Strategic Exchange: Residential demand continues to be challenged, but retailers who are investing will win in the end – August 2026

By Kemp Harr

With the ongoing war in Iran contributing to inflationary pressure, it’s not surprising to see that real GDP continued to decelerate, growing at an annual rate of just 1.5% during the second quarter, down from 2.1% in the first quarter.

A decline in government spending contributed to the slowdown. Encouragingly, consumer spending accelerated, rising 3.2%—up sharply from 0.5% in the first quarter. Inflation, however, also accelerated, with the price index for gross domestic purchases increasing at a 5.7% annual rate during the quarter.

Economist Kermit Baker told us in my recent podcast that he still feels optimistic that we are not headed toward a recession in the next 12 months. He referenced a recent WSJ survey that concluded that the U.S. economy will continue on a slow steady track, and only 25% of the economists that were surveyed think GDP will go negative.

The big housing news was a 19% jump in housing starts in June, driven almost entirely by the multifamily sector. Starts for buildings with five or more units surged 76% from May, while single-family starts actually declined 0.2%. It is important to remember that multifamily starts had fallen sharply in May, so part of June’s increase was a rebound from an unusually weak month. It is also worth noting that apartments are smaller than single-family homes and typically utilize more price-sensitive flooring.

So where does the flooring business stand as we enter the second month of the second half of 2026? For more than three years, the most frequently used word in flooring forecasts has been “recovery.” Each January, we are told that mortgage rates should ease, existing-home sales should improve, and the remodeling projects consumers have postponed will finally be released. Yet, the industry is still waiting for the turn. Perhaps the question is no longer when the market will come back, but what we are doing while we wait.

While many flooring retailers are conserving cash and waiting for demand to improve, some of the industry’s strongest dealers are taking the opposite approach. They are remodeling existing showrooms, opening new locations and preparing their businesses for the next upturn. They recognize that a slowdown can be the best time to make changes—when contractors are more available, disruption is easier to manage, and employees have time to learn new products and selling systems.

We cannot predict when mortgage rates will fall enough to unlock the housing market. But three NFA members—Nebraska Furniture Mart (NFM), Yates Flooring Center and ICC Floors Plus—are reminding us that the best time to prepare for stronger demand is before it arrives. 

Nebraska Furniture Mart just remodeled the carpet section of its largest store in Dallas and devoted half of it to Shaw Industries. This is the third Anso Gallery reset that NFM has done, with large samples and room scene photos that enhance the consumer’s shopping experience, and in every case, sales jump for the whole department. We’ve posted some photos of the new showroom on FloorDaily. Here is an interview with Dave Chambers about the latest showroom reset. 

When the market finally turns, consumers will not automatically return to the same stores in the same proportions. Marketshare will be redistributed, and the dealers investing in their facilities, people and customer experience today will be positioned to claim more of it tomorrow.

DEMAND SHIFTS BY FLOORING CATEGORIES

We’ve been hearing that consumers are buying more carpet and hardwood at the expense of LVT, and a recent report from the Carpet and Rug Institute says that carpet sales increased 4% in the second quarter. Units are still down, but dollars are up, indicating that the consumer is investing in better-end goods. 

We dug deep into Floor & Décor’s Q2 earnings report and learned that sales of laminate and vinyl were down 7.4% in the quarter. Total sales for the brand were up
3% (comp. store sales were down 2.1%), with hardwood, tile and installation materials outperforming the average. There is no doubt they are sucking some share out of the market with their continued push to open new stores—five in Q2 alone.

STRENGTH IN COMMERCIAL MARKET

The commercial market continues to be the bright spot for the flooring business—thanks to remodeling activity in the corporate/workplace sector and continued investments in healthcare, education and multifamily. Margins, however, are a bit lower this year because, with the residential business being soft, businesses that normally focus on the residential market are bidding for commercial work, so commercial contractors are having to sharpen their pencils to keep it. 

For comments on this column, email kemp@floorfocus.com.