The year 2006 started with a bang and ended with a fizzle. Eighteen months ago, the industry as a whole was riding a wave of prosperity that carried over from 2005. It continued throughout the first half of 2006 and industry executives across the selling chain were forecasting a record-breaking year in both sales and units sold.
Then, in mid July the industry hit a wall, at least the residential side, as the building market suddenly tanked and consumer spending on replacements and remodels fell with it. Luckily, the commercial sector not only continued the good fortune it inherited from 2005, it maintained and, some would say, even carried the entire industry for the second half of the year.
Mixed results
When the dust settled on 2006, the results were mixed depending on which part of the business you were involved in. Overall industry sales at the manufacturing level rose a miniscule 1.99%, reaching $24.715 billion.
The gain was the smallest the industry has seen since 2001 when the terrorist attacks on 9/11 put a halt to just about all consumer and commercial spending. Discounting that year as an anomaly, one would have to go back more than a generation to see such slow growth. Some industry veterans went so far as to say the second half of ’06 was as bad as they had seen since the recession years in the early 1980s.
Cost of production
In the end, the flooring industry took a step back as the slight boost in sales can be attributed to two main factors. First, most categories had at least one type of price increase in 2006 to help offset the continued rise in raw materials, energy and transportation costs. This was true for all categories, not just those that are highly dependent on oil-based materials. For example, lumber shortages forced certain wood prices to go up. Then there is the added cost to transport the heavier hard surfaces.
As for those dependent on petroleum to make their products, it has been well documented how the cost of a barrel of oil reached previously unchartered heights in 2006—going as high as $75.
In the Organization of the Petroleum Exporting Countries’ (OPEC) December “Monthly Oil Report,” the organization stated, “The current year is likely to be remembered for strong upward price trends.”
In fact, it is estimated the industry’s raw materials, energy and transportation costs rose approximately 7.7% in 2006. So, for example, the 5% to 8% price hike tacked on to numerous products last year were done just to cover the extra costs to produce and deliver them.
While the cost to produce and deliver products was the main culprit for the sales and volume number discrepancy, the second factor is consumers are purchasing more higher-end and low-end goods. The upper tier allows for higher margins on the same amount of goods sold, but the lower end is what eats up those very same profits.
Categorically speaking
Individually, the various flooring categories had their own reason to both smile and be sad. Carpet, which still accounts for nearly 51% of all flooring sales—63% when rugs are factored in—mimicked the overall industry with a slight sales bump (1.2%) and lower units sold (-3.1%) compared to last year. In sales alone, rugs fared a bit better than its softer counterpart, with a 2.7% gain over 2006.
The resilient sector continued its trend of being the hardest hit. In 2006, both sales and square feet recorded the largest decreases of any category, minus 3% and 5.4%, respectively.
For the first time in years, the hardwood category was spotty with overall sales up 2.2%, but total square feet falling 4.3%.
Sales of ceramic and porcelain tile actually surpassed resilient, hitting $2.464 billion compared to $2.377 billion. Compared to 2005, tile grew an impressive 5.1% in sales and 3% in volume.
For the first time since entering the U.S. flooring market in the mid 1990s, sales and production of laminate fell below double-digit growth.
Nonetheless, the category still enjoyed a healthy 8.7% increase in sales.
Thanks to the continue boon in the commercial arena, both sales and units of rubber flooring were up in 2006. Sales for the segment actually topped half a billion with a 4.2% gain, while volume grew 2.9%.
