Periodical

10
Carpet & Area Rugs
July 23/30, 2012
Rugs continue slow recovery
By Janet Herlihy
While far from a banner year, 2011 saw
some recovery in the area rug market. Total
market sales, calculated from a compilation
of estimates, indicates an increase in area
rug manufacturers’ sales for 2011 of about 6
percent to $2.01 billion overall compared to
2010’s $1.90 billion.
Because rugs are manufactured in every
material from silk, wool, cotton, natural
grasses and leather to every synthetic fiber
known and are available in hand made and
machine made constructions, it is a difficult
category to quantify. In addition, most rugs
are imported and tracked in a myriad of
ways. Statistics from the U.S. Department
of Commerce combine carpets and rugs,
Chart 5
Area rugs market value
(sales in billions)
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0
$2.25
$2.05
$1.80
$1.90(E)
$2.01(E)
2007 2008 2009 2010 2011
Source: U.S. Customs Bureau and FCW research
E-Estimated
including roll goods, bath mats, area rugs,
auto and aircraft carpeting and artificial grass
all in one statistic. Distribution for rugs is as
diverse as its product lines.
Catalina Research reported that while battling
the same volatile raw materials costs and
weak demand as broadloom, area rugs got a
boost from the trend to hard surface flooring as
consumers often added a rug to their new hard
surface floor. Rugs also benefited by being a low
cost way to refresh the look of a room.
Most of the increase was estimated to
come from sales of imported products, which,
including carpet, were up from $1.86 billion
in 2010 to $2.03 billion in 2011, according to
Catalina. Rugs are estimated to account for
60 to 70 percent of that total.
In many ways, the area rug business is the
opposite of the wall-to-wall carpet business.
Most broadloom sold in the U.S., is made in
the U.S., while most area rugs sold here are
imported. While wool accounts for a low
single digit percent of all U.S. broadloom,
industry sources estimated that more than 90
percent of imported hand knotted and hand
tufted rugs are made of wool.
Challenges
The greatest challenge in 2011 continued
to be price pressure brought about by a combination
of forces, according to Bill Kilbride,
president of Mohawk Home. “First, the U.S.
economy is not fully recovered, so getting the
consumer to spend disposable income on rugs
is an issue,” Kilbride explained. “Those consumers,
who are shopping, are on a quest for
value,” he said. The second issue is the price of
raw materials, whether up or down. “If those
prices increase, it is virtually impossible to reprice
your product, but, if they go down, customers
expect our prices to go down,” he noted.
For importers, conditions in countries
where rugs are made and the cost of shipping
added to the challenge. “Last year was a perfect
storm, where the housing market, as well
as the overall economy, did not show any
signs of relief, while our industry in general
was hit with price increases due to higher cost
of raw materials and labor,” said Alex Peykar,
principal of Nourison.
Aaron Gray, director of marketing for
Oriental Weavers/Sphinx, agreed that the
ever-increasing cost of raw materials is the
greatest challenge as it “obviously eats at our
overall margins.”
Ron Couri, president and CEO of Couristan,
noted, “The greatest challenge was to drive
sales. We introduced 67 new rugs in January,
but the tough part is getting stores to commit.
Our residential area rugs and broadloom businesses
are seeing up ticks, but not as great as our
hospitality business. In our rug business, hand
knotted rugs are the slowest, while outdoor
rugs are growing fastest,” Couri stated.
In terms of channels of distribution, Couri
added, “Department stores, internet retail and
catalogs are performing the best for us. Macy
has reset 180 stores with fresh rugs this year.”
Couristan is looking to broaden distribution
even more, according to Couri. “In rugs,
we are looking at new distribution in home
centers and are considering big boxes too.”
Signs of a better 2012?
Continuing the pattern of the past few years,
the start of 2012 is looking better. Virtually all
2011 key points
Area rugs continued to contend with price
pressure at all levels of the market, but
managed to increase sales by about 6
percent, generated by consumers choosing
a value-priced rug to freshen a room
or accent a new hard surface fl oor.
Competition from imports may be lessening
as labor costs in China and India rise
as well as shipping costs. Currency rates
are also favoring domestic production.
Fashion and innovation are critical as rug
manufacturers win sales with new kinds
of products such as outdoor rugs and explore
new channels of distribution.
the rug suppliers FCW spoke with reported
sales in the first quarter running ahead of the
same period a year ago. Nourison’s first quarter
sales are up 5 percent, according to Peykar
and the company is striving for a double-digit
increase for the year.
In the first quarter, OW was slightly
ahead compared to 2011, as Gray sees more
optimism in the marketplace and expects
that momentum to carry on the rest of the
year. “We are being aggressive in introducing
new products and bringing them to
market,” he added.
Despite escalating raw materials costs
and soft demand, Jeff Brown, division vice
president for Shaw Living, noted a few
bright spots, saying, “New collections and
constructions were well received by customer
base,” and “Comps were better in
the first quarter of 2012 than the previous
year.” Still, Brown cautioned the industry
to “Expect to see slowdown and more
worry about consumer demand,” in the
second half. FCW
Uneven
Continued from page 9
Balancing cost increases, lower demand
During the recession and into an anemic,
uneven recovery, the carpet industry has done
everything possible to serve its customers and
survive. Mills shuttered excess capacity and
cut back labor forces, but all the cost cutting
could not make up for increases in the cost of
raw materials.
“There is no question that over the last five
years, even in this recessionary environment,
manufacturers have experienced a rise in raw
material costs,” Merritt explained. “Certainly
these prices rise and fall over time but the
overall trend has been up. As costs rise, we have
to also consider the first rule of marketing —
supply and demand.”
Even with a highly specialized product,
Interface experienced the same situation.
“We’ve had to pass along cost increases,
where appropriate, to our customers. To
balance raw materials costs, we’re also
constantly driving product innovation and
Chart 6
Carpet & area rugs exports* value and volume
(in billions)
1.5
1.2
0.9
0.6
0.3
0
$1.03
1.05
design.” said Wells.
$1.10
1.09(R)
2007 2008 2009 2010 2011
Market sales
$0.85
2012 and beyond
The carpet industry sees reasons for
optimism in 2012. “Retail sales continue
0.79
$1.00
Square feet
0.95
$1.07
1.01
*Includes exports of roll goods, bathmats, area rugs, auto and aircraft carpeting and artificial grass.
Source: Catalina Research
R=Revised
to be a challenge through every channel,”
Merritt noted. Still, “The new single family
home business has shown some signs of life
and they now believe we will see roughly
369,000 new homes sold in 2012. This
would be nominally a 20 percent increase
over last year, still far from healthy but
better. As we look to the fall, we of course
have the election issues to deal with. Historically,
this has a dampening effect on
the fall business, but once we are past that
event, I look for better things in 2013.”
Lape at Mohawk added, “So far, 2012 has
not been as robust for the residential carpet
market as expected,” he said. “Still there are
positive signs — gas prices were going down,
there is credit available and the builder
market is growing, although nowhere near
the numbers before the recession.”
Boe said that so far in 2012, business
has been start and stop. “We had a surge
in April, May and slowed down again in
June,” he noted.
Dixie is looking to a stronger second half
in 2012. Frierson said, “So far in 2012, residential
started out great in January, then each
month since has been disappointing. We still
have had some growth, but it’s at the upper
end of the business and not as good as it was
in 2011. We think the second half will be
better, but not until after the election.” FCW