By Steven Feldman
SAN DIEGO—Against the backdrop of the first positive sales trajectory since the beginning of the Great Recession, the National Wood Flooring Association’s 26th annual convention focused on just that: How to take advantage of a reviving economy.
To put things in perspective, sales of hardwood flooring increased a little more than 2% in 2010 with a forecast of 3% for 2011, according to Ed Korczak, executive director and CEO, NWFA. In terms of square footage, he believes the industry could be up as much as 5% this year. Of course, that’s completely attributed to remodeling work, which will be driving the category for at least the next two years.
“The gurus say we are not going to see much in the way of new home starts until 2013 or 2014. Until that time our members have to focus on remodeling and bringing in a greater variety of product. It’s not just oak anymore. It’s cork, bamboo and different treatments like darker have to make this work to our advantage. If she is not going to buy a new home, then she has pent-up demand to fix up her current home.”
The key component of gaining ground in an improving economy, Korczak said, is by going back to basics. That includes a focus on advertising, marketing, customer service and delivering a good product. “You have to manage your company based on much lower sales expectations as compared to the mid 2000s. The good old days are not coming back. It’s a new economy, but you can still make a profit if you construct your company with the reality of the market.”
While NWFA members can help themselves by focusing on the basics, the organization is seeking to help its constituents by attempting to increase consumer demand for wood flooring as an environmentally responsible product.
That will be accomplished via NWFA’s Responsible Procurement Program (RPP), which is designed to identify which flooring products are made from legally logged wood from U.S. renewing forests. On the import side, the program will offer verification that a product was imported in compliance with the Lacey Act.
“The concept of green is not going away,” Korczak said. “Consumer demand for environmentally responsible products will continue to grow. We do not necessarily believe the consumer will pay more for a green product, but she will show a preference for these products. And because our product comes from such a visible resource, we need to serve as an outside third party that can assure the consumer the forest will be there for her children and grandchildren.”
Speaking of compliance, Korczak believes the wood flooring industry has been doing very well with the Lacey Act, working closely with many environmental associations to assist members in verifying the legal logging of their imported products. “We’ve also been working very closely with the Environmental Protection Agency and Department of Commerce to better define the terms of due diligence as it relates to the import of legal product.”
One byproduct of the Lacey Act has been the reduction of certain species being brought into the U.S., like merbau and mahogany. In that same vein, more domestic wood is being sold today than in years past.
One of the immediate goals is to increase participation in the RPP initiative. Five manufacturers are currently involved— Anderson, Mannington, Mullican, Sheoga and Augusta—with Johnson Premium and Cikel in the process.
To attract more manufacturers, the NWFA has modified the RPP to make the audit process less complicated. Previously, NWFA required the manufacturer to follow strict controlled standards as defined by the Forest Stewardship Council. But the definition of controlled wood was recently modified so it no longer fit the program, Korczak said. “We have simplified the audit process so our manufacturers can identify their source of raw materials in three levels: a known renewing source, an FSC forest or an unknown source. The ‘unknown source’ products would not be RPP certified. Each manufacturer would be required over a three-year period to eliminate sourcing from unknown areas.”
In addition, to make RPP participation more attractive, NWFA has built a strong marketing arm into the program to promote it to the consumer and A&D community. “Creating a demand for RPP further rewards those companies that have earned that status.”
Weighing in on ITC ruling
The recent Department of Commerce (DOC) affirmative preliminary determination in the countervailing duty (CVD) investigation of imports of multilayered [engineered] wood flooring from China had both sides proclaiming victory (FCNews, April 4/11). All along, NWFA has taken a neutral position given a membership that encompasses 52 countries. Korczak did, however, laud the many Chinese companies that cooperated with the DOC so “it could make a prudent ruling.”
However, he believes the ruling set to come down later this month on the dumping charge will be most interesting. “It is interesting to see the different reactions with some companies having moved their facilities to Russia, some companies finding sourcing in Viet Nam and two or three manufacturers planning to start up domestic production of engineered wood floors. In time you may see a Chinese manufacturer open up a production facility in the states. So what has happened is a reshaping of a portion of the industry to meet consumer demand.”
Judging from the reaction of wood flooring manufacturers, Korczak is of the belief some sort of increased tariff will result from the dumping charge. “What that amount will be is anyone’s guess. But as prudent businessmen, each company is finding alternative sources to cover its requirements.”
He also believes if the tariff increases 150%, many domestic manufacturers will find it financially responsible to produce engineered wood floors domestically rather than source. As an analogy, he pointed to the oil industry. “We have a lot of oil in the U.S., but it costs too much money to bring it up. But if oil reaches $150 a barrel, at that point it is financially significant for the U.S. to produce its own oil.”
A high tariff will also impact demand for the product as the lower tier of hardwood consumers will be lost by raising the bar on the minimum affordability level. “Increased prices to the consumer will result,” he said. “No matter how the manufacturer responds, its costs will increase, whether it produces domestically or sources from another supplier in a country other than China. That will take a percentage or so out of the market, but this has always been a higher-cost flooring with a strong cost-value relationship. So while it may impede our growth, it allows us better control of our natural resources.”
Odds and ends
• Attendance at this convention was on par with last year’s event in Baltimore, which to an extent is disappointing, Korczak said. “We were hoping for a 2% to 3% increase, which would coincide with the growth in business. But that growth did not happen on the West Coast, which is still experiencing declining real estate values. Plus, we have always experienced lesser attendance with our West Coast events.”
• With Korczak calling it quits at the end of the year, this convention served as the coming out party for his replacement, Michael Martin. What does he bring to the organization? “Michael will bring us into more technology in the distribution of our products and services, both to the general consumer and A&D community,” Korczak said. “The next generation will be our buyers, so we have to get in that mode right now. I believe Michael will bring us there: social media, Google advertising, allowing our members to have the opportunity to be listed regionally, designing web pages for members that allows them to link to all the industry information, and assistance in job costing and accounting through a national web site.”
• With the USGBC failing to open up its wood credit for LEED beyond FSC-certified wood after months of debate, Korczak believes the system does need some alterations. “I think USGBC needs to more realistically define the requirements for wood to earn LEED credits. No other product in LEED—plastic, concrete, steel —are held to the same high, unrealistic standards as wood. They seem to be focusing on wood as being a negative environmental product so we are guilty before being proven innocent. Other products that use more fossil fuel and carbon end up in the landfill at the end of its useful life, and they are not measured to the same standard as wood. The USGBC should get away from FSC and SFI. It should say the speed limit is 70 miles an hour, not as fast as a Dodge can go.”