Losing marketshare doesn't mean losing spirit: Laminate Report
By Jessica Chevalier
Laminate, the smallest of the six major flooring categories, has experienced significant challenges in recent years due to the increasing popularity of LVT and engineered hardwood. Laminate flooring was introduced to the U.S. market in 1994, and in 2009, according to Market Insights LLC, following 15 years of nearly constant growth, laminates peaked at 6.2% of the total flooring market.
However, since that time, laminate’s marketshare has been steadily declining, and in 2013 the category accounted for only 5.1% of the total flooring market, a figure revised from Floor Focus’ Annual Report in the May issue. Leaders of the category, however, are adamant that laminate flooring is here to stay and they continue pushing the category forward with developments in styling and performance.
In 2013, the laminate industry was up 4% year over year, closing at $1.023 billion. Industry leaders were pleased and attribute some of that growth to pent-up demand. They are, however, less optimistic about 2014, which started off slow due to cold weather. Though sales have since hastened, the market has yet to make up for that early slump, and manufacturers believe that they will end the year flat or up just a couple of ticks.
In addition, the challenge that laminate manufacturers face may prove especially difficult next year with the huge influx of domestically manufactured LVT in the U.S. market. Shaw, IVC and Armstrong currently have new LVT production facilities in the works, and Mannington is expanding its LVT manufacturing operation. Much of this capacity is expected to come online in 2015, and with the increased hype and heavy promotion surrounding the new American made products, it may be tough for laminate to garner attention, at least temporarily.
Interestingly, across the board, one of the most active channels for laminate right now is the builder market. Brian Parker, Armstrong’s laminate product manager, explains that whereas builders historically programmed low-end laminate in their design centers, today they are choosing premium laminates with unique and differentiated designs. “Design is winning them over,” he says. This development is also due, in part, to the increases in the price of hardwood, even at the entry level, which make laminate an ever more attractive option.
LAMINATE’S EVER CHANGING BRAND LANDSCAPE
One of the most interesting recent developments in the laminate flooring industry came from Kronotex USA earlier this month, when the company announced that it would eliminate the long-standing Formica brand, which it acquired in 2006. The founders of the 100-year-old Formica brand invented high-pressure laminate in 1913, which was used for electrical parts. The firm moved into decorative applications, like interior surfacing, in 1930.
However, Kronotex’s proprietary research indicates that today’s laminate flooring consumers care more about quality and less about brand. Extending a brand’s promise and recall requires continued investment, and the Fletcher Building Group, which owns Kronotex, hasn’t invested in the brand since its acquisition in 2007. To many contemporary consumers, Formica is a product of their parents’ time. Though a 100-year name like Formica may have ethos, it has lost a bit of its panache.
In similar fashion, the Kronotex USA name lacks the modern edge that appeals to today’s consumers. From here on out, all of the firm’s products made in Barnwell, South Carolina will now go to market under the name American Concepts, a name designed to appeal to the patriotism of the American consumer and to clearly communicate the product’s roots in U.S. soil, which many consumers equate with a standard of quality.
Regardless of the reasons for these changes, the disappearance of the Formica and Kronotex brands from the market represents further erosion of the overall brand recall within the laminate category. With the closure of Wilsonart’s flooring brand in 2010, and Pergo’s shift from being a free-standing and well-known brand—indeed the name that many used to refer to the entire laminate category—to one under Mohawk’s umbrella, today’s laminate category has fewer visible name brands, in a market where brands typically equate to higher prices and better quality.
In 2013, for the third year in a row, the cost that the consumer was willing to pay for a square foot of laminate flooring rose, and it is expected to do so again this year. To be fair, the rises have been modest, $.02 increases, and the price of all floorcovering categories is on the rise, but the movement is still positive. What’s behind this trend? Bill Dearing, president of the North American Laminate Floor Association since 1997, attributes it, in part, to the loosening of the economy. Today’s consumers are more willing to invest disposable income than they were even a year ago.
However, Dearing also believes that, during the slow years of the recession, laminate manufacturers made a great deal of improvement to quality and styling, so consumers who are re-entering the market today are introduced to more attractive, hearty products than they had been previously, products that are usually situated at the higher-end of the laminate price spectrum. This, too, contributes to the increasing square foot price.
Describing the current market, Armstrong’s Parker says, “At 7mm, it’s fierce price competition. These products are driven solely on price, and visuals have little play there. At 8mm, there is more interest in design and performance, but the category is still heavily price driven. At 12mm, there is still price pressure, but there is less price erosion. The price holds better because of realism and performance. The value that they design and build into the product helps to hold the price more constant.” Post-recession, the middle of the market has virtually disappeared, and activity is concentrated at the low and high ends.
Wood looks continue to dominate the laminate category. Much of this is due to the fact that, through continuing advancements in printing and embossing, and especially in aligning these two technologies, laminate manufacturers are able to create ever more realistic versions of wood looks. To give some perspective, Roger Farabee, senior vice president of marketing at Mohawk, says that wood looks have accounted for no less than 90% of the laminate category’s offering for over ten years. And at Mohawk, wood looks comprise 96% of laminate visuals. He adds that the hottest looks right now are those emulating high-end European engineered wood, which are wider and longer formats.
In addition, Dan Natkin, director of Mannington’s wood and laminate business, points out that LVT wins out over laminate in the tile-look visuals because the moisture-resistant properties of LVT make it a stronger fit for entries and laundry areas, for instance, where tile visuals are commonly used.
It is interesting that while laminate’s position has changed significantly over its two decades in the U.S. marketplace, the strategy for selling the product to consumers has not. Laminate is a sturdy product with resistance to scratching, fading and staining. It’s relatively simple to install and easy to clean. While that’s a great product story, it’s a hard one to hear in the clamor of today’s market, and it fails to highlight some of the category’s greatest differentiators.
Over the last few years, laminate has made strides with regard to its visuals and surfacing texturing, and in some cases, especially in high end product, is virtually indistinguishable from real wood. In some consumers’ minds, however, a copy is still a copy, regardless of what benefits the engineered product may have over the natural one. The same resistance has occurred, to a degree, with regard to digital printing on ceramic. Though a ceramic tile may have the veining and delicate color variation of Carrara marble, it will never truly be Carrara marble and, as such, is viewed by some as a lesser product. Many consumers equate natural materials with value, and laminate simply can’t win on that stage.
However, the value of the engineered product is not only its ability to mimic natural material but also to do what natural material cannot. The laminate industry has done a good job communicating the category’s ability to outperform authentic materials, especially in homes with large dogs or active kids, but it hasn’t fully taken advantage of its ability to out-style them.
This starts with offering the look of exotic species, which would be impossible or costly to procure in real wood, and progresses into offering colors and formats unavailable in nature. Once again, consider ceramic: one of the most interesting products in the contemporary ceramic’s market is Emil Ceramica’s Stone Box collection, which combines 36 different types of stone in a single look. With authentic material, this look would be impossible due to the varying surface finishes and density of the stones, but being able to combine, for instance, sandstone, travertine and slate visuals in one look adds value to the ceramic category, elevating it beyond copycat status.
In the same way, Armstrong has moved beyond simple replication with its Architectural Remnants laminate collection, which combines many different types of reclaimed looks and species in one collection, something impossible in natural material. This helps the consumer to view the product as one with inherent value.
Farabee notes that there is some interest in stone-inspired looks in plank formats as well as hybrid stone and wood designs, again looks that could not be created with real wood or stone. Mohawk plans to experiment with more of these differentiated stone looks next year.
In addition, in a time when natural and sustainable are buzzwords across the consumer world, from food to clothing fiber to flooring, many consumers would be surprised to find out that laminate flooring is a highly sustainable product. Laminate flooring is largely made of bio-based materials, including wood chips and sawdust, but it is not often considered a natural product because it is highly engineered. In reality, laminate is one of the greenest flooring products available and, if marketed as such, would certainly win consumers with its sustainable profile. Says Natkin, “Ninety-six percent of laminate product is bio-based wood content. You can get the look without chopping down a tree. In addition, the products don’t have high petro content, as LVT does.”
Mannington continues to see growth in the laminate category as a whole, especially at the upper end of its business. This is particularly encouraging, says Natkin, because of the many alternatives to laminate in the market today, which include LVT, sheet vinyl and ceramic tile. The company has seen consistent growth in its own laminate business over the last four years.
Mannington manufactures upper-end laminate flooring in its High Point, North Carolina plant. Because it focuses on high-end laminate, the disappearance of mid-level laminate business hasn’t impacted the company adversely.
Specialty retail is the most significant sector for Mannington. The builder business, which is the company’s second largest, has been “awesome,” reports Natkin, and is the most significant growth category for Mannington laminate. Natkin explains that this strength is due to the combination of style and performance that it can offer the builder. With the continuously increasing price of hardwood, laminate has become a more valuable product for builders because it offers affordable style. Of the builder business, Natkin says, “This is the easiest sale that I have.” The company is seeing growth with both small and large builders.
Mannington does not sell to home centers with the Mannington brand, and less than 10% of the company’s business comes from sales outside of traditional flooring retail venues.
Armstrong’s Architectural Remnants, which was launched a year ago, is one the of company’s most well received collections to date, and the company is seeing significant sales growth from it. As mentioned earlier, Architectural Remnants combines multiple reclaimed visuals or species in one style, as if an installer had a pile of random reclaimed wood strips from different installations and mixed them together to create a wholly unique look. Of course, this would be impossible with real wood because different species have different coefficients of expansion and mixing them would lead to a floor that would likely either crown and peak or gap. However, with laminate, the core is the same regardless of the visual atop it. In addition, Architectural Remnants has a high visual count, which means fewer repeats as well as multiple widths.
Armstrong has also introduced some looks that further demonstrate the hand of man, including concrete and leathered metal looks. The concrete comes in a plank format, which is certainly unique for concrete, and is available in multiple widths but has an otherwise realistic look with a pitted texture.
Armstrong manufacturers its laminate products in Asia and Europe. The company also sells commercial product that is suited for, like most commercial laminate, light- and mid-commercial installations, such as boutiques. The company focuses heavily on the specialty retail channel, but home centers are still a significant portion of its business. Armstrong serves these two channels with different products.
Mohawk has been focusing on its better and best products in its Quickstep and Mohawk laminate brands, working to create a compelling story for the consumer that explains how laminate offers a high-end wood look at an affordable price point.
Mohawk makes 95% of its laminate products in U.S. factories. It imports a bit from Belgium to supplement this selection, and it also brings in a few high gloss products for its home center business. The company is seeing growth in its commercial business, the biggest part of which is mainstreet commercial for use in small shops and offices. Through the Mohawk Group commercial operation, the firm also offers its Pergo Pro product, which is specially designed for commercial use with an AC5 wearlayer. The product is U.S. made.
Farabee characterizes the strong builder business as “a pleasant surprise.” He explains that, in the early days of laminate, there were many installation failures in the builder business due to a lack of knowledge about the product. However, today, he says, there is no reason for builders not to choose laminate, considering the quality and realism they can get for a fraction of what entry level hardwood would cost.
Mohawk sells through all channels and notes that, over the last ten years, the biggest change is the growth of non-specialty flooring retailers dominating laminate sales. He estimates that more than two thirds of product is now sold through home centers, clubs such as Sam’s Club and Costco, and Lumber Liquidators. The DIY nature of the product is well suited for the cash and carry market, so this isn’t likely to change anytime soon.
Mohawk also private labels laminate flooring for existing customers. Though this business has increased, the company’s branded business is still larger by far. Mohawk doesn’t seek out private label business but it does offer customers the option for creating their own assortment, usually sold in conjunction to branded programs.
Kronotex USA is a laminate-only U.S. producer owned by the Swiss Krono Group. The company opened its Barnwell, South Carolina manufacturing plant in 2005 and currently manufactures all the product sold in the U.S. at that location. In 2006, Kronotex acquired the Formica brand and re-launched it in the U.S. market. However, in early August, Kronotex USA announced that it would discontinue the Formica brand and consolidate its laminate sales under a new name, American Concepts. The American Concepts brand will include a full range of product, from entry-level to premium, 7mm to 12mm, and a consolidated number of SKUs, many of which have been updated. In addition, the company will make its European produced products available to U.S. customers. These will still go to market under the Kronotex name.
On the manufacturing side, Kronotex is completing a $30 million investment in paper treating, which will provide the company with better consistency and quality control. This comes on the heels of a $45 million expansion, completed in 2011, which almost doubled the plant’s size.
Kronotex claims to be the only U.S. manufacturer that sells to all channels of the market. The company’s private label business is significant; it accounts for approximately 75% of business. Like several of the other players in the laminate market, Kronotex reports that its builder business, sold through home centers, is robust. The company sells made-to-order commercial products, but has delayed the introduction of a line of commercial laminate flooring until after its American Concepts launch.
Kronotex produces laminate for all price points. Currently, the company reports that the cluster of volume continues to be in opening price points, those under $1.00/square foot at retail, followed by the high end, those above $1.99/square foot at retail. The middle of the market, specifically in price points between $1.29 and $1.49, is showing the least activity.
Dalton-based Shaw is another U.S. producer of laminate flooring. Shaw sells branded and private label laminate, and serves the home center, specialty retail, builder and commercial channels. The company makes most of its products in the U.S. but imports some SKUs from overseas.
Shaw reports that painted and reclaimed looks in wood are gaining popularity. It sees strength in the entry level price points but notes that customers are also seeking attractive and thicker high-end laminate products. Like some of the other producers, Shaw attributes the current strength of the builder market to the category’s improved styling and quality, as well as to its aggressive price points.
Clarion produces laminate flooring for private label, as well as coreboard, at its plant in Clarion, Pennsylvania. Its laminate products are basic in terms of style and are sold wholly to the big boxes. Clarion was founded in 2009, when it purchased a manufacturing plant from Tarkett. In its five years of business, it has become a significant player in the laminate category.
Copyright 2014 Floor Focus