But on the flip side, industry leaders say there are finding pricing pressures every where they turn. Apart from a nagging shortage of raw material like risen, increases in the price of oil have been a body blow to installers and anyone else who has to stay mobile to stay in business. On top of that is a wave of off-shore suppliers that are elbowing their way in to with aggressive pricing strategies. Most notably, Chinese-importers have quickly become a major factor in the flooring industry over the past few years, and nearly everyone expects their influence on pricing and product will steadily grow.
The executives who agreed to participate this year in NFT's annual CEO Viewpoint were asked five questions pertaining to various issues:
State of the Industry: How would you access the current state of the flooring industry and what do you see as the biggest challenges and the biggest opportunities moving forward?
Price increases: Over the past several months, we have seen a number of manufacturers raise prices due to a scarcity of raw materials and increased fuel costs. Do you anticipate further price increases and what impact will they have?
Housing effect: Housing sales have increased significantly and we have seen continual growth in home improvement, how have these factors affected the flooring business?
Educating consumers: Is the flooring industry doing enough to educate consumers about the numerous options now available for their floor? What should be done (by either retailers or manufacturers) that isn't being done?
What would you change: If you had the power to change the industry, what areas or concerns would you focus on first?
Don Finkell
President/CEO
Anderson Hardwood
State of the Industry
We are still enjoying the effects of lower interest rates and there has also been a natural return to hearth and home. People may not feel as comfortable traveling these days and are deciding to spend more money on their home. They spend more time around the house and pretty soon they start looking at it and say this place could use a little help.
A major challenge is interest rates. There is a lot of pressure for them to go up and I think they will go up. Also the budget deficit worries me. We are over spending and borrowing against the future. And our trade imbalance with China is alarming. I am also concerned about the de-forestation of South East Asia. There are wood floors and other wood products coming out of there made out of illegally harvested timber. It is difficult for manufacturers to know where the wood is coming from but you have a responsibility to do some due diligence.
Price increases
We haven't really had price increases and we don't anticipate any. We have an advantage because wood is a renewable resources that grows back and there are more trees growing in America than there were 100 years ago. So we are not seeing the kind of pressure on raw materials that someone making carpet out of synthetics is feeling. We do have a lot competition coming in from China. That will have a stabilizing effect on prices. It is difficult for people to raise prices in an environment like this. Wood, relative to carpet and sheet vinyl, is more expensive but the difference is going to be less and less over time.
Housing effect
There is this whole focus on the home, especially among baby boom women. Decorating their home is more like a hobby than a necessity. It is the difference between cutting grass and gardening. We are seeing a whole generation of women who are becoming gardeners not just grass cutters. What it does it gives a big opportunity for companies focused on style. It also makes the higher end more viable.
Educating consumers
It used to be that there was a certain preconception about what wood was. Now you have all kinds of things that fit that bill. I am on the board of two organizations-the National Wood Flooring Association and the Hardwood, Plywood and Veneer Association-that have worked to establish standards. Right now the standard is understandable to us, but it is difficult for someone who is not in the business. We are saying, okay let's take this and put it in the consumer's language so a salesperson can explain to them the ramifications of one wood floor versus another. It is a way to educate consumers about how wood performs, where it came from and how responsibly was it harvested.
What would you change?
I feel pretty good about the industry. It is very entrepreneurial. We have a lot of family businesses and dealers who are multi generational.
Certainly I think the more professional the installer the happier the consumers will be. No one wins when a consumer is unhappy with what she paid for. I support the NWFA's efforts to train the installer in its certified installer program.
Frank Ready
President/CEO,
North American
Floors Armstrong
State of the Industry
The current state of the flooring industry is extremely positive. Look at it from the fundamentals of demographics: record new home sales are putting more housing stock in place. Existing housing stock is at a point where folks are going to continue to remodel and change out products including flooring. You look at the demographics of the population; you've got the large baby boom group with a lot of money and looking to spend it. You're going to have bumps along the way in terms of the commercial market maybe soft for a quarter or this may be soft for a quarter. But when it's all said and done, the fundamentals of demand for the flooring industry speak to a very positive future.
The challenge starts with manufacturers and goes all the way through to retailers and that involves selling the value of products versus volume of products. What I mean by that is there's a tendency in this industry to go to the lowest common denominator and squeeze the profit out of the product for everybody. This industry has a tremendous opportunity to sell value and offer the consumer a chance to trade-up.
Price increases
There's been escalating prices on raw materials used in the resilient business for the last year but passing along the increases has been very, very difficult. I think it's imperative that everybody ask how we, as an industry, can deal with the raw material situation. We must either take cost out or pass cost along in a responsible way to keep things in balance for manufacturer down through the ultimate customer.
Housing effect
It's had a positive effect on the flooring business and will continue to do so going forward. But the growth is coming in very different ways. Wood is growing very strongly. Laminate is growing very strongly. Ceramic is growing very strongly. Carpet is basically flat. Vinyl is declining. It hasn't been uniform growth across all product categories. We're seeing this terrific market but we're also seeing a change in preference.
No question, the new construction market is going to cool off. But I think it's going to cool off to levels that we'd all look at (compared to ten years ago) and still feel very good.
Educating consumers
Not enough is being done by the industry to educate consumers. It's got to start with manufacturers. Our job and part of our responsibility is to better educate that consumer on products before they visit a store. That can be done through advertising, the web or literature sent based on calls to a toll-free number. This way when they walk into a store, the retailer's job is easier.
What would you change?
Create consistency of experience for consumers who want to buy a floor. So many times we talk to consumers in focus groups and they say they go into one store where products are presented the right way, the salespeople are helpful and knowledgeable about estimating and installation. But then, we'll talk to another consumer who went to a store and had the experience from hell. What that does is prolong the shopping and purchasing decision process. So if I could wave a magic wand, it would be that every consumer can go in and get consistent, great product knowledge, service and after-sale care.
David Lauzon,
President/CEO
Lauzon
State of the Industry
The flooring industry is experiencing major changes. Hard surfaces are gaining momentum and globalization is creating major changes in manufacturing and distribution. The hardwood flooring market is growing and will continue to do so for the next 8 to 10 years. Still, the industry is offering product in excess of what is actually needed and a great number of products are being imported at very competitive prices.
The challenges include the quality and accessibility of raw materials. Our ability to use raw materials to their maximum potential will define our fundamental values. And this is why we own saw mills and secure cutting rights over many years. We are faced with exotic species originating from countries which are non- regulated with regard to environment, reforestation or cutting regulations. There is illegal logging in underdeveloped countries as well as timber theft and smuggling. No respectable industry wants to be associated with this type of activity.
As for opportunities, the hardwood flooring market will be growing for many years to come. Consumers are very excited by the variety of species, widths, gradings, colors and installation choices. Consumers are ready to invest more money in their residences and in higher quality flooring.
Price increases
As a manufacturer, we have to keep finding new ways to improve our products and reduce our costs. We have to invest in R&D, automation and management systems. We need to have full control on our costs because margins are being pressured downward. Still, consumers don't buy strictly on price. They will pay a premium for a superior quality product. Nevertheless, price increases will certainly open doors to alternative products like laminates and products that offer faster and/or cheaper installation. The more intense the competition, the more pressure on price over time.
Housing effect
Home construction has accelerated the demand for all floor covering products including hardwood. But many new homes have carpet products or laminates because they exceeded the budget during construction.
We feel prefinished hardwood flooring is an ideal product for renovations. So while we believe new home construction will slow over the next few years, remodeling will create many more opportunities for prefinished hardwood.
Educating consumers
Over the years we have seen great improvements made by the floor covering industry. Today, with the help of the Internet, consumers are more educated prior to visiting a floor covering store. This has compelled many in the industry to react. Manufacturers, distributors and retailers have worked to develop marketing tools, installation training seminars, technical publications and other supports.
They may have come late but have done a good job. For us, our strategy is to use differentiation and "high end" positioning to develop a niche market. Consequently we develop training, sales and installation specific support. We feel it differentiates ourselves in the hardwood flooring industry.
We would like to see more advertising and education on wood flooring that stresses the beauty and value investment of genuine hardwood flooring and reminds people that it is a renewable and environment friendly resource. This would help all the industry overall. As a manufacturer we invested millions in marketing and advertising for hardwood flooring, but still a lot more could be done.
What would you change?
Apart from education on hardwood flooring for retailers, salespeople, and installers, installation is still an issue. We can make superior products and develop marketing tools but if the product is installed wrong or is poorly handled, a lot of the value added into the product during the manufacturing process is diluted.
Nick DiTempora
President and CEO
MAPEI
State of the Industry
The flooring industry seems to be in a very good state of health at this time. Flooring producers are making thinner materials such as wood and stone veneers to cut costs and improve efficiency. These thinner materials are a challenge for those of us in setting materials industry. We must work harder and harder to develop products to accommodate these new floors.
The biggest challenge today is coming up with innovations that address these new trends, especially in wood, stone and ceramic. This is why 12 percent of our staff and 5 percent of our revenues are devoted to advancing the technology behind the products we produce. I feel strongly that the biggest opportunities in the future are for the companies that are on the leading edge of research, because innovation is the key word for success today and tomorrow.
Prices increases
Unfortunately, it is a fact that there has been a decline in the availability of raw materials. Whether the basis for this shortage is well founded or not, there is a scarcity of resources. Manufacturers are doubly affected, not only by the extra fuel costs for transportation but also because many of our raw materials are petroleum-based.
I do anticipate that there will be price increases. We have seen increases of over 150 percent on some key raw materials we buy. Regrettably, we have no alternative but to start passing on these increases. This is an industry-wide problem. Our customers and their customers will be facing these increases over the short term and possibly longer.
We do work to keep costs down through innovation. For example, our Ultralite Mortar offers double the coverage of a regular thinset mortar. That means 100 percent more coverage per pound than traditional thinset mortars. We also are investing in manufacturing facilities because we recognized that we cannot ship more than 400 miles and stay competitive. That is one of the reasons we have 14 strategically located plants in the Americas to serve the major markets.
Housing effect
The increase in housing sales is a key reason for the increased sales of tile, stone and wood. New housing starts are certainly going to account for a lot of the square footage that we are trying to cover with our products.
This is why we added BioBlock to many of our premium floor covering adhesives. It's an antimicrobial technology that inhibits the growth of odor- and stain-causing mold, mildew and bacteria.
Educating consumers
Whether it is a do-it-yourselfer renovating his kitchen or a commercial building owner having flooring installed in a high-rise building, we try to play a large role in education. We believe an educated consumer is the best possible customer anyone could have.
What would you change?
We are already seeing a welcome change in the floor-setting materials industry. Over the past few years, there has been a trend away from the companies that do not provide technical support or have quality control procedures. Consumers, contractors, installers and architectural specifiers need companies they can depend on. As these questionable companies exit the market, it improves conditions for everyone by producing a more honest, competitive industry.
Tom Davis
CEO
Mannington Mills
State of the Industry
The industry has been relatively healthy, especially from a sales perspective. The biggest challenge has been the tremendous increase in costs across the board, led by raw materials and energy. I feel our biggest opportunity for the industry in general is to do a better job of establishing the value of our products with consumers. Flooring is one of the best buys in America, and because we have not properly established its value, it is becoming a smaller percentage of the overall cost of a home.
Price increases
The raw material and energy scene is difficult to predict. It appears that the increases are easing a bit in the short term, but if China's economy continues to expand at its current rate, pressures on energy and raw materials will be with us for some time.
Housing effect
The housing boom continues to have a very positive influence on the sales of all building materials, including flooring, and should for the foreseeable future. The demographics in North America are really working in our favor.
Educating consumers
The options available today are extremely broad, and growing. It's difficult for those of us in the industry to keep up, so I know it must be very difficult for consumers. I think it comes down to trusting in both the brand of flooring they're buying, and in the retailer who they are purchasing from.
What would you change?
I'd like to see the industry place more emphasis on creating value for the consumer, rather than being so price-driven. In that respect, we're our own worst enemies.
Pierre Thabet
President/CEO
Mirage/Boa-Franc
State of the Industry
The industry is more challenging than ever due to domestic overproduction and a big surge in imports. These factors place a great deal of pressure on prices and dilute the market.
Price increases
Price increases are no longer happening. But we have seen some significant price decreases led by imports and domestic manufacturers. Lumber prices have come down, but not enough to justify the decreases we have seen in flooring prices. Consumers are benefiting in the short term, but most manufacturers will suffer repercussions over the long haul and some may go out of business.
Housing effect
We expect new construction to slowdown, but are seeing a rise in remodeling which will help to compensate any losses we might experience. The growth of the wood flooring industry should continue at a rate of 2 to 5 percent, which is smaller than what we have seen in the past. This will continue to create turmoil in the industry.
Educating consumers
Some companies are doing a great job educating consumers and some are simply "riding the wave," which could affect our long-term success. Wood is a product of nature and a good understanding of its characteristics will ensure better consumer satisfaction. If retailers and manufacturers act responsibly and offer high quality products at a good value to the consumer, the entire industry will benefit.
What would you change?
We would like to see the supply chain work to better understand the complexities of wood floors and sell it on its merit, not on price. In addition, we need improved training programs for sales people and installers, etc. Wood flooring was near extinction in the early 80s because of low quality and lack of focus. The industry has grown steadily over the last 20 years but we must continue to improve if we want to continue this trend. Our true competition is other types of floor coverings, not other wood flooring manufacturers.
Let's not destroy our industry with poorly performing products. Remember, poor product costs the same, if not more, to install than a good product. If the consumer has a bad experience, they may develop negative perceptions of the wood flooring industry as a whole. It's important to remember that every player in the industry impacts the thoughts and opinions of the end user.
Jan Lembregts
President
Tarkett Residential
State of the industry
Flooring is definitely in a growth phase due to the healthy building/remodeling industry. Concurrently, consumers are demanding more choice. You must offer a wide range of style choices and products that address functional needs to stay competitive. Dealers and distributors need support and education on product benefits and how best to sell. Displays need to be informative, dynamic and very user-friendly. You have to get the customer's attention immediately and hold it.
At the same time, the unprecedented growth in the cost of raw materials, energy and transportation had a significant impact on the business last year, making the task of remaining competitive quite demanding. Of critical importance is the need to continue educating consumers about the high quality, performance and design advantages of today's sheet vinyl products. While as an industry we have made significant strides in changing perceptions about resilient flooring, we must continue burnishing the image of the category.
Price increases
Any price increases will be completely dependent on raw material and energy costs. However, it is important to note that rising production costs are having an impact on all product categories right now.
We are confident that consumers realize that any increases they may see are strictly a result of the current economic environment. This phenomenon is not unique to the flooring industry; production costs are increasing for all manufacturers.
Housing effect
Of course the strong housing economy is good news for the flooring industry as an increase in new construction continues to have a positive impact on our business. The remodeling market continues to be strong as well as consumers continue to look for ways to improve and upgrade their homes. Consumers want to personalize their homes and this desire drives demand for improvements like floors.
Educating consumers
The key to igniting consumer interest in resilient flooring is through education and the industry needs to do a better job communicating the unique selling propositions of resilient flooring. That's why we have a variety of on-site and at-the-mill training programs for our distributors. Armed with more knowledge they become the trainers for the retail owner and their sales force, who in turn become the ambassadors.
What would you change?
In general, our industry needs to continue to focus on the needs and desires of the consumer and work with dealers and distributors to meet these needs.
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