aladdin Commercial as well,” Ward says, referencing Mohawk’s mainstreet commercial line of carpet and resilient flooring. “As the products continue to evolve, we will expand into more areas.”
While Bass thinks there are laminate products that are better suited for commercial use now than there have been traditionally, when it comes to taking on the commercial market, for both Swiss Krono and Mannington the sector remains what Natkin deems “an opportunistic market.”
“The reality is there are some applications that don’t lend themselves well to the category,” Natkin says.
Mohawk’s push into the commercial sector banks largely on the company’s WetProtect installation warranty system, which it launched at the beginning of the year on its wood and LVT products. “Waterproof is really a ticket to entry right now,” Ward says. Launched as part of the brand’s RevWood Plus laminate line in 2018, WetProtect offers a lifetime surface and subfloor warranty against water damage, if installed correctly. To protect laminate’s inherent wood-based core-also found in Mohawk’s UltraWood line of composite engineered wood introduced earlier this year-the system includes patented waterproof Uniclic edges to create a tight seal between planks, an HydroSeal topcoat, and a specialty quarter-round for the perimeter with a plastic gasket at the bottom to keep surface liquids from seeping through. Ward says the streamlined application and marketing approach, which reduces the burden on sales representatives, has seen good response so far.
In addition to Inhaus’ new thin laminate line, Welbourn says the company plans to launch a completely waterproof product in the new year. To be called Uber Wood, it will capitalize on the company’s water-resistant Megaloc system and a water-repellent coreboard wrapped in resin, allowing it to be submerged for 24 hours with no effect. “Think of it as a waterproof watch,” Welbourn explains. “The watch isn’t waterproof, but if it’s in a casing that is, you can dive with it.”
While Natkin believes consumers have a misconception in terms of need when it comes to completely waterproof flooring, NALFA is working to update its educational materials to better reflect the improvements made to laminate, the most notable being its water resistance certification.
“Quite honestly, I think the industry has way overhyped waterproof,” he says. “If you’re talking about a catastrophic flood, I don’t care what floor it is, it could be cement, it’s going to need major remediation. A lot of it has to do with just educating consumers.” With some of the product’s key attributes still lost in translation, the association hopes to complete the update by the end of the year. “Once you stop calling it laminate and focus on the attributes of the product, that’s where you really begin to see the category shine, and people come back into the category,” Natkin says.
Not only have there been strides in moisture resistance, but also in printing and design. “Laminate looks more like real wood than anything else,” Natkin contends, something that only continues to be enhanced through new printing and embossing capabilities, lending photorealism and texture that can make it hard to tell the difference between laminate and real wood.
In light of laminate’s aesthetic design, ease of installation, durability and moisture resistance, Bass calls it “the perfect floor,” adding that the challenge now is to continue to innovate.
Bass, Natkin, Welbourn and Ward agree that the current trend is away from greys to more natural light colors, “Scandinavian,” as Welbourn puts it. Natkin says laminate, which follows trends in real wood, is also becoming less grainy-looking. “The textures are getting more subtle, rather than the real extreme wirebrushes and paint scrapes we’ve seen over the last several years,” explains Bass, noting that aesthetics in the U.S. tend to follow trends in Europe. “People in our industry a lot of times say if you see it in Europe, three months later it will be in the U.S.”
Ward points to cabinetry and furniture as other design-driving factors. “The saturation in oak right now is very heavy,” he says. “We’re always looking at other species to complement that. Furniture and cabinets drive a lot of that look, so we’re looking at furniture trends and cabinet trends and seeing how the flooring interacts with that.”
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