Strategic Exchange - April 09

By Kemp Harr

Could we be nearing the turning point of this economic recession? As the nation enters the spring thaw, we are starting to see a few early signs that we may be hitting bottom. For the first time in many months, not all economic indicators are pointing down. If the economy is indeed stabilizing—and we won’t know for sure for a couple of months—the first flooring sector to see life will be the residential replacement sector.

There is no denying that the housing market is at the core of the economic and financial meltdown and stabilizing it is seen as a key ingredient for a recovery from the recession that started in December 2007.

There’s been some encouraging news lately. New home sales in February were up almost 5% over January. Housing starts in February jumped 22% versus January (led by a big increase in multi-family permits). Existing home sales were also up 5% in February. Though this uptick in home sales is encouraging, we’ve also got to realize that as much as 40% of this volume is related to distressed sales. However, housing sales can’t help but improve with mortgage rates at their lowest levels since 1956. Because of low mortgage rates and depressed home prices, houses are more affordable now than they’ve been in decades.

The recent trend in the stock market is also encouraging but there’s no reason to believe we won’t see another dip in the Dow, especially with unemployment continuing to rise. It does appear that the Feds are doing what they can to isolate the toxic assets from the sub-prime loan debacle, whose roots go as far back as the Clinton administration.

But we’ve got to keep this all in context. At least now, the numbers are moving in a positive direction. And even houses sold under duress generate flooring sales. But we may be several quarters away from the type of recovery that will give the consumer the level of confidence needed to motivate her to replace that worn out floor. Hopefully these mortgage rates and new home values will grease the wheels and help the nation’s economy get back on track.

STAYCATIONING PROVIDES OPPORTUNITY
We saw this so-called staycationing phenomenon, or vacationing at home, right after 9/11 and we’re seeing it again now. The last time this happened, it was amplified by terrorism that led to a fear of traveling, but this time it’s due to people’s lack of confidence in their long term solvency. Now, with housing values down and many retirement investment accounts worth half what they were a year ago, consumers are far more cautious about their future.

The general attitude among consumers today is that living in excess is what got us where we are today. Now they’ve stopped living beyond their means, they’re making the best of their current dwelling and working on building their savings accounts. They’re traveling less, and enjoying themselves at home more often.

Staycationing and cocooning are easy to do these days and technology is making the home a more attractive place to spend leisure time. For example, affordable home theater systems with big screen TVs and surround sound have enhanced watching movies at home. And with a laptop on the couch, a homeowner has access to the world through the Internet. Not only can they take virtual shopping trips, do research, download music, and network with their friends on Facebook, but they can also see much of the world without actually going there. Virtual traveling is no substitute for the real thing, but it’s getting closer.

The more time folks stay at home, the more they are going to want to fix it up and make a tweak here and there to make it more appealing. Retailers who recognize this can put it to their advantage by targeting the trend and making it part of their promotional strategy and part of their sales message on the showroom floor.

THE NEW TRIEXTA CARPET FIBER
It’s not every day that a new carpet fiber is developed. And while the newly named triexta is not a new fiber, the decision by the Federal Trade Commission (FTC) to give it a subclass of its own does validate its unique properties.

Triexta, a name introduced by DuPont, is now the generic designation for PTT, a polymer that is used as a carpet fiber and which has been sold for several years under the Smartstrand and Corterra brand names. While its chemical structure is similar to the traditional polyester we’ve seen in the carpet industry for years, this rare decision by the FTC allows it to be marketed to consumers in a subclass of its own.

It’s also very interesting that the reclassification of this polymer by the FTC occurred just two weeks after PTT Poly Canada, a joint venture of Shell Chemicals Canada Ltd. and Société Générale de Financement du Québec, decided to close its Montreal plant due to a lack of profitability. That venture was supplying PTT polymer to both Shaw and Mohawk and now that it has closed, DuPont, through its joint venture with Tate & Lyle in Loudon, Tennessee, is currently the only source for triexta polymer.

Since DuPont and Mohawk have an exclusive supply arrangement, Mohawk is currently the only carpet manufacturer with access to this newly reclassified carpet fiber. But even though Mohawk is just one player, it has a huge share of the carpet business and its triexta offering is continuing to grow. So it looks like DuPont, which sold its nylon fiber stake in the carpet industry to Koch Industries when it sold Invista, is again committing itself to a significant roll in the carpet business.

DuPont sells its Sorona branded triexta exclusively to Mohawk, which turns the polymer into carpet fiber and produces Smartstrand carpet fiber. Not only does this fiber contain 37% bio based chemistry (derived from corn) but according to Mohawk, it also has softness, durability and anti-stain properties that are similar to nylon. And Smartstrand carpet is priced at retail between unbranded and branded nylon.

No doubt Mohawk’s competitors will continue to treat triexta as just another form of polyester and nothing particularly special, because polyester, in general, is deemed by many in the industry to be inferior to nylon. Consumers on the other hand don’t know one fiber type from another and have to rely on the Internet or their retail salesperson to point them in the right direction. Apparently, the FTC felt there was enough of a performance difference to let this fiber stand in a class of its own. And now that Mohawk and DuPont don’t have to classify it as polyester, it can stand alone and on its own merits. Knowing what I do about branding, I certainly wouldn’t discount the power of that red DuPont oval. Mohawk has for many years leveraged the power of major brands in its own products, aligning itself with 3M Scotchguard for its hardwood products and with DuPont on the carpet side.

This PTT triexta story will be interesting to watch. Let’s not forget the Montreal PTT plant is for sale. Let’s also remember that the commercial market has not yet adopted this new fiber, and nylon continues to be king in this sector of the market—where long-term performance is crucial and specifiers like to see historic proof on lasting performance. But for now, Mohawk and DuPont have something no one else has and they can work to establish its performance record.

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