It is no secret the economy and the flooring industry have a great deal in common. Many of the key indicators people look at to evaluate how the economy is doing are the same or similar to those used to determine and predict how the industry will do in the near and, to some extent, distant future.
And, it is no secret that in general the economy is slowly pushing its way out of the bog it tumbled into six-plus years ago. Yes, there are spots in the country where the economy is booming and, yes, there are places where you wouldn’t know the recession is technically over. And then there is the majority of the country where things are steadily improving, albeit not as fast as many would like, but improving nonetheless.
While the economy is still “tender” as one retailer put it, the flooring industry, at least on the residential side, is sending strong signals it is ahead of the economic curve. At the recent Flooring America and Carpet One conventions it was clear to see the enthusiasm. Many noted how the first quarter was good and, unlike previous years, where things would start to go south come April, the reverse happened this year and the second quarter was actually stronger.
From a bird’s eye view the needle is pointed up—not at the angle it was during the peak years of 2005 and 2006, but nonetheless up.
And here is a secret many manufacturers and others are trying to get out: That needle is going to remain pointed up because as much as the economy is a gauge for business, when it comes to flooring, there are more important indicators.
As Vance Bell, CEO of Shaw Industries, told over 1,000 Shaw Flooring Network retailers earlier this year, “the only real driver is housing,” noting there is a 95% correlation with new home completions—not starts. A start is one thing, but the floor does not go in until the very end, so housing completions are a much better indicator on predicting the industry. The same holds true for net residential investment, in which there is a 98% correlation between it and the industry. And, right now, both are projected to increase, possibly for the rest of the decade.
Now mix in all the foreclosures and the drop in home construction during the recession and the housing inventory is at a 30-year low. Throw in the fact the country’s population continues to grow—between 1990 and 2010 it grew 22.5%, and this year, it is estimated to grow 2.5%. Then there are household formations, which following heavy declines during the recession, are back on the rise and even surpassing historical averages.
These are all people who will be looking to buy homes—new or used. Add in the fact mortgages remain at historically low rates, and the flooring industry wins: A new home means flooring was put in, and one of the first things people do when they move into an existing home is replace the floors.
The point: Stop listing to the talking heads on cable TV and be prepared—the fall selling season is upon us. More businesses fail on the upswing than down so don’t get caught off guard when people start entering your stores—if they haven’t already. Now more than ever you need to make sure you have a clean, consumer-friendly store with professional salespeople and properly trained installers.
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