Strategic Exchange: Sales growth in 2023 varies by sector - March 2023

By Kemp Harr

Ninety-two-year-old Warren Buffett released his annual shareholder letter the last weekend in February, and I skimmed it hoping he would provide a consensus on where the economy was headed in 2023, but this is what he said about it, “Charlie and I plead ignorance and firmly believe that near-term economic and market forecasts are worse than useless.”

In my Surfaces video interviews, I asked a few business leaders what their take was on economic conditions for the coming year. James Lesslie, COO of Engineered Floors, said, “Retail is soft now, but I think we’re going to see an upturn in that sector somewhere between the second and third quarters.”
Jonathan Cohen, CEO of Stanton, added, “You have to just knock out the noise and keep moving forward. Just focus on the things you do well.”

Those in the commercial market know that flooring demand continues to be strong-driven by pent-up demand from the downturn in 2020 and 2021. The Architecture Billings Index, which is a leading indicator by almost a year, did fall below 50 in October 2022, but in January climbed back up to 49.3, so if there is any dip in that sector toward the end of this year, it should be brief.

Home Depot’s earnings report for Q4 showed its business flattened out overall, and sales growth within its flooring department was negative. During its conference call, it was noted that sales in its carpet business were down significantly. We all watched as the home centers took marketshare in the midst of the pandemic, but that share gain was short-lived. Home Depot’s recent focus to engage with the consumer and entice them to buy online and pick up in-store just doesn’t work with carpet.

It was encouraging to see that pending home sales were up 8.1% in January, as buyers responded to falling mortgage rates in December and January. And on the builder side, sales of newly built single-family homes increased 7.2% in January versus the prior month, but were down 19.4% on a year-over-year basis. Fortunately, the backlog of homes that were in the planning process early last year are just now getting their floors installed, so there is still some demand in that sector.

We’re all hoping that inflation will continue to decline and the U.S. economy can avoid a recession. This is feasible if employment levels stay where they are, and if the builder market can kick back in during the second half of the year.

Anybody who’s been to a restaurant lately or is tracking automobile sales knows that the consumer is continuing to spend money in those areas. Our challenge is to get them to return their focus to improving their home, which is now worth 25% more than it was three years ago.

PRODUCT TRENDS FOR 2023
It was encouraging to see the energy at Surfaces fully recover from the dip it experienced during Covid. We have a full recap of the show starting on page 43.

Preliminary numbers are telling us that the resilient category, which includes LVT, might have passed carpet as the largest flooring category in dollar sales in 2022. Anyone who attended Surfaces can tell you that the other flooring categories don’t plan to roll over and play dead.

Several players, like MSI, Dixie and Cali, are adding new hardwood collections. Mohawk, Dixie and AHF are bolstering their laminate offering, and there is a strong push to reinvigorate the residential carpet category, which continued to lose share in units in 2022.

All seven of the leading carpet brands (Shaw, Mohawk, Engineered Floors, Dixie, Mannington, Tarkett and Stanton) were showing beautiful new soft collections using the latest developments in both yarn processing and tufting technology.

Is it feasible that the recent technological enhancements for adding color and texture in the carpet category, coupled with long-standing acoustic and comfort advantages, could reverse the consumer’s shift away from this category? I believe that answer lies at the hands of the retail sales associate. For the last ten years, LVT has been the shiny new penny, and then last year, RSAs lost their go-to Stainmaster brand. How can we get RSAs to fall back in love with carpet? Invite your reps in to show them the latest styling and innovation and teach your more seasoned staff that the $19 price point doesn’t exist anymore.

A TRIBUTE TO MARK CLAYTON
News broke at Surfaces that Mark Clayton is retiring from the flooring industry to spend his next chapter with his wife, Diane. I first met Mark in 2005 when he was Carl Bouckaert’s national accounts sales guy at Beaulieu of America. Carl promoted him to vice president of marketing, and as he was laying the foundation for launching the Bliss brand, he was invited to join J&J Industries on the commercial side. From there, he went to Milliken and on to Pharr/Phenix, which was acquired to become part of Mannington. Those of you who know Mark know that he is passionate about this business, a servant leader with a confident smile who is always quick to defer any compliments to his staff. We are going to miss Mark in this business, and we wish him the best.

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

Copyright 2023 Floor Focus

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