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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
July 23/30, 2012 Carpet & Area Rugs 11 Chart 7 Carpet & area rug purchases by end-use market (Total: $9.51 billion) 21.0% 7.4% 2.2% 3.7% 0.3% 65.4% Residential replacement $6.22 billion Commerical replacement $2.00 billion Transportation $0.70 billion Commerical new construction $0.35 billion Residential contract $0.21 billion Manufactured housing $0.02 billion Source: Catalina Research Wells: In trying to balance increased costs and raising prices, we also place emphasis on our ReEntry Recycling Process where we’re taking back more used carpet and recycling — turning backing into new backing plus face fi ber into new face fi ber. Using more recycled materials helps us minimize the dependency on virgin, petrochemical based, raw materials for the short and long term. Frierson: Balancing increased costs with declining sales is a juggling act. It’s a very hard issue to solve — much lower volume with higher raw materials and other costs — and get back to a normal return. Merritt: I think there are some segments where this trend may be continuing, such as in new construction in apartments, where more living space is being converted to laminate or LVT while the bedrooms remain carpeted. This trend may be occurring in certain segments of the fl ooring market but it’s certainly not an overall market trend. In commercial, carpet continues to hold its own or grow share. And while we’re seeing a trend toward smaller homes, people still want three or four bedrooms and these are still carpet in the majority of spaces. I just am not sure carpet is continuing to lose square foot share. Perspective Carpet industry leaders Tom Lape, president of Mohawk’s residential and commercial businesses; Randy Merritt, president of Shaw Industries; Ralph Boe, CEO of Beaulieu of America; John Wells, president and CEO of Interface Americas; and Kennedy Frierson, COO of The Dixie Group, share views on challenges and strategies. What can manufacturers do to answer today’s greatest challenges? Lape: Carpet manufacturers are faced with the challenge of how to reverse the trend away from carpet. Carpet price increases in 2011 are thought to have pushed some consumers to choose hard surface because, while still less expensive than most hard surface fl ooring, the cost difference was less than in the past. We have got to excite the consumer with innovation and exceed their expectations. Boe: The decreased market share of carpet versus hard surface fl ooring for the past fi ve years comes down to fashion. Consumers will have to become passionate about soft surface fl ooring again. Carpet is clearly preferred for bedrooms, where consumers want softness under foot. Carpet is also the value leader. Chart 8 Carpet & area rugs market average value per square foot $1.0 $0.8 $0.6 $0.4 $0.2 $0.0 $.89 $.93(R) $.88(R) $.88 $.93 2007 2008 2009 2010 2011 Source: Catalina Research R-Revised When Less is More! Use your QR tag reader to go directly to our dealer website and read more about this topic. If you are not familiar with a certain product category, a buying choice can be dificult any option can be painful hin about the laundry detergent , egular, i-ctie, Free lear, etc If you can not memorie the pacage at home in your laundry room, youre doomed How many products do you have in your store? elling ha to be a guided proce, with your big election more a a bacdrop, not a a warehoue full of choice nce you narrowed down color and tyle, dont offer more than choice If the cutomer can not mae a deci- ion, replace one after the other ont leae the product that were reected around - eep them out of ight Find more tip on tuftexdealer.com Tuftex, Shaw Floors premier brand, is a California carpet manufacturer known for its innovative color, design, quality and care for the environment. Your Color. Your Lifestyle. Your Carpet. www.tuftexcarpet.com
Page 1: Vol. 61 No. 14 A Hearst Business Pu
Page 4 and 5: 4 Table 1 U.S. floor covering marke
Page 6 and 7: 6 marketWise July 23/30, 2012 Who s
Page 8 and 9: 8 Carpet & Area Rugs July 23/30, 20
Page 12 and 13: 12 Wood July 23/30, 2012 Hardwood g
Page 14 and 15: Chart 10 Hardwood purchases by end-
Page 16 and 17: 16 Tile & Stone Tile & stone inch a
Page 18 and 19: 18 Tile & Stone July 23/30, 2012 Pe
Page 20 and 21: 20 Resilient July 23/30, 2012 Vinyl
Page 22 and 23: 22 Resilient July 23/30, 2012 Persp
Page 24 and 25: Marketplace Next up in FCW August 2
Page 26: Randy Me ritt By Kimberly Gavin ple

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