Strategic Exchange - July 2010

By Kemp Harr

The fact that housing sales were down in May gave some of the sensational media outlets just enough fuel to join forces with Chicken Little and start talking about a double-dip recession. There’s no denying that existing home sales fell 2.2% in May to a seasonally adjusted 5.66 million units. And new single-family home sales fell a record 33% in May to a seasonal rate of 300,000—the lowest since records began in 1963. And those who follow the Dow Jones Industrial Average know that stocks also dropped below 10,000 twice since the middle of May.

Those of you who listen to my audio interviews on our Floordaily website know that Harvard economist Kermit Baker has a pretty good handle on both the housing and the commercial construction market. He called May’s drop a downward blip and expects the economy to continue to move in a positive direction. He puts much of the blame for this downward trend on the European economic situation and more specifically on the uncertainty of the Greek economy. In the residential sector, he puts part of the blame on the end of the home buying tax credit, which inflated April’s numbers and left a lull in activity in May. But conservative bank lending practices also continue to be a limiting factor in the equation.

Fortunately, Kermit has seen enough of current statistics from his vantage point to know that the June numbers will be back on track. He’s confident that the worst in the residential market is behind us, but there’s still a very healthy inventory of homes on the market that must be sold before we will start to see much activity on the new construction side. 

In the commercial market, Kermit expects the Architecture Billings Index to continue the upward trend we started seeing in February. He, too, concurs that the commercial market is not suffering from being overbuilt as is the case in the residential market, and the downward cycle on the commercial market could be shorter than the three-year dip we’ve seen residentially. 

One final comment before we leave this economic topic: it’s good to see June’s consumer sentiment index at a two-year high. Consumers know that recovery is going to be slow but consumer optimism is crucial for kick-starting this economy. Now, if we could just get the bankers to jump on board. There’s no denying that the economy is still wobbly as we wean ourselves from government-funded stimulus spending, but there’s every reason to believe we’re still on the right track.

As an aside, one interesting trend that residential architects are seeing as we start to emerge from this recession is a move toward smaller homes, a movement away from suburbs and back toward urban centers, and a push to select building materials that are maintenance free. 

NeoCon Marks the Beginning of the Interior Design Year
Mark Falanga and I were reflecting on the opening day of NeoCon about the historical perspective of the show and why this annual interior furnishings show marks the “January” or beginning of the year for the interior furnishing market. Falanga, as many of you know, is the VP in charge of NeoCon for the MMPI (Merchandise Mart Properties). The first NeoCon (The National Exposition of Contract Furnishings) was held in the second week of June in 1969 and it has taken place at the same time the past 41 years. The timing was originally based on the construction schedule of new buildings that generally would break ground in the spring and go on-line in the fall and winter. Based on that construction schedule, June was when interior designers would begin sourcing the interior furnishings that would go into those new buildings. 

Forty-one years later, as design firms have adopted this rhythm to their new product education schedule, NeoCon now marks the debut of the new styling trends for the coming year. Here in the U.S., NeoCon has become the event where most new furnishing concepts are unveiled. Naturally, some might argue that the Italian Furniture Show held in Milan, Italy in April marks the beginning of the design year and that show is 49 years old, has approximately 2,500 exhibitors and boasts an attendance of over 300,000. So when you compare NeoCon’s annual attendance (between 40,000 and 50,000 depending on the year), and its roughly 1,000 exhibitors, Milan may rule the cycle from a global perspective. 

Falanga also confirmed in our conversation about NeoCon that floorcovering is the second largest product category after furniture at the Mart. Those of us who have friends in product design for commercial flooring producers know that June is the third quarter of their cycle of development, but it also marks a fixed deadline and level of intensity that some would call the crescendo of the cycle. New product concepts that are conceived in September and October are built-out, refined, sampled and debuted in time for NeoCon, but not actually folded into production until feedback is gathered from designers at the show. The typical design team usually takes a ten-day break after the show to pet the dog and make sure the family still loves them, and then goes back to work to produce the architectural folders that are then distributed to the design firms’ libraries. Granted, some of the bigger companies are rolling out new collections year round, but any product that makes a design statement is usually saved for a NeoCon debut. 

The Tone of NeoCon 2010
If a design firm is serious about being a talent resource to its clients, it must take the necessary steps to ensure they are on their game by staying informed about the latest resources and solutions in the interior design market. There are many ways to do this, but one of the easiest is to attend the annual NeoCon Show. 

Judging by the ease of getting on an elevator at the Mart, attendance at this year’s NeoCon was about the same as last year. But the tone of those in attendance was much better. 

Each year, on the Sunday night prior to the Monday start of NeoCon, the IIDA hosts its Cool Black-Tie Awards event. Last year, since many of the major design firms had been laying off staff in droves and project work was non-existent, the tone of the event felt like a funeral wake. Most of the fear stemmed from the unknown—from not knowing how long or how deep the recession would take us. We all knew of friends who were losing their jobs and we couldn’t help but wonder if we were next in line. This year, on the other hand, that kick-off designer event was much more upbeat and festive. 

Not only is the bottom of the commercial decline behind us, active projects are starting to materialize and order rates are moving upward. Some of the traffic at this year’s show was international in nature. U.S. design firms are being hired to oversee foreign projects because the client is seeking an American or “Western” aesthetic. There is also pent-up demand for commercial remodel work that’s starting to shake loose as employers realize that one way to attract and retain the best employees is to offer a work environment that exceeds their employees’ expectations.

When you think about it, it makes sense that NeoCon’s attendance numbers are still soft at this stage of the recovery. Staffing at design firms is still bare-bones and travel policies at these major firms will continue to be heavily scrutinized until profit numbers move back into the black. 

HGTV Green Home Reveals the Future of Home Design
At the end of last month, HGTV gave away its third “Green Home” via an Internet sweepstakes. This cable TV channel has grown its audience size and now boasts approx 98 million viewers. There’s no denying that the channel has become a major influencer in the home furnishings market. 

This year’s house, located 45 minutes south of Boston in Plymouth, Massachusetts, reveals several trends about the future of residential design. Not only is the house situated in a village with easy walking access to markets, the post office and other services, but the house design itself is laid out for maximum use of space and efficient living. The 2,400 square foot house features three levels, two bedrooms, tons of outdoor light and plenty of outdoor living space.

You enter the house by stepping up onto a wraparound front porch and through the front door into an expansive great room. On the left side of the room is a kitchen with a large counter area that separates the galley from a relaxing sitting area facing a fireplace and a flat screen television. On the far side of the room is a dining table surrounded by windows that look onto the outdoor patio. What was once built as four rooms—kitchen, dining room, den and living room—has been folded into one large room with no dividing walls.

The floors in this “great room” and throughout most of the house are Shaw’s Epic engineered hardwood. Often times, residential designers select a floor that blends in and quietly serves its utility as a walking surface or as the lowest horizontal plane in the cube of the room. That’s not the case with this floor. This hickory hardwood floor, called Epic Legends, reaches up and begs you to notice it. It has texture, high variation, character marks and deep graining. And to qualify for this “green home,” it has recycled content, comes from a managed domestic forest and has a hardened finish that should make it last for decades. 

The only variation to the use of this hardwood is down the back hall, which leads to the laundry room, garage, powder room and out onto the back patio. In this traffic area, the designer chose a porcelain floor tile called Lunar in a 3”x6” rectangular format and the color selected was “walnut,” which blends in well with the burnt sugar color of the hickory wood floors. And once again, the herringbone pattern used in the installation is eye catching. Upstairs, in the more intimate areas of the house, the hardwood is partially covered with area rugs. 

The design and setting for this house incorporate many of the trends we are seeing in the residential market. This includes fewer walls, smaller spaces (but decorated with plusher finishes), outdoor rooms, more windows, efficient appliances and work spaces (kitchen and laundry room), and large master bathrooms that are almost the same size as the bedroom. The prevailing thinking is, let’s have a smaller house that’s easy to clean, cheaper to heat and cool and allows us to spend time together when we get a chance to be home as a family.

How Does THE EPA’s NEW Lead Paint Law Affect Flooring Installers?
I first heard what the EPA’s new lead paint rules might mean to floorcovering installers two months ago in one of our Floordaily discussion groups. We ran a news story about it back in March but at that time the news seemed to be more directed to home remodeling contractors than flooring installation contractors. Once you read the fine print, however, this new federal legislation will definitely have an impact on flooring contractors if the flooring project is in a home built prior to 1978 and if it requires the removal of more than 18 feet of painted baseboard. 

This legislation, called the Contractor’s Lead Paint Safe Work Practices for Renovation, Repairs and Painting Rule, or RRP, went into effect on April 22 and was created in an effort to reduce lead poisoning in children. It requires all contractors who disturb six square feet of painted surface in homes built prior to 1978 to register with the EPA and have at least one person overseeing the project trained and certified in the EPA’s lead paint safe work practices.

RRP requires contractors to contain the area undergoing renovation with plastic sheeting, minimize dust and clean up thoroughly, as well as provide homeowners with a copy of the EPA’s brochure, Renovate Right: Important Lead Hazard Information for Families, Child Care Providers, and Schools. Additionally, contractors are required to keep records to document their compliance with the rule.

Training and certification is conducted by independent firms that have been certified by the EPA. The cost to contractors seeking training is $310. Certification lasts for three years. Contractors found in violation of the law face a possible $37,500 in fines daily.

Last month, thanks to some pressure from the NAHB and other special interest groups, the EPA decided to delay enforcement of the regulation until October 1, 2010. There was an opt-out clause for homeowners who didn’t have children, but that has since been removed. I’m afraid this isn’t going away and we hear that there are approximately 79 million homes that were built prior to 1978. 

If you have any comments about this month’s column, you can email me at kemp@floorfocus.com. 

Copyright 2010 Floor Focus 

Related Topics:Shaw Industries Group, Inc.