Strategic Exchange: Residential replacement could turn the corner soon – May 2024
By Kemp Harr
If you listened to Mohawk’s Q1 earnings call in late April, you heard Jeff Lorberbaum say that he thought we were at the bottom of this economic cycle. If he’s right, after a year and a half of doldrums for product demand in the retail residential replacement business, this industry’s largest sector could be turning a corner, with better days ahead.
Pulling this Annual Report issue together is always a challenge, but it is especially difficult when business is down because, as we talk to the industry’s leaders, no one wants to openly reveal how much they shrunk. For more details, our Annual Report comparing 2023 to 2022 starts on page 27.
For those of you who make your living in the commercial sector, Mr. Lorberbaum told the investment community that commercial had been performing better than anticipated-with hospitality, retail and government performing best. But he is expecting the commercial market to slow more as the year progresses.
The seasoned grey hairs in this business know that consumer confidence is a big factor in a big-ticket business of products that consumers can defer the decision to buy. And it’s hard for the consumer to be uber confident when the days of the $3 burger are gone forever, and our nation is headed to an election cycle where neither of the leading candidates are a refreshing choice. It’s this free-money mentality in Washington that put us in this era of inflated costs to begin with.
COVERINGS AND NWFA EXPOS
Two of this industry’s more traditional sectors, hardwood and ceramic, held their annual trade shows and attracted impressive crowds. The first of the back-to-back shows was the National Wood Flooring Association’s (NWFA) annual expo, held this year in New Orleans. You’d hate to think a venue would be the primary attraction, but I’m sure Bourbon Street and Cajun food contributed to the elevated attendance.
The big news from this show is how stable the solid hardwood business is on the upper end of the market and how builders are moving back to the thinner engineered product, thanks to the recent failures with SPC in that sector of the business. While this show isn’t considered a selling show, it is where all the professionals who have sawdust running through their veins gather to network. Refreshingly, the industry announced that it is reupping its annual $3 million investment to remind consumers about the benefits of living on real hardwood, using Chip and Joanna Gaines as its mouthpiece. For a more detailed report on this show, see our coverage on page 85 of this issue.
The very next week in Atlanta was the annual Coverings show-focused on tile and stone-which also attracted a healthy pre-Covid level of attendees. It’s worth mentioning that Atlanta stood tall as an affordable venue for this Coverings, and the influence of the foreign exhibitors at the show helped drive the design element that makes the event so interesting.
Coverings attracted over 1,000 exhibitors this year and filled two exhibit halls with companies from all over the world. The primary audience for the show is distributors, but it also attracts retailers, architects, interior designers, contractors and installers.
It is worth noting that while every category was down in revenue last year, the tile industry outperformed the other flooring categories in taking marketshare. Floor Focus will have an in-depth article on Coverings in our June issue.
TARIFF ON INDIAN TILE
Those who earn their living in the tile business remember the anti-dumping and countervailing duty initiative against Chinese-made tile that resulted in a 600% tariff and forced U.S. importers to find alternative sources for $500 million worth of mostly low-end tile that was being produced in China. They may also remember that the U.S. government’s case against China followed a European Union case that resulted in similar findings. Thanks to these two rulings, both by the EU and our federal government, China now sells little, if any, tile to Europe and the U.S.
The big news at this year’s Tile Council of North America (TCNA) press conference, held at Coverings, is that a similar action is being taken by nine U.S. producers against tile made in India. In this case, the TCNA feels it has enough evidence to justify a tariff in the range of 408% to 828%. It’s important to note that in the past ten years, imports of tile from India have increased from a mere 344,000 square feet in 2013 to nearly 405 million square feet by the end of 2023. India basically filled the gap left by China when China was forced out. It is also important to note that the tariff penalties being sought are retroactive to the date of filing. So, if this U.S. coalition of U.S. tile producers is successful, importers could potentially be on the hook for up to eight times the current value for product brought in after April 19, 2024.
Last year, the EU filed a similar case against India-produced tile, and the resulting tariff was much less than they had hoped. Eric Astrachan, executive director of TCNA, feels that the evidence presented to the federal government in the U.S. case is much stronger. Much of the tile sold in the U.S. from India is goes through the home center and big box channel.
If you have any comments about this month’s column, you can email me at kemp@floorfocus.com.
Copyright 2024 Floor Focus
Related Topics:NWFA Expo, Mohawk Industries, Coverings