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Carpet outlook:
Wall-to-wall opportunity

September 16, 2005
Clockwise from upper left: Jeff Lorberbaum, Mohawk Industries Anthony Minite, Bentley Prince Street; Ralph Boe, Beaulieu of America; and Randy Merritt, Shaw Industries


While carpet remains entrenched as the largest category in the flooring business, it is also a product segment that has lately been challenged by the steady growth of hard surface flooring. National Floor Trends asked some of the leading carpet manufacturers to weigh in on the challenges and opportunities shaping their product area. We also asked them to offer a forecast for the future. The questions asked of each participant were these:

• Effect of hard surface products on the carpet category: How has the increased interest in hard surface products affected the carpet category? How do you entice consumers to go with carpet when there are so many other options to consider?

• Trends in residential and commercial carpet: What are the major trends seen in residential and commercial carpet? Are consumers, for example, showing more interest in more colors, patterns and textures?

• Carpet and the environment: How has your company worked to address environmental issues related to carpet? How significant is this issue to the category as a whole?

• Carpet segment forecast: What is your forecast for the carpet business in the near and long term? What do you see as the most significant challenge for the category?



Ralph Boe

Ralph Boe

President/COO

Beaulieu of America

Effect of hard surface products on the carpet category

Many consumers think that hard surface flooring is cleaner and more durable than soft coverings. Studies have shown that carpet actually keeps dust down in a home which then can be vacuumed up easily. An alternative to hard surface flooring, low profile carpets can give the consumer the "hard look" they may desire, with the advantage of a soft feel.

Carpet is still the largest segment of the floor covering market. Consumers like the soft feel of carpet underfoot, and appreciate the warmth of carpet under their feet on cold winter mornings. Carpet is much quieter in the home environment, eliminating the echoing of hard surface flooring. Carpet is still the best value in the marketplace.

Correctly designed and manufactured, carpet can be just as easy to maintain and is extremely durable. When you consider the affordability on an installed basis, carpet consistently emerges as the winner.

Trends in residential and commercial carpet

Carpet ties a whole room together. In the new millennium, pattern looks are becoming more and more the rage. There's also resurgence in the shag and cable looks of years before. Fleck looks also seem to be gaining popularity all over the country.

No matter what the design, consumers are looking for carpet styles that will not only be fashionable, but will perform as well. We have spent the last few years working hard to develop new fiber technologies and product enhancements to cater to both needs. Fibers that show vibrant colors or conversely, subdued colors can give the homeowner the look they may be seeking. Performance characteristics must be integral to the product with the warranties to back them up. The new products offer excellent stain resistance and texture retention, with easier installation and product enhancements to eliminate odors from the home.

Beaulieu Commercial is actively researching new and unique products and has just introduced the Nexterra modular tile backing system. This new system incorporates recycled PET and glass to create a backing with twice the tuft bind of conventional carpet tiles.

Carpet and the environment

We currently use recycled plastic beverage bottles to make PET fiber and, when combined with recycled glass, a modular commercial carpet backing. It took at great deal of hard work and ingenuity to develop these systems.

Our Styled for Living collection has been a steady performer since being introduced in 2002. Styling, quality, value and green technology have all come together in this collection to strike a cord with end users. The price delta between nylon and polyester yarns has increased in past months making both spun and filament PET products the best value for the dollar in the marketplace.

Carpet segment forecast

Carpet will continue to get the nod in rooms where people want soft comfort and warmth. The carpet segment must continue to develop fashionable new products that will not only create a beautiful room, but will be easily maintained. The long term forecast for carpet is bright. As long as people continue to express individual creativeness in their homes, carpet will allow them to enjoy the soft texture and warmth they desire.

The carpet industry is not alone in its challenges in the future. To ensure longevity it needs a constant source of raw materials that can be economically converted to finished products that consumers can afford, continually develop ways to recycle materials that are today destined for the landfill, and bring out innovative products and services.



Anthony Minite

Anthony Minite

President

Bentley Prince Street

Effect of hard surface products on the carpet category

Because of the increase in hard surface products, consumers are more likely to upgrade to higher priced products when they carpet a smaller area in their homes. Plus, carpet compares very favorably to hard surface products when making a purchase. In the commercial arena, we do not see a negative impact on our business due to hard surface products.

Trends in residential and commercial carpet

In the corporate arena, we continue to see sophisticated woven-like looks, including small grid patterns, elegant stripes and new renditions of sisal-like patterns. Multicolor patterns and textures are always popular in many segments and these tend to use more sophisticated combinations of colors, including palettes that have more subtle values and interesting space dyes. Metallic yarns and high luster yarns continue to be popular. Constructions using high luster finishes combined with matte finishes continue to trend upward.

In residential, colors are moving from neutrals to more colorful palettes and arrangements. A trend toward sleek modern contemporary design continues to increase, especially with growth in more urban environments.

Carpet and the environment

Sustainability is an integral part of how we do business, daily. It's a triple bottom line - it is making a profit by being environmentally responsible; it is leaving no footprint; and it is being socially responsible by being fair and respectful.

We offer many programs to support our customers' needs when it comes to sustainability, including Cool Carpet and our ReEntry Reclamation program. Our products are certified to meet the requirements of the Carpet and Rug Institute's (CRI's) Green Label Plus testing protocol. All of our standard broadloom and carpet tile products have received Environmentally Preferable Product Certification from Scientific Certification Systems (SCS).

We are continually searching for improvements to compete successfully in a more environmentally aware marketplace and to be an industry leader in the movement towards sustainable commerce. The company's electrical energy is from renewable sources or otherwise has been offset by purchasing Green Tags to counterbalance GHG emissions.

Carpet segment forecast

We anticipate continued growth for both broadloom and carpet tile in all market segments. We see an upward trend in the high end corporate market, including courthouses, law firms and offices. There is a steady growth in higher education and healthcare, including hospitals and medical office buildings. Steady growth continues in the high end residential category, especially in more urban areas.



Jeff Lorberbaum

Jeff Lorberbaum

Chairman,

President, CEO

Mohawk Industries

Effect of hard surface products on the carpet category

Carpet has been growing at a slower pace than the hard surface category for some time. As consumer preferences change, carpet is being used in conjunction with other surfaces rather than used solely throughout the entire house. It continues to be substantially larger in units and dollars than the other products.

Carpet has more color options, surface textures, patterns and price points than any other product today. The industry must improve in presenting the options and portraying the fashionable value carpet can provide.

Trends in residential and commercial carpet

The industry continues to expand its style offerings of more sophisticated patterns and textures. As the consumer has become more adventurous, the technology has improved to provide more delicate designs in both large and small scale. The residential products continue to move toward soft fibers with more interesting surface textures.

In commercial, the trend is to use carpet tiles in areas other than the corporate sector. The various carpet tile options continue to expand in both styling and price point. Today commercial products have sophisticated patterns with multiple pile heights, textures, and lusters and are durable and easy to maintain.

Carpet and the environment

We have worked to reduce the environmental impact of all carpet products. The new CRI Green Label Plus standard ensures that carpet has the lowest emissions of any interior building product.

During manufacturing, we have drastically reduced emissions in our facilities to very low levels. We continually decrease the energy and the water usage per unit by redesigning the processes. And, we divert millions of pounds of post-industrial waste into useful products from landfills.

We offer hundreds of commercial carpet products which use large amounts of post-industrial and post-consumer content. These products play a large role in satisfying LEED environmental building standards. Mohawk Industries is committed to the environment and continues to invest heavily in environmental solutions for all of our products.

Carpet segment forecast

The carpet industry should continue to grow at about the level of GDP. Recently, the commercial and new residential construction categories have been doing better than the residential redecorating segment. It appears that the consumers in the first half of 2005 were postponing discretionary purchases as gas and energy expenditures have increased and consumer confidence was impacted.

Carpet will continue as the major flooring choice. We need to get better at presenting its style and design attributes to the consumer. In many high-end commercial projects the carpet pattern on the floor creates the design platform for the entire room.

Our retailers have substantially improved the presentation of our products to the consumer over the past ten years. We see this trend continuing which will enhance the experience and perception of carpet in the selection process.



Randy Merritt

Randy Merritt

Executive VP,

Sales & Marketing

Shaw Industries

Effect of hard surface products on the carpet category

Certainly the hard surface category over the past several years has grown at a faster rate than carpet. Frankly, some of this has been due to inflation that has occurred in these surfaces that had not occurred in carpet until 2004 and 2005. The commercial market has emerged from a three-year slump from 2001-2003 and the new construction housing market continues on a record run, the carpet business (through 2004 and into 2005) has been quite strong even in the face of strong hard surface demand.

The differences in the performance and aesthetic attributes of carpet versus a hard surface floor are very clear. While some people want the look of a wood floor or ceramic tile surface, many prefer the soft underfoot feel, the ease of cleaning, and the color and texture carpet adds to a room. And, fortunately for the soft flooring segment, most hard surface floors end up with some sort of rug on the top eventually. Additionally, even given the unprecedented cost increases of the past 18 months, carpet continues to be the best value for the money among the flooring categories.

Trends in residential and commercial carpet

Carpet will always be about color, texture, and pattern. And tastes are always shifting and refining, even on a regional level. That is one thing that makes carpets and rugs so fun and exciting. You can change an entire room with the floor treatment. A consumer has never had a more diverse palette to paint with on their floors!

Commercially the trends are certainly toward carpet tile. The tile business is exploding, and it is no longer just a corporate product but is finding a home in schools, in hospitality, and healthcare. Pattern is at the heart of commercial design today.

Carpet and the environment

Since the early `80s, Shaw has segregated over 60 different post-production waste materials for recycling and reduced/diverted between 75-80 percent of all post-production waste from landfills. Carpet production is material intensive and accounted for almost 2% of solid waste volume in US landfills (about 4.5 billion lbs.) in 2004.

We are committed to cradle-to-cradle return of post-consumer carpet waste to carpet production, again and again. This will require the reduction, reuse, recycling, and ultimately the redesign of carpets.

Recovery and recycling is less costly than virgin raw material production with no sacrifice in performance. The next logical step is adapting the technology to commercial broadloom production. The use of plastics in carpet backing is the key to future recovery value.

Shaw recognizes its responsibility to the recovery and recycling of carpet waste materials at every phase of the carpet life cycle. Our first waste-to-energy Carpet Gasification Unit located in Dalton will be coming online in November 2005, and we'll continue to expand non-carpet recycled uses.

Post-consumer carpet recycling is the new "quality" movement. Innovations engendered by the quest to keep carpets out of landfills, reduce raw material and resource consumption, and maintain performance and competitive pricing are challenges that will transform the carpet industry of the future. Environmental excellence will be a standard business practice.

Carpet segment forecast

The future of the carpet segment is incredible. The demographics of the population favor strong residential business for a long time to come. While we will always have cycles that may affect the business in the short term, over a 15-20 year period, things are bright indeed. People's tastes will change and looks will evolve, but every home and every building will have beautiful floors that enhance the value and the appeal of the property. That will never change, only what goes on them.

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