Strategic Exchange: The residential market should brighten in 2024 as the commercial market tapers off – Dec 2023

By Kemp Harr

ITR Economics principal Brian Beaulieu told attendees at the North American Association of Floor Covering Distributors (NAFCD) convention that he expects the commercial side of the flooring business will fare well in 2024 but will feel the pain in 2025.

Recognizing that the U.S. consumer will be the biggest driver for any type of economic recovery, Beaulieu pointed out that both real incomes and the value of assets are continuing to rise. Consumers have greater purchasing power than ever; the key is to get them to realize it, he said. The current homeownership rate is 65.9%, and two thirds of homeowners have a mortgage rate of 4% or less. With interest rates declining a bit in 2024 and incomes rising, housing affordability will improve, but consumers will have to shift to a mindset of purchasing smaller houses.

In the single-family housing market, the slump has bottomed out and is in the early stages of recovery. Beaulieu expects to see single-digit increases in builder volume in 2024, with 2025 even stronger and filtering out to 2026, though the market won’t snap back to 2021 levels, he cautioned. Multifamily starts are down 28.1% in 2023 and will get worse before they get better. He expects that decline to continue through Q3 2024.

For those reliant on remodeling, things are more complicated, with existing-home sales down 24.8% over the last 12 months, flirting with lows the market saw near the bottom of the Great Recession. ITR expects some mortgage rate reductions but noted that the best-case scenario is rates in the 5% to 6% range, though that should be enough to spur some activity.

As Beaulieu closed out his session, he offered business advice, saying, “If you know your competitive advantage, you will get the business.” Sell your ability to deliver quality and solutions, and you will create loyal customers who will remain by your side through the dips as well as the rebounds.

BOUTIQUE DESIGN NEW YORK
We weren’t surprised that attendance at the BDNY hospitality show, held in mid-November, was up with roughly 9,000 qualified attendees spending time with 600 exhibitors. This market has been one of the shining stars for commercial flooring sales, and Lodging Econometrics is forecasting that remodel activity in the hospitality sector will be strong into 2025. One key driver is the hotel brands-such as Marriott, Hilton and Hyatt-holding the property owners accountable for minimum brand standards after relaxing those standards during Covid.

In terms of space design, outdoor spaces are expanding as guests see value in having a connection with nature that brings about restored cognitive thinking. LVT continues to take share from carpet as in-room flooring, and rugs are being added as an accent.

The big three flooring brands in this space are Durkan, Shaw Contract and Tarkett. For more details on their show experience, listen to the podcasts I taped with them as well as with Novalis during the show, which you can find on FloorDaily.net.

ANNUAL DISTRIBUTORS MEETING
Even with uncertainty in the market, the NAFCD had a record turnout for its annual meeting, hosted in conjunction with the North American Building Material Distribution Association (NBMDA) last month. More than 1,100 attendees descended on The Broadmoor in Colorado Springs to take advantage of the networking and product sourcing opportunities, and the NAFCD sold out its tabletop exhibit hall, with 30 new suppliers in attendance.

As the market pulls back, there’s opportunity to build momentum for the rebound, and these suppliers seem to recognize that. The relationships and differentiated product offerings presented at the show should prove useful in the interim, as well.

In a testament to the competitive power of relationships, several key distributors recently formed a national cooperative, Interiors North America, in a channel that is notoriously difficult to merge. Belknap-Haines, Tri-West and All Surfaces, along with their subsidiaries, have streamlined an offering for multifamily specifications for national accounts. This isn’t the first time the Belknap White Group and JJ Haines have flirted with the idea of a consortium, but it’s the first time it’s taken off. Key to its success will be keeping it focused on a small selection of competitive products.

CRI Annual Meeting
At the Carpet and Rug Institute’s (CRI) annual meeting, held November 15, Tom Pendley with Mannington stepped down as chairman, and Curt Hutchins with Mohawk stepped into that role. This was the first meeting of the carpet-focused trade association since Russ DeLozier replaced Joe Yarbrough as president.

This group’s largest budget item is focused on minimizing extended producer responsibility legislation at the state level. The budget for 2024 has been reduced 7% from the prior year.

Other news from the meeting included a revision of the CRI’s mission statement. Details from this meeting can be found in our news story on FloorDaily.

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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