Review 2009 - December 2009

By Brian Hamilton

As 2009 winds down, the floorcovering industry is likely on its way back after a long and painful downturn. Many economic measures like existing home sales, retail sales, and factory output are trending more positive—unlike early in the year when every measurement was headed in the wrong direction.

There are signs the federal $787 billion stimulus package is starting to boost the economy, although how much is the subject of much debate. At the very least, money should begin flowing to construction projects favored in the legislation. The homebuyer tax credit was recently extended until next spring, and it was expanded to include many current homeowners, not just first-time buyers, who can receive a $6,500 credit. That’s likely to boost the housing market for a little longer.

Perhaps the biggest headwinds the industry faces to a strong turnabout are continuing high unemployment, tight credit, and low consumer confidence—which affect consumers’ willingness to buy. Hopefully in 2010, as people grow more confident about their personal situations, they’ll begin buying homes and consider larger remodeling projects, and flooring sales will follow. Businesses will start expanding again once their sales start growing, which should help stimulate commercial construction and renovation.

It’s just not clear how fast any of this will unfold, or—dare we say it—how long it will last. Few of us have been through an economic situation like this, and we don’t know what lies around the corner. We do know that 2010 almost certainly has to be an improvement over this year.

ADJUSTING FOR BUSINESS CONDITIONS
This was a common refrain this year as sales dropped off and forced manufacturers to cut costs. Virtually every major manufacturer shuttered or downsized at least one plant, and in the case of the giants like Mohawk and Shaw, who produce many kinds of flooring, several plants were involved. Many of the plants were yarn or fiber plants, as carpet sales fell and consumers gravitated toward different kinds of products. However, wood and laminate manufacturers, who saw their sales fall to levels not seen since the beginning of the decade, also had to make some tough decisions.

It wasn’t all bad news, however. Shaw opened a 600,000 square foot rug distribution center in Ringgold, Georgia, cork maker US Floors began an $11 million expansion, resilient firm IVC began building a new $70 million manufacturing plant in Dalton, Georgia, and FieldTurf opened a 455,000 square foot plant in Calhoun, Georgia.

The good news is many of these companies have put themselves in great shape for the eventual upturn, and their profits should soar once revenues begin to climb. The one chink in the armor might be their ability to ramp up quickly enough should demand take off.

STRATEGIC MOVES
As you might expect in a down economy, many companies re-evaluated their business plans and made strategic moves. One significant change was Home Depot’s decision to close down its upscale Expo Design home improvement centers after 17 years.

One of the most unusual moves of the year was the joint venture formed by Armstrong and Beaulieu to form a full line of products for home builders and property managers. The products, including carpeting manufactured by Beaulieu, are being marketed under the Armstrong name.

A few other noteworthy decisions included Milliken’s purchase of commercial carpet maker Constantine, Amorim’s $10 million investment in cork manufacturer US Floors, CCA Global Partners’ sale of its Rug Décor business to a group of investors, and Illinois Tool Works’ decision to hold on to its Wilsonart laminate business, despite a previous decision to sell it.

One of the biggest deals in any industry will have a significant impact on the flooring industry: Dow Chemical’s $16.5 billion purchase of chemical maker Rohm & Haas.

This year, a number of retailers and others went out of business or filed for bankruptcy. One notable example is PS America, which operates more than 40 wholesale flooring showrooms across the country, and filed for Chapter 11 bankruptcy protection. Also the original Georgia Floors, which largely served the builder community and had $40 million in sales in 2008, went out of business. However, the name lives on under a new owner.

PRIVATE EQUITY STEPS IN
It was a big year for private equity firms that were looking to invest in distressed companies or help others grow.

Backing maker Propex was purchased by Wayzata Investment Partners and renamed Propex Operating Co.

Fiber maker Aquafil secured a $66 million investment from English firm Hutton Collins to help it expand in Asia and develop its sustainability program.

After filing for bankruptcy for the second time in four years, carpet cushion maker Foamex was acquired by MatlinPatterson Global Opportunities Partners and Black Diamond Capital Management, and renamed FXI-Foamex Innovations.

Solutia’s nylon chemical, plastic and fiber business was purchased for $50 million by Ascend Performance Materials, an affiliate of SK Capital Partners II. Solutia also offloaded its Wear-Dated residential fiber brand to Mohawk.

Private equity also stepped in to buy Tarkett’s share in Clarion Industries, forming a new joint venture with Aconcagua Holdings and the Fairbanks Family Fund. The company, located in Shippenville, Pennsylvania makes medium and high density fiberboard, and premium laminate flooring.

In a roundabout way, this is all good news because these PE firms would not get involved unless they anticipated a good return on their investment.

GREEN MOVEMENT CONTINUES
The economy didn’t stop flooring firms from continuing their sustainability initiatives. Shaw and DAK Americas began their Clear Path Recycling project to recycle drink bottles in North Carolina, and Shaw will use the RPET in its polyester products and commercial carpet cushion.

US Floors began installing what it believes will be the state’s largest private commercial solar array at its facilities in Dalton, Georgia.

Mannington, which currently has the largest solar array out there, began a VCT recycling program—the first of its kind—and it is reusing the material in its own products.

Many companies received third party certification for their products and processes, as the industry remains at the forefront of sustainable practices.

THIS AND THAT
There were several items that we thought were particularly interesting this year. One was the news that Shaw Industries founder Robert Shaw now controls 12% of the stock of The Dixie Group, perhaps recognizing a good deal when he sees one. He also decided to build a polyester carpet plant in Calhoun, Georgia.

Another was the Federal Trade Commission’s decision to reclassify PTT as a new class of fiber called “triexta,” because it was proven to be much more durable than polyester— its former classification. Mohawk has the exclusive residential rights to the fiber, only manufactured by DuPont under the Sorona name, but it has been made more widely available by DuPont for commercial products.

The Dixie Group established an Internet-only brand of commercial carpet called Whitespace, and it will be interesting to see how this new business model works out.

On the technology front, Tennant came up with a new award-winning technology to turn plain water into a super cleaner using a specialized machine and nothing else.

Tennessee tile maker Crossville installed one of the largest tile presses in the world, a 182 metric ton press imported from Italy, as part of a $10.5 million expansion.

And Ricko the Rhino, a Birmingham Zoo resident, couldn’t permanently stain Mohawk carpet after two weeks in his living room, in perhaps the year’s most outlandish promotion.

For a month by month look at some of the key events during 2009, see the December 2009 issue of Floor Focus Magazine.

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