Shaw's Darrington

Hicksville, N.Y.—It would seem the carpet industry is in a bit of a funk. Despite the myriad of technological advances in fibers, and the award-winning styling and fashion coming from the category in recent years, sales continue to be up mainly because of the numerous price increases manufacturers have had to implement in order to keep up with rising costs.

At the same time, overall units sold remain relatively flat. If this trend continues for the remainder of 2006, it will be the second year in a row that volume was at a near standstill.

Put simply, this means the overall amount of carpet sold is, for the sake of argument, the same as 2004.

It would also mark the second straight year sales figures rose mostly due to the price hikes. When put together it adds up to slim margins and profits that are harder to come by.

If conditions remain as industry experts predict, the segment will see a 5% to 6% rise in sales over last year with shipments running flat to even slightly down by some accounts. This is based on research conducted by Floor Covering News, which showed in 2005, carpet sales increased 7.1% over 2004 to $12.438 billion, following a 9.4% jump over 2003’s figures. At the same time, square footage was up only .4% to 18.37 billion square yards in 2005 compared to 2004, which saw shipments at near zero growth related to 2003.

“There is no doubt that soft flooring has been slightly reduced as a percentage of the square footage of homes in North America,” said Scott Sandlin, vice president of marketing for Shaw Industries. “Spring was very good, but the fall shows some signs of softening, especially in the area of new construction.”

Interesting of note is how things have reversed within carpet. Following 9/11 and up until the second half of last year, it has been the residential market carrying the load. While it still accounts for 55% to 65% of carpet sales depending on how Main Street sales get classified, it has been the commercial segment picking up the slack of late.

“The commercial market is really healthy right now,” Sandlin explained, “definitely outpacing the residential business. We are in a situation that is just the opposite from three to four years ago when commercial had some serious softening.”

While efforts continue to be made to reduce and cut costs from the system, manufacturing expenses—buying the raw materials, producing a roll of carpet and, finally, delivering the product to a retailer—continue to spiral upwards at unprecedented speeds. And none of this takes in the added costs of healthcare and other expenses that have continually risen faster than sales can keep up.

Shipping Costs

In transportation costs alone, “fuel surcharges have it made it 15% to 20% more expensive to ship carpet to just about anywhere in the last year to 15 months,” said Jonathan Cohen, vice president of sales for Stanton Carpet Corp.

Sandlin went back even further: “Our transportation and related costs are up over 50% versus five years ago; they are up double-digits from last year. We are trying everything we can think of to reduce costs while not sacrificing service to our customers.”

He pointed to the company being named a SmartWay partner by the Environmental Protection Agency (EPS) as one way Shaw is trying to reduce fuel costs.

David Duncan, the new vice president of marketing for Mohawk Industries (see story on page one), said, “We continually work on ways to reduce costs. Even with rising energy prices, we have been able to blunt some of the extra expense with more operational efficiency. We recently completed an upgrade of our voice/data network which keeps our factories and distribution in contact with each other. That has made it possible to make adjustments on orders and on production more precisely than ever. This has led to cost savings in many areas.”

Even with these efforts, carpet manufacturers have still had to implement a couple of price hikes this year to keep up. Though, at this point in the year, the overall number of price bumps do not appear as if they will match what has happened over the last two years, when the industry saw an average of eight in a 12-month period. And, while dealers hate receiving word of the latest ones, the majority of increases were passed through.

“If you talk with major end users,” Sandlin noted, “they will tell you that they are getting hit from all directions when it comes to materials, and that over the long haul, we have been very fair to them. Regardless, they fight them because they want to stay competitive. Our commitment is to make sure they will stay competitive with Shaw products.”

More Than One Issue

Fuel and energy costs may be taking up most of all manufacturers’ attention nowadays, but each still has to face other challenges, such as “the continued recruitment of strong people” who are needed as a company grows and expands, Cohen said.

In many cases, though, mills have had to deal with their own unique difficulties. At Shaw, the company has had the task of integrating the businesses from last year’s two highly publicized acquisitions—SI’s backing and Honeywell’s nylon operations. “Our operations and manufacturing teams are excellent at going through this process and we have handled most of this as seamlessly as possible,” Sandlin explained. “Now, we have most of this behind us and are servicing our customers they way they expect Shaw to service them.”

Shaw’s Honeywell acquisition also included the Evergreen recycling facility and “much strategy and investment has been put into our environmental leadership position,” he added. “Our Evergreen facility will be the only one in the world that will allow us to turn carpet back into carpet.”

Along with internal happenings to deal with, carpet companies, which historically have been very charitable, have done even more in light of the natural disasters which struck the U.S. in 2005.

“We have been working with dealers in the Gulf States to help them rebuild and re-establish themselves after Hurricane Katrina,” Duncan noted.

By doing this, he said mills are able to help retailers get back on their feet after going through such a plight. “There have been numerous success stories from this,” he added. “Our Mohawk ColorCenter Dealer of the Year bounced back from having her store totally destroyed in a hurricane two years ago. She even operated out of a tent for a while.”

Good Times Ahead

Still, with everything going on, most believe “we have a significant number of opportunities in front of us that can counteract the negatives,” said Duncan.

“We continue to invest in our future through technology,’ explained Cohen, “to make our company the most efficient possible while enhancing both our products and services.”

As for the products, which manufacturers note are more durable, comfortable and stylish than ever before, consumers still find a high level of appreciation for them, especially at the upper price points.

“There is a continuing trend toward upscale products,” Duncan said. “This has resulted in a significant increase in higher margin sales for our dealers—if they know how to focus on these customers.”

“There is a huge opportunity for the soft side of our business,” Sandlin concluded. “We feel consumers will change the carpet more often and buy a nicer one when they decide to update a room. The consumer really thinks room-by-room and this allows us to reach for new levels of style and design. If we all stay focused on what she is wanting for her home, we can continue to take soft flooring to an entirely different level. It’s not a commodity to her, and we must not treat it like one. The future is as bright as we are willing to make it.”
—Matthew Spieler