Flooring has historically been one of the major barometers in measuring the temperature of the U.S. economy. So while the government finally admitted the U.S. is in a recession and, in fact, has been in one since December 2007, it did not come as any surprise to those in the flooring industry—especially at the mill level—who have been saying this long before a year ago.

That said, it is no secret the past 12 to 24 months have seen some of the toughest business conditions the industry has had to face in more than two decades. And various government statistics are pointing to the next 12 months being more of the same. But since the government seems to be lagging in providing current information as evidenced by the recession call, FCNews surveyed some of the industry’s leading mill executives to get their take on 2008, what they expect for 2009 and what customers can expect to see from them.

Since manufacturers generally have access to the same data they tend to develop similar overriding outlooks and strategies. But, within all the sameness points of difference pop up on how each may see a particular issue or reacts to it.

Based on this, the following is what executives from six of the industry’s largest mills are seeing in their crystal balls.

Rate how 2008 has been with regard to expectations you had coming into the year?

Randy Merritt
President of Shaw Industries
Coming in to 2008 we expected a challenge but not to the degree we have seen. Residential new construction business has continued to deteriorate offset some by relatively consistent multifamily business. Retail really made a step change in mid- September as all the financial news began to come to light and it seemed consumers just locked down. Commercial on the heels of three good years had been the brightest spot but in the last 60 days or so this segment has noticeably slowed.

I think for 2008 the carpet industry will be down 10% to 11% in units and 6% to 7% in dollars. Commercial will be down a little in units and probably close to flat in dollars on the continued strength of carpet tile. Residential markets have faired much worse. Hard surface business is off at least as much as carpet given how much goes in to new construction. Tile and stone, with a stronger base within commercial, may be slightly better.

Tom Lape
President of soft surfaces, Mohawk Residential
With the cyclical nature of carpet industry being what it is, Mohawk is—like the rest of the industry—being negatively impacted by the trends in the marketplace.

2008 has proven to be an extremely challenging year for the carpet industry, especially in the second half. Both units and dollars will obviously be down for the year as a result of the disruptions in U.S. credit markets, their impact on virtually the entire financial system, and most importantly, the resulting impact on consumer confidence.

Bob Leahy
Mohawk Residential’s senior vice president or hard surfaces
We experienced some de-mixing in retail and builder as the year lingered. In spite of the conditions, Mohawk continued investments such as expanding our hardwood assortment with emphasis on domestic and import exotic species. In addition, we continued efforts to improve our productivity via sales training and some restructuring to meet business conditions.

Frank Ready
CEO of Armstrong’s North American Floor Products
2008 was even more challenging than we anticipated. New housing was down over 30% and remodel/replacement was down at least 8% to10%. Even Commercial, which continued to perform very well during the first half, slowed considerably in the third quarter.

In addition, we did not anticipate the level of inflation in PVC and plasticizers. Despite the challenging environment, all was not lost. We continued a string of exciting new products with StrataMax, Grand Illusions Laminate, Wide-Width Solid Hardwood, Handscraped Engineered and Migrations BBT Commercial Tile.

George Kelley
President and CEO of Pergo
While it’s been a very tough retail business environment, overall 2008 has been an improvement year for Pergo. Our ’08 sales growth has outpaced the market, and we are conservatively optimistic about our business into 2009.

We have made great progress since Pfleiderer’s acquisition of Pergo and we are well positioned to compete in North America.

Don Finkell
CEO of Anderson Hardwood Floors
It met our expectations pretty closely. The sales dollars were down a little and the sales units were up so the unit price declined modestly.

Most of this was mixed, as consumers seemed to be purchasing less expensive products.

Gary Finseth
Marketing director, Tarkett Residential
There’s no doubt that 2008 for the industry has been a very tough one due to raw material increases, the general economy and the subsequent affect on slowing home re-sales, the decrease in new construction and overall consumer spending.

That said, in 2008 we’ve seen a significant increase in consumer interest as well as purchases of Tarkett’s Fiber-Floor, thanks in part to its overall performance factors and North American designs.

Besides being less expensive and offering great designs, resilient flooring, like Fiber-Floor, offers the performance consumers prefer for their day-to-day living—warm and comfortable underfoot, water- and moisture-resistant, stands up to scratches, scuffs, stains and indentations, and is easy to maintain.

What do you expect for 2009—on the economic side and with regard to products?

Merritt
On the economic/business side: The overall economy, which continues to be affected by housing issues—foreclosures, home values, available inventory—and the banking/lending crisis—which has diminished the ability of consumers to borrow)—will continue to be challenged through the first half of ’09 at least. It is possible a new administration could provide new energy to stimulate the economy and increase consumer confidence such that the second half of the year could show improvement over the second half of ’08.

With regard to products: Consumers and end-users who are buying today are all looking for value. They expect quality, are willing to trade up, but still want demonstrable value in whatever they buy. Shaw will continue to focus on innovation in all flooring products.

In carpet, we will launch some of our most luxurious styles ever, at great values, which showcase incredible fiber innovation in our Anso Caress, Evertouch Everyday Elegance collection and Clear-Touch collections. These innovations feature our softest, cleanest, most durable, greenest fibers ever.

For example, according to Shaw director of color, style and design, Emily Morrow, the recyclable Anso nylon Savvy Spaces embodies the appealing look of high-end styles that are created to coordinate with exotic hard surfaces. Savvy Spaces is divided into four categories: Luxury, Retreat, Urban and Casual. The collection features a display card in front of each category showcasing complimenting ceramics and hardwoods. The cards aide the consumer in visualizing flooring for her total home and Shaw will continue to inspire the consumer with the total home in mind in 2009.

As Shaw continues on its journey in sustainability, we will also continue seeing greater strides in recycling in 2009. To date, Shaw has recycled over 180 million pounds of nylon 6 and we continue to look for new, innovative uses for post consumer carpet.

In hardwood, Shaw will continue to strengthen the Epic and Grand Canyon offerings with new visuals. In addition you will see exciting innovation in solid wood styling through the combined expertise of the craftsmen at [our] Anderson and Zickgraf [divisions]. The focus will continue to be on the outstanding value of “made in the USA” product.

In tile and stone, Shaw will be introducing several styles containing 40% recycled content, meaning all five of Shaw’s flooring categories provide environmentally friendly solutions.

And, in laminate, Shaw will be introducing a revolutionary technology that provides an incredibly realistic high-gloss, clear finish called Luminere, plus exciting new rustic and handscraped visuals.

Lape
We anticipate a softer first half of the year, giving way to retail improvement due to enhanced consumer confidence and a bottoming of the builder market as we move out of the third quarter.

There is a good chance of some industry consolidation due to economic stress across the flooring industry.

Unemployment could reach levels of 9% or more by late spring ’09.

Ready
2009 will be another challenging year from a market perspective. Residential new construction will be down another 20% to 25%. Remodel/replacement will be down 8% to 10%. Commercial will be hard hit as well, down an estimated 7% to 8%. Unfortunately, we can’t control the market. Our focus will remain on things we can control— product, quality and service.

Armstrong will launch even more products in 2009 than we did in 2008. We also will invest in domestic glass manufacturing that will improve capability as well as service.

We will make investments in hardwood that will continue to improve quality and solidify our leadership position. We will maintain our investment in consumer advertising. Lastly, we will invest in merchandising and programs that drive demand for our customers.

Kelley
Hopefully in 2009, we will see an overall improved business climate as we move through the year due to the new administration and various government stimulus programs.

In terms of product, we believe innovations will continue in laminate flooring and the category will become increasingly attractive to the consumer. New improvements in design, performance and distribution will continue to grow laminate’s overall share of the North American flooring market.

Finseth
The overall economy remains a concern for everyone, but we remain convinced consumers are looking for performance, value and practicality in their flooring selections and they will consider resilient and laminate as attractive options.

In 2008 Tarkett introduced its North American Display Laminate collections, high-performance flooring designed specifically for the North American consumer, while providing retailers with superior products, service and delivery schedules and marketing support.

Besides housing, what are the other biggest challenges?

Merritt
Consumer confidence continues to be a significant issue as is their ability to borrow for remodeling, for investment, or for that new home. Commercial consumers today are demonstrating that same concern. We need people back in the market and feeling good about investing in projects.

Specific to carpet, we need to all do a better job of helping the consumer understand its real value. This extends beyond just the monetary value of soft flooring to include the comfort and feel within the home and the impact carpet has on the indoor environment—from its positive insulating properties to its ability to contribute positively to indoor air quality.

On the hardwood front, there is much discussion surrounding the Lacey Act and how it can impact everyone within the supply chain. We have taken, and will continue to take, steps to ensure the wood flooring we purchase has been delivered to us legally and ethically.

To date, we have discontinued our merabu products in all lines. We plan to take further meaningful steps to do what is right in this regard.

Shaw is committed to delivering unquestioned quality, beautiful and legally sourced wood flooring. And we will focus on domestic species, made in the USA, with innovative visuals like Anderson’s exciting new Exotic Impressions.

Due to the costs associated with importing, it will be a continued challenge in tile to bring the best monetary value to the consumer while also offering her the best in style and design. At Shaw, we’re not going to sacrifice quality in any category. We’re continuing to work on refining the supply chain to bring both quality and value to this segment.

Lape
Outside of the general economic conditions, challenges in specific areas include hardwood with the CARB requirements and Lacey Act, though Mohawk is well positioned on both initiatives. A softer hardwood market may drive positioning for market share amongst key manufacturers.

In laminate, the market is challenged with over capacity due to slower retail activity and an emerging pattern of higher styled products from Asian manufacturers at value price points.

In ceramic, the market is experiencing some stress due to the softening marketplace and currency fluctuations with imports.

In resilient, the market has been adjusting to fluctuations in raw material prices. As the economy wanes, resilient continues to be an attractive optionas a value oriented category.

Ready
The biggest challenge is focusing on what we can control. It’s very easy to get lost in all the bad economic news. Every business has things it can do better. Improvements made today will pay back many times when the market gets better. Keeping the proper perspective is critical.

Specific to hardwood, the Lacey Act will have a significant impact on imports into the U.S. Lacey, which is over 100 years old, was originally created to protect endangered wildlife and fish. In May, Congress passed broad amendments in an effort to combat illegal logging. These subject violators to severe criminal and civil penalties, which may include imprisonment.

The legislation provides that individuals and companies shall not “import, export, transport, sell, receive, acquire or purchase” any plant (including wood and wood products) that has been illegally removed from its place of origin. It applies to all species of wood.

Armstrong has taken the necessary steps to respond to this legislation. We support Congress’ efforts to end illegal logging. Long before this legislation was enacted, Armstrong had in place purchasing policies that require suppliers to comply with all laws in the country of origin and which prohibit importation from countries identified as unreliable sources of legal lumber.

We partnered with the Tropical Forest Foundation (TFF) two years ago to improve third-party verification of our overseas lumber supply. Beyond this, we are now taking additional steps to ensure compliance with the Act. We are reevaluating our supplier relations, redesigning our contracts, implementing supplier questionnaires and focusing our supplier compliance efforts with the assistance of the TFF.

Armstrong is committed to sustainability and protection of the environment. To that end, we have assigned resources to exercise diligence in ensuring the products we provide to our customers have been secured only through legal means.

Customers need to be confident in their choice of a supplier. This includes distributors who are not exempt from the Lacey Act. Distributors who source directly from overseas need to be sure the logs are legally harvested.

In the end, these imported species will still be available, although supply and price may be impacted.

Kelley
Two of the biggest challenges for laminate flooring are improved cost control and becoming increasingly relevant to the consumer in terms of benefits, value and messaging. Price alone will not be the deciding factor for the consumer, retailer or manufacturer.

Finkell
The Lacey Act is going to be a game changer for all imported wood products not just flooring. It will benefit domestic producers, independent distributors, and specialty retailers at the expense of big box stores and non traditional direct to consumer sellers.

Accordingly to the ITC report, 50% of the wood flooring sold in America is imported and over 20% of that is from illegal sources.

At Anderson we are confident that our few imported products are legally sourced.

Finseth
Significant challenges in both the resilient and laminate markets will be import shipping and transportation costs as well as turnaround time, along with recognition of what the North American market is really looking for, from a style perspective.

One advantage Tarkett has is our resilient products are “imported” from Canada. We find the proximity to our distributors and emphasis on new North American designs both reasons for positive results in this year and in the future.

Same holds true for our laminates; created by our North American design team and all manufactured at the company’s new state- of-the-art facility in Clarion, Pa. It is strategically located to utilize only the best cherry and oak chips from more than 200 area sawmills and this results in a better carbon footprint.

—Matthew Spieler