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.
Copyright 2009 Floor Focus
Related Topics:Tarkett, The Dixie Group, Crossville, Armstrong Flooring, Beaulieu International Group, Shaw Industries Group, Inc., Mohawk Industries, Mannington Mills