Top 100 Retail: Residential flooring dealers are finding ways to navigate a tumultuous year - Nov 2020
By Darius Helm
While residential flooring dealers as a whole have fared surprisingly well in the face of an event that, like everyone else, they were wholly unprepared for, the credit largely goes to the very nature of the pandemic and how it has essentially guided the population to spend more time, and consequently more money, on their homes.
However, there were clear winners and losers in the race to sell flooring to the residential market this year. During the lockdown, home centers and national chains had the advantage because they were open as essential businesses. Online sales were strong, not just for online giants like Amazon or the e-commerce arm of brick-and-mortar retailers like Walmart, but also for independent flooring retailers that had a system in place or adapted quickly.
And in terms of sectors, both the residential remodel and single-family builder markets are busy, making up for time lost in the spring, and boosting that trend is a movement from cities to suburbs in many metro markets around the country. Meanwhile, the multifamily market, where residents rent rather than own their homes, experienced a major slowdown in apartment turns and a stall on new construction. That sector was down 30% during the worst months but has recovered some of that territory.
There were also winners and losers in terms of products, with some serendipity involved, since the strongest trending floorcoverings coming into 2020 were rigid LVT products-be they SPC, WPC or any other TLA (three-letter acronym)-which also happen to be almost entirely DIY products by virtue of their glueless click systems. And it turns out that pandemics lend themselves to DIY products. Also, rigid LVT is making huge gains in the single-family builder market, which is itself running at a pace we haven’t seen in over a decade.
It is worth noting that carpet does not appear to be a loser this year, despite the barriers to installation presented by the coronavirus. Retailers report activity both at the low end in the builder market and at better price points in higher end renovations. Also, both Shaw and Engineered Floors have pushed their residential carpet tile products out into the market, and if there was ever a time for a carpet that is DIY to find traction, this would be it. The jury is still out, but many retailers are enthusiastic. Also, in an ironic twist, the same DIY aspect that is helping further boost the growth of laminate’s nemesis, rigid LVT, also seems to be driving sales of laminate flooring, the original click product, according to several retailers.
A TURBULENT 2020
Hopes were high at the start of this year. Industry experts anticipated 3% to 10% growth, depending on the region, in the single-family builder market, driven by low interest rates and buoyed by a healthy economy and low unemployment. And expectations were even higher in the multifamily market, which was on a course for its best year ever through much of the first quarter. First quarter reports from the residential remodel market also indicated a strong start to the year.
When states started rolling out stay-at-home directives, many flooring stores had to shut their doors. In general, western states like California and Washington enacted strict measures, as did many states in the Northeast and some in the upper Midwest. Many dealers started beefing up their online programs, and some took advantage of the downtime to remodel their showrooms.
Independent flooring retailers lost share to the big boxes during the pandemic, though it’s worth noting that home centers and the like focus on the lower end, but the consumers that have been most impacted by the pandemic and its economic aftermath have been the lower income earners. So, a high proportion of the homeowners looking to renovate were not going to buy product from home centers. In fact, many of the retailers we spoke with noted that customers were spending more per square foot than in the past.
In May and into June, many of the states started opening up for business, and retailers quickly found themselves busy again. And soon it became apparent that these customers were ready to buy. Not only were they coming in having already researched online, which has been the trend in recent years, but they were ready to finalize all the decisions and move on it immediately. Throughout the summer and into the fall, residential remodel has been on an upward trajectory.
Builders were quick to start projects when restrictions were relaxed, with a lot of the volume with production homes and spec homes. The downside, according to many retailers, is that more than ever homebuilders are moving to interior décor packages instead of involving residential contractors in the process. The result is a strictly limited offering across a range of looks-warm, cool, contemporary, etc.-with little opportunity to add value or enhance design, and generally narrowing margins for flooring dealers.
Nevertheless, business has been brisk. And by and large, labor has not been a huge issue, though some installations are often taking longer due to restrictions like how many people can work in a home or how many homes an installer should work on per day. What has been problematic is supply. Many manufacturers slowed or temporarily stopped production, and when they started to ramp up, they couldn’t keep up with rising demand.
According to most retailers, many of the supply problems have improved this fall.
Single-family home sales have been flirting with the million new home mark, which has not been seen since before the Great Depression in 2006. Seasonally adjusted annual sales topped 994,000 in August and 959,000 in September.
There was a lot of concern about rent payments because of anticipated defaults by households under economic pressure, and apartment owners braced for an onslaught of eviction battles, particularly in late summer, as stimulus checks and CARES Act $600 relief payments ran out. These sorts of concerns froze a lot of renovation and new construction by property owners.
However, at least through September, national rent unit payments as tracked by the National Multifamily Housing Council’s Rent Payment Tracker were within historical norms, at 94.6% compared to 95.5% at the end of September 2019, though this data only indicates whether payments were made, not whether they were made in full. The concern now is that relief programs are stalled in Congress, and another wave of economic turmoil could hit rental households. Also, the national eviction moratorium could put further pressure on property owners. This this could translate into reduced investment through at least the first quarter of next year. The moratorium is currently slated to expire at the end of this year.
When conditions stabilize, it’s likely that existing multifamily trends will reassert themselves, including the expansion into the suburbs beyond the apartment building model into condos and single-family dwellings. In fact, the fastest-growing rental segment is single-family home rentals.
Despite uncertainty about everything from a new federal stimulus program to employment to societal volatility, it looks like the residential flooring market, riding demand for home renovation as well as new home construction, is poised to enter 2021 with good momentum. For the multifamily market, there is even more uncertainty, including whether the national eviction moratorium will be extended beyond the end of 2020, and to what extent, if any, the federal government will buffer the sector with stimulus funds. Also, if the pandemic continues through the winter, curtailing economic activity, many businesses large and small that have managed to hang on for the better part of a year may have to shut their doors, adding more instability to these turbulent times.
With the gains made by online retailing, including the success of the home centers in e-commerce these last few months, it is essential for independent flooring retailers to adapt and compete online. The good news is that this new model of commerce is still being defined. It’s fluid, and that gives flooring retailers an opportunity to find their place in this arena and compete effectively.
For the complete story of the Top 100 Retailers, see the November 2020 issue of Floor Focus Magazine.
Copyright 2020 Floor Focus