“Made in America” Investments: A point of pride is now a point of competition – April 2022
By Jennifer Bardoner
Amid today’s tariffs and sanctions, soaring shipping costs and fragile supply chains, domestic operations offer some unique competitive advantages, and more manufacturers are seeing the value. In the case of LVT, for example, long lead times, freight charges and tariffs have made the concentration of Asian products less competitive from both a supply and price standpoint, and the category is seeing a surge of domestic capital investments.
With demand for flooring up across the board following the consumer spending spree kickstarted by social distancing and federal stimulus efforts, other categories, too, like carpet and hardwood, which have more of an established domestic production base, are also getting a piece of the pie as manufacturers work to enhance their offerings and capabilities to meet-and further-demand.
THE RETURN OF AMERICAN-MADE
As the U.S. started to transition to a commodity-driven economy in the 1980s and world views began to expand, offshoring started to become commonplace. According to a March 2018 paper for the National Bureau of Economic Research (NBER), the country lost two million manufacturing jobs between 1980 and 2000, the first true wave in a rising tide. As production started to shift to lower-cost countries, “Made in America” became a point of pride for those producing goods here, marketing to a nation of consumers whose patriotic hearts still held sway over their pocketbooks. But as globalization and offshoring picked up speed toward the end of the century, widening the price gap between domestics and imports while narrowing consumers’ expectations in an increasingly convenience-focused culture, domestic manufacturing declined.
Between 2000 and 2017, another five million U.S. manufacturing jobs were lost, the NBER paper states, both to offshoring and automation, as America sought to compete with the lower-cost labor pools in other countries-elevating the skill sets required for many of the remaining manufacturing jobs here. Industry employment among prime-age workers (21 to 55) declined, and Americans became largely disengaged from the domestic manufacturing base.
However, American-made products are again coming into the limelight for their relative stability amid today’s widespread global uncertainty and improved price comparison due to supply chain factors. And with demand outpacing supply across the flooring industry, many are investing in domestic operations.
“Demand is solid across all the categories,” says Darrell Keeling, chief operating officer of AHF Products, whose portfolio includes domestically made and sourced hardwood (the firm has seven domestic hardwood facilities, plus one in Cambodia) as well as sourced laminate and resilient products. “We’re seeing growth everywhere. Our challenge is, how do we keep up with it? We’re investing to make sure we’re serving that demand.”
While growth has occurred across the board, resilient is greatly outstripping other categories, leading to a concentration of related capital expenditures from both well-established domestic manufacturers and relative newcomers. Having originated in China, rigid LVT’s trajectory in the States-especially as compared to its current domestic capacity-is luring Asian companies with a background of LVT and SPC production and suppliers that offer branded and white-label products to formally set up shop on America’s shores.
“The rigid core market is in a massive growth mode worldwide,” says Thomas Baert, president of Creative Flooring Solutions (CFL). The European-founded, Shanghai-based manufacturer’s portfolio includes laminate, wood and luxury vinyl, with its first domestically produced rigid core products hitting the market this year. “In the United States, we anticipate rigid core to continue growing 20% to 25%,” he continues. “In the last five years, the rigid core flooring market in the U.S. has grown from 6% to 23%. And it is expected to grow to 30% to 35%. In reality, the market size growth is there.”
North Georgia has become a hub of rigid core production, thanks to its proximity to abundant limestone, one of the main ingredients, as well as an established industry-focused ecosystem and freight routes owing to its historic moniker as “carpet capital of the world.”
“Today, most dealers are looking to lock up domestic capacity because there has been so much disruption around imported LVT over the last 18 months that it’s hard to get,” says Jeff Meadows, president of residential sales for North Georgia-headquartered Mohawk-the largest global flooring producer. “Something that used to take ten or 12 weeks now takes 20 weeks to get,” he says of today’s lead times from Asia.
Herb Upton, vice president of hard surface flooring for North Georgia-based Shaw-the largest North American producer of carpet, resilient and engineered hardwood-estimates that while at least 95% of the carpet sold in the U.S. is manufactured here, for resilient it’s less than 20%. “The problem is that with LVT, growth outpaced the amount of domestic capacity that’s been installed and commissioned,” he says. “A lot of people are investing, and we’re no stranger to that either, but we can’t get these plants up quick enough to overshadow the growth rates we’re seeing in this category. Domestic investments in this category will continue over the near future.”
With most of the intellectual and technological capabilities for LVT centered in Asia, production will not largely shift in favor of domestic manufacturers any time soon, but there is certainly growth potential.
“It’s never going to be 100% [domestic], but it probably will be more equally balanced out,” says David Sheehan, vice president of residential hard surface for Mannington, which is investing in both its domestic hard and soft surface offerings for residential and commercial applications. “I don’t know if that number is going to top out at 70/30. The next step is to get to 80/20, and I think that’s achievable.” Companies only have so much capital to invest each year, and those expenditures-for established domestic manufacturers, at least-are often spread across a robust portfolio of products.
The diversified manufacturers with whom we spoke are investing in other categories, as well, despite resilient dominating the conversation. Shaw, Mannington and Engineered Floors are expanding their carpet capabilities; Mohawk is investing in its laminate facilities; AHF is broadening its hardwood offerings.
“It’s a more mature category,” Upton says of carpet, “but at the same time, you’ve got to have a competitive advantage, which is why we’re investing in our Aiken, South Carolina extrusion facility-not because we think there’s going to be double-digit growth in carpet.” Carpet, which represents about a third of domestic flooring consumption, has a harder hill to climb for growth, but in 2021 it kept pace with the other categories for the first time in several years.
With a greater focus on their homes and more savings in their bank accounts, many consumers are focusing on high-end finishes, which has been a boon for hardwood. But laminate is now coming back on the scene and, bolstered by strides in water resistance, beginning to displace a portion of hardwood and LVT sales.
A FIELD OF DREAMS FOR RIGID CORE
The sources with whom we spoke were split on whether new companies will rush onto the scene or if the anticipated growth in rigid core’s domestic marketshare will come through expanded capacity from those already here. “It’s hard to do any of this if you don’t have volume,” notes Raj Shah, president of MS International (MSI), which predominantly sources tile and rigid core products but also acquired RokPlank’s LVT facility in Cartersville, Georgia last year. “You just can’t make the capital investment required and hire the type of talent needed.” Adds Baert, “The capital investments cost of setting up in the U.S. is much larger, and the complexity of the factory is significantly more intense than in Asia.”
John Wu, whose family started Novalis in the mid-1980s, also thinks most of the new investments will come from those already in the domestic market. The China-based rigid core manufacturer’s first domestic plant came online last year. “Everybody has seen the challenges of those of us who were here first,” Wu says, citing difficulties recruiting, training and retaining skilled workers, adding that those following behind Novalis might think, “‘If John is struggling to do that, do I want to be a part of that? He’s already more localized than us.’”
But there are others who believe newcomers will be lured by the potential payoff. “You’re going to see more, and you’re going to see more from other companies that aren’t necessarily viewed as this is their core industry,” Sheehan says. “You’ll see Indian investors in vinyl flooring here domestically in the not-too-distant future.”
A rush of investors and inexperienced operators could make things harder for domestic manufacturers, aside from the obvious increased competition, worries Julian Dossche, president of Huali USA, the new domestic arm of its China-based parent company, which produces a range of resilient products. “It’s those companies that, in my opinion, if they’re not careful, will hurt the perception of domestic,” he says.
Offering a charge to those in the industry, Dossche notes, “We have to be careful we don’t use [all the current tailwinds] as crutches. It’s nice that they’re there right now; it gives us some breathing room. But they can’t be a given. If you make them a given, you’re going to fail.” With residential spending holding strong and a builder market that still has a large backlog to remedy the shortage of available housing, hopes are high that the flooring industry’s tailwinds will continue to carry it to higher-than-average sales. MSI’s Shah notes that, even with the Federal Reserve’s six projected interest rate hikes, rates will still be at “record lows.”
Still, there are headwinds, most notably supply chain challenges that have led to record inflation and stretched product lead times, and domestic manufacturers are not immune. “Just because you’re in the U.S. doesn’t make all those complexities and challenges go away,” says Jeff Krejsa, vice president of marketing and strategy for France-based Gerflor’s domestic operations. “It just changes what continent you’re experiencing them on.” Gerflor, which primarily offers resilient flooring for a variety of performance environments around the world, also produces hardwood and synthetic sport court flooring systems in its two existing U.S. facilities.
DECIDING FACTOR: SUPPLY CHAIN
Before entering the laminate and rigid core segments within the last few years, Engineered Floors (EF) exclusively produced domestically. For a sizable carpet manufacturer like EF-whose North Georgia carpet plant is the largest single-site-capacity carpet mill in the world-that made sense, but over the past two years, it’s taken on new relevance. “We have seen over the last two years that disruptions are minimized when goods are produced domestically,” says EF executive vice president James Lesslie. “Through managing our supply chain, we have been able to service both our residential and commercial business through the pandemic.”
Shah says customers are now inquiring about the origin of products as they seek inventory that is somewhat buffered against the current global instability. “We used to never get the question of ‘Where do you make it?’” he says. “It was ‘Show me the product,’ and ‘What’s the price?’ I think [bigger customers] will now always be asking about the supply side.”
After decades of fairly smooth operations, the global economy’s upset amid Covid regulations, the resultant supply chain challenges, and Russia’s invasion of Ukraine and the potential domino effect-from trade sanctions to gas prices to the threat of further Russian incursions-have awakened the world to the risk of disruptions at every turn. “As we become such a globally connected world in terms of supply chains and how we buy product and where product comes from and so forth, it’s almost good to be closer to the devil you know than the devil you don’t know,” says Dossche. “A lot of the supply chain challenges today, right or wrong, have been put to our advantage because we can make finished goods here closer to customers, and the supply chain has now gone from 60- to 70-day shipping times to a week or less.” He notes that other countries in Southeast Asia, like Vietnam, which picked up manufacturers seeking an alternative to China following the implementation of tariffs, are still integrated with China’s supply chain, as raw materials are sourced there and shippers prefer to dock in Chinese ports, which are better positioned both from a volume and accessibility standpoint.
Wu points out that domestic LVT print films and wearlayers are not readily available today and are more expensive. As more rigid core manufacturers ramp up operations here, that could change. And, notes Brian Parker, AHF’s vice president of product development, “As we look forward to launching new rigid core products, we’re not having to match existing visuals in the field, so those print films don’t have to come from Asia. There are suppliers here in North America.”
CFL and EF are exploring another way around that challenge as the first two companies in the U.S. to purchase advanced digital printing technology from Hymmen for domestic LVT production. “Digital printing will allow us to eliminate certain elements such as films or wearlayers, reducing our carbon footprint, reducing the total amount of PVC used, as well as reducing the impact of supply chain strains on our production,” Baert says, adding that the domestic plant’s products are “sourced almost entirely locally.”
DECIDING FACTOR: RESPONSIVENESS
Being able to quickly respond to customers’ needs has become more nuanced-and important-in light of supply chain disruptions. In an environment where simply having enough inventory is key, having domestic suppliers also means customers don’t have to tie up their working capital in stockpiling product. Wu says the ability to service customers throughout last year’s supply crunch “is helping us do additional business with them this year.”
Long lead times, which have stretched to half a year in some cases, prevent retailers and suppliers from efficiently responding to changes in the market. “What you order now is based upon your most recent history, and that may not pertain to the future,” explains Sheehan. “Where all of a sudden you see a decline in a certain product or business, you can’t change that order. You never have enough of the stuff you need, and you always have too much of the stuff you don’t want.” The ability to serve customers better and operate more efficiently with less inventory has value. “As long as I’m within the 5% to 10% cost range compared to my competition from overseas, even if I’m at a cost disadvantage, I’m still going to make it here,” he says, adding, “Flooring has historically been a postpone-able purchase, so having inventory ready to go when the iron is hot is key to the sales associate, and the sales associate has extreme influence over the consumer, even if she’s well informed.”
Being closer to the market you’re serving also offers the ability to create products curated for it, more quickly evolving those products as preferences shift. “It’s possible for us to bring over some product from Belgium today, and we are doing that in Canada,” says Krejsa. “Yet what we want to do with this program in the U.S. is to ensure that the colors, designs, patterns and formats are right for the U.S. market.”
This is especially important when creating specialty or private-label products, which are often curated for a particular customer’s regional market. Domestic manufacturing not only allows for better collaboration with those customers on product development, without the need to undertake a trip to the other side of the planet, it also enables speed to market in multiple ways. “If you’re going to launch a new product, the cycle time to do that can easily be a year, whereas domestically you’re talking months at most,” says Parker. And, he says, “You don’t have to go through a lot of iterations, because the customer was directly involved from the beginning.”
Upton notes the cross-pollination that can result from having your own manufacturing operations as new technology is unveiled and attributes are enhanced. “When we first started off in LVT, we were a good buyer and a good marketer, and we had success,” he says. “But once we started producing product ourselves in the U.S. and as we matured our knowledge of the process and product platforms, it allowed us to implement our own technologies; not necessarily process or manufacturing technologies, but performance attributes, style, design-things the consumer will pay more for.”
Such differentiators will likely become even more important as rigid core products become more prevalent in the marketplace and consumers become more familiar with and educated about them, driving increased competition. Says Baert, “While big volumes will come from the standard 48” length lines, we believe that the growth within resilient flooring will come from a more diverse portfolio of products, special specs, hybrid products such as our Novocore Q lines, products with special coatings such as our Scratch Shield Max coatings or our PureCoat low-gloss coatings that allow for special looks, as well as enhanced performance.”
WHERE COMPANIES ARE INVESTING
CFL has invested close to $100 million in its new Calhoun, Georgia rigid core production facility. “Given the volatile environment, thanks to the USA factory, we are able to have an even stronger focus on service and stability,” Baert says. “With service, we mean stock availability on standard SPC lines in order to reduce price fluctuations and working capital requirement for our customers.”
Though he says the new factory is more automated than any of CFL’s facilities in China, Vietnam and Taiwan, it will soon employ about 300 people, a number that will likely double in the next couple of years.
“In the U.S., one huge advantage is the quality of the workforce, especially in the Dalton/Calhoun area, where the flooring industry thrives,” he says. “There are so many more specialized, experienced workers here to offer a more efficient, quality-controlled product line.”
Baert notes that customers have enjoyed the increased convenience of being able to conduct onsite product line reviews at the new plant, though, he adds, “Different products need different manufacturer capabilities. Thanks to our worldwide presence and capabilities, CFL can create these products around the world.”
Over the past three years, AHF Products has grown its business through key acquisitions that have greatly expanded its portfolio, most recently last year with the addition of American OEM. Each has come with unique strategic benefits, from more competitive pricing (LM Flooring) to access to the A&D community (Parterre) to additional capacity (American OEM). But the guiding philosophy has been the same as the storied hardwood producer takes on new categories.
“That team is going to maintain their individual look and feel for the customer base they have, but it gives us the added capability to take their products to market through AHF’s brands,” Parker says, also noting the speed to market that already-established brands offer.
This spring, AHF will bring expanded laminate and SPC offerings to market across its family of brands, following growth in both categories. Notably, both will be made domestically, a change in strategy amid today’s supply chain volatility.
AHF is also applying its proprietary wood densification process to new products and brands, leading to an expansion of capacity at its Somerset, Kentucky plant, which is also being retrofitted to produce AHF’s rustic Barnwood Living looks in an engineered format. The collection originally launched with solid wood products out of the company’s Beverly, West Virginia plant.
Meanwhile, AHF’s West Plains, Missouri facility has seen investments to increase automation and capacity, while new equipment at the firm’s kiln-drying facility allows for more efficient handling of the green lumber treated there.
“Our strategy is to continue to look internally to make sure we’re taking advantage of synergy around the supply chain or even upgrading our facilities for yield-conversion efficiency and product efficiency,” says Keeling. “We try to take out inflation with efficiency improvements.”
In late 2021, Shaw announced a $400 million investment to expand the capacity and capabilities at its extrusion heat-set carpet mill in Aiken, South Carolina-the largest organic investment in the company’s 50-plus-year history. Comprising technology geared at offering enhanced designs for both nylon and PET, as well as improved operating efficiency within the plant, the improvements should come online at the end of 2024, Upton says.
“It’s state-of-the-art to make sure we remain the market leader in soft surface,” he adds. While the new equipment will streamline operations through a high level of automation, “allowing for more freedom in terms of the labor shortage,” he notes the net-positive impact on jobs, with 300 new positions created.
The carpet leader is also investing in its LVT plant in Ringgold, Georgia, which produces both flexible and rigid core products. It is the largest single-site LVT plant in North America, says Upton.
The expansion will help Shaw “keep up with the growing market demand for rigid core and give us some different capabilities to produce different types of platforms,” he says. Though he could not yet divulge specifics, it will offer “different advantages from a vertical and horizontal perspective” and the ability to produce “different components and parts.”
The three-phase expansion’s second phase, a $20 million investment, is currently underway, Upton says, adding that the first phase came online early last year.
Having sold resilient flooring in the U.S. since the late 1980s, Novalis opened its first American manufacturing site last year. Announced in early 2020-despite the fact that business conditions were good amid the temporary exemption of the 25% tariff on Chinese flooring imports and before the supply chain crunch-the $30 million move put the company closer to some of its key customers, as well as the growing domestic rigid core market. Novalis serves the residential market through its NovaFloor brand and the commercial market through its Ava brand.
Plans are to eventually expand the domestic manufacturing site, which is located on a campus with Novalis’ U.S. headquarters and innovation center, but the tight labor market is impacting the timeline, Wu says.
“We’re not quite at capacity, the main reason being the labor shortage,” he says, adding, “Other plants coming online are fighting for the same labor pool, and we were one of the first to be up and running, so our employees are in demand. There is some poaching happening among the industry.”
MSI has a focus on sourcing its array of tile, stone and LVT products, but based on the historical and anticipated growth rate of LVT, the company decided to begin producing its own rigid core products. And it decided to do so domestically as it seeks to further diversify its sourcing model.
“We’re always going to source a lot of our products, but we need to have some of our own products,” Shah says. “You can either start a new plant or buy one that’s existing. We’re seeing a lot of people have false starts [with new facilities] and technology issues, and I’m guessing for us there would have been just as many.”
MSI’s September acquisition of the RokPlank LVT plant came with a complement of trained staff at a time when many in manufacturing are struggling to find enough employees, let alone those with experience running specific kinds of equipment.
Shah says he was able to keep all of the plant’s previous workforce and has been hiring when he can in preparation for the plant’s expansion. “We’ve already ordered the first set of additional equipment, but due to shipping issues, etc., it’s due to arrive in May,” he says, adding that he expects those new components to become operational this summer.
The goal is to expand the plant’s capacity threefold as soon as possible and continue growing it, but, Shah says, “We will want to digest what we have currently already committed to, and the other issue is we will have maxed out what that particular building can handle, so we would have to find another site.”
Furthering Mohawk’s “strong philosophy of domestic production,” says Meadows, the manufacturer is in the midst of bringing several major investments online, with a focus on hard surface. “We’ve really doubled or tripled down on what we call our clickable waterproof capacity,” he says.
In conjunction with its debut of hyper-realistic Signature embossing technology introduced through the new RevWood Premier line earlier this year, Mohawk added a production line at its RevWood plant in Thomasville, North Carolina, which came online in December and is in the process of ramping up. And later this year, construction will begin on a brand-new RevWood plant at the facility, as the company makes plans to further expand the brand.
“We’re probably looking at somewhere between 300 million and 350 million new square feet of what I would call wood-look, clickable, waterproof products,” he says, also referencing products that will come from the company’s soon-to-be-operational LVT plant in Mexico. “Those categories are very hot right now in the market, and have been for a while, but that really accelerated as Covid hit and people started spending more and more money on their home.”
The new RevWood facility (and LVT plant) will offer synergistic advantages thanks to the company’s existing operations nearby, along with room to expand-though new locations are not out of the question.
“We may do some other things, though that’s not public knowledge today,” says Meadows. “We’re looking at some other options on the East Coast as well.”
Having acquired Phenix Flooring in 2020 and AtlasMasland last summer, Mannington is working to fully integrate and take advantage of the related soft surface brands and offerings. Phenix brought Mannington into the residential carpet market, while AtlasMasland bolstered its commercial soft surface portfolio and production equipment, helping Mannington offer a better complement of hard and soft surface products for both sides of the business.
“We’re most likely the fourth-largest flooring producer in North America, and we’re trying to become the third-largest,” Sheehan says. “Our last core value-control your own destiny-links very closely to our [domestic] manufacturing strategy.”
He anticipates future investments in the former Phenix facilities to enhance the style and design of those products. “For us, the main drivers for the consumer are color and pattern, and we spend most of our time focusing on the primary purchase drivers,” he says. “Phenix has decent designs and capabilities, but they’re not quite at Mannington standards.”
Sheehan notes that carpet still represents the biggest chunk of the industry, making it a worthwhile investment and a continued focus. However, he says, “Hard surface is obviously growing more rapidly than carpet, so it’s no surprise that most of our investments have been in hard surface the last six or seven years.”
The company’s Calhoun, Georgia campus, which also produces commercial carpet, “has probably received most of the investments, which include a rubber facility, a rigid core facility that can make both WPC and SPC, and large warehouse capability,” Sheehan says.
In November, Huali Floors’ plant in Chatsworth, Georgia began producing SPC for the company’s domestic private-label partners. The new U.S. headquarters and manufacturing facility puts the family-owned company closer to some of the key customers it’s been serving for over a decade.
“Our strategy is to make it easier for customers to do business and develop product and get it to their customers faster and better, and with a better-quality product than they could’ve done if they went somewhere else,” says Dossche.
Though Huali’s full portfolio includes a range of resilient formats, the new plant will continue its focus on SPC for the time being, though Dossche notes that the parent company’s offerings will “allow us to see what works.”
“That ability to collaborate on product types and where the market is going gives us good insight on what strategy we need to follow in terms of capital investments, as well as technological investments,” he says.
Dossche says the company has invested $30 million so far and he expects production to get up to “optimal capacity” this summer, though the plan is to triple capacity by the end of the year.
“We didn’t want to turn on the beast, so to speak, and consume everything we could get,” says Dossche, noting the state of the supply chain and the process of training employees. The now-24/7 operation has a current capacity of 40 million square feet.
Having acquired one of Europe’s leading rigid core producers, Dumaplast, at the end of last year, Gerflor is in the process of establishing its first rigid core manufacturing facility in the United States. “It opens up opportunities, when we open this facility, to manufacture both rigid core floor and wall materials,” says Krejsa. “Because of the extrusion process, it allows us to be far more flexible on the type of products upfront: we can go from wall to floor and different formats in terms of size and profiles and visuals.”
Gerflor is still in negotiations over the factory site, but he says it will be located between Dalton and Atlanta, Georgia, and will have room for expansion, especially as the rigid core wall tile market-currently an emerging category in the U.S.-grows. In Europe, Dumaplast is “a significant, if not the largest” manufacturer of rigid core wall tiles and panels for use in wet areas, including showers, where the market is already well established, Krejsa says.
He expects the new plant to come online by early next year, bringing Gerflor into both the residential market and the fast-growing rigid core segment. Gerflor’s homogenous and heterogenous sheet products, which are aimed at the commercial and healthcare segments, will continue to be produced abroad, so the company is building a new distribution facility and headquarters near its current operation in Chicago.
“We’re doubling the size of our distribution facility so we can bring more over from Europe, to store more and meet the demand we see in the market, and to make up for some of our material and freight challenges right now,” Krejsa says. That facility is expected to be completed this summer.
The events of the past few years have proven that disruptions can come from anywhere at any turn, and being able to respond requires a diversified approach. While domestic operations can better position companies against global challenges, they do not completely insulate companies, and can come with unique challenges of their own-such as extreme weather or labor challenges taking a toll on the availability of supplies, as has been the case recently in the U.S.
All of the sources with whom we spoke stressed that while they are committed to their domestic operations and will continue investing, they will also continue sourcing whenever and wherever it makes sense. This can come down to cost, supply, capacity or technology, especially as other sources also evolve to remain competitive and market conditions shift.
Copyright 2022 Floor Focus
Related Topics:The Dixie Group, Engineered Floors, LLC, Phenix Flooring, AHF Products, Novalis Innovative Flooring, Mohawk Industries, Parterre Flooring Systems, Mannington Mills, Masland Carpets & Rugs, Shaw Industries Group, Inc.