Article Number : 1652 |
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| Date | 1/15/2007 7:56:52 AM |
| Written By | LGM & Associates Technical Flooring Services |
| View this article at: | //floorbiz.com/BizResources/NPViewArticle.asp?ArticleID=1652 |
| Abstract | Hicksville, N.Y.—Despite a myriad of factors pulling profits from all levels and sectors last year, 2005 was, by most accounts, good for the floor covering industry... |
| Article | Hicksville, N.Y.—Despite a myriad of factors pulling profits from all levels and sectors last year, 2005 was, by most accounts, good for the floor covering industry. Devastating hurricanes and other disasters; soaring oil costs causing increases in energy, transportation and raw materials; supply shortages; increased foreign competition, etc., were all present last year and caused companies to buckle down and come up with new ways of running their businesses more effectively and efficiently. Yet, there were a number of positive factors—the overall economy stayed positive and grew a respectable 3.5%; housing, though having slowed from its record highs, still remained robust; interest rates were still low; the average house in the U.S. not only continued to grow in value but size, and the commercial industry, especially the corporate segment, came on strong—which spurred end users to buy record levels of flooring. So what does all this mean? In terms of dollars, industry sales at the manufacturing level in 2005 were $24.232 billion, a healthy 9.1% over the $22.211 billion in 2004. While some categories, such as resilient, barely made it to the positive side—a 0.2% gain—others, like laminate, continued to soar with sales 15.2% stronger. Even the carpet segment saw better-than-normal sales—7.1% higher than last year. While sales figures were strong, in the final analysis end users purchased roughly the same amount of square footage as they did in 2004—27.15 billion square feet compared to 26.72 billion square feet last year, a mere gain of .016%. Carpet and rugs were essentially flat, with an increase of 0.4%—and that was mostly attributed to gains in area rugs, otherwise the category would have been flat. Resilient was the only segment that finished on the negative side, though barely, at -0.7%. This year, sales and square footage of rubber flooring were calculated separately from resilient as its market share approaches 2% of industry sales. If put back into resilient, the category’s unit volume would have been a hair on the positive side. So, what allowed sales to rise at such a healthy rate yet overall units remained flat? And, what does that mean for the industry? Both answers are simple—price hikes and harder-to-come-by profits. First, dollar gains can mostly be attributed to the multitude of price increases imposed upon the industry throughout 2005, especially on the carpet side. Many people with whom FCNews spoke lamented on the fact that the cost for just coming in and opening the business in the morning has doubled and even tripled compared to just two years ago. Electric, heat, air conditioning and basic supplies—such as pens and notebooks—have all gone up and each extra expense eats into the bottom line. So when the price to have these things starts to dramatically climb, profits start to come down. To counter that, prices need to be raised to at least offset the increased costs. But unless more goods and services are sold, this combination of higher costs and not high enough price increases results in profit margins shrinking. |