Mirage’s Sweet Memories collection, shown here in its newest stain, Earl Grey.

By Louis Iannaco
Following several years of unprecedented growth, the hardwood flooring category, with a couple of exceptions, continues to feel the affects of the downturn in the housing market as sales were reported as “flat” or “down” by several executives who spoke to FCNews. However, most agreed that a recovery is on the way, which should fuel more positive numbers for the second half of 2007.

“The first quarter of this year is down 5% to 8% from the first quarter of 2006,” said Ed Korczak, executive director of the National Wood Flooring Association ( NWFA). “But we anticipate a recovery in the third and fourth quarters [of 2007], due in part to the fact that, by that time, it has been predicted that the Federal Reserve Board will reduce the interest rates again. I believe this will turn home starts numbers back up.

“The biggest problem with home starts has not necessarily just been the interest rates,” he explained, “but we’ve had many mortgage companies that were lending money below prime. And many of them have gotten into serious trouble this year. But that’s all going to clear itself up by the third or fourth quarter, and we will see the home starts going back up again. And, with the interest rates coming down slightly, we will start to see the home remodeling and improvement going back up again as well.”

Kim Holm, president, residential business, Mannington Mills, agreed, noting the company was down 5% to 15% from 2006, depending on product category. “This is about what we expected considering the challenges in the current new home construction environment. The very upper end and lower end of the lines did well. Categories that were up were the exotics and rustics, both of which continue to perform well. The builder products had a good year, as always. It was the meat and potatoes part of the business, the more traditional oaks and maples, that suffered the worst.”

David Wilkerson, vice president of marketing, hard surfaces division for Shaw Industries, was more positive. “We showed reasonably strong growth for the first quarter but found overall market conditions to be very sluggish. The builder market was particularly weak relative to the same period last year.”

As Frank Ready, president and CEO of Armstrong Floor Products, North America, stated, market conditions are tough. “The state of the new construction market has been well publicized. In addition, retail activity is spotty at best. Fortunately, we have been able to anticipate and plan for a challenging year.”

Armstrong, which has taken the obvious steps to reduce spending, is also viewing this period as a great opportunity to help its customers grow their business during tough times. “We will continue to bring differentiated products to the market,” Ready added. “In addition, we will increase our advertising of hardwood to include television in 2007.”

Anderson Hardwood Floors was one of a couple exceptions when it came to the industry’s early numbers, finishing ahead of the same period the prior year. “The first quarter of 2007 exceeded our expectations,” said Jeff Sills, COO. “Much to our surprise, our order entry was 4% ahead of 2006. This was due, we believe, to some of the new handscraped products we came out with at different price points in the market, including one that is more of a Main Street price point instead of just being at the high end. The response to these products has been unbelievable.”

Luc Robitaille, vice president of marketing for Boa-Franc, parent company of Mirage Prefinished Hardwood Flooring, also reported a good first quarter, ahead of 2006. “The first quarter exceeded our expectations considering the overall market and economic situation. We believe the first six to nine months will be a difficult period overall for the industry, and better things will come at the end of the year.”

Robitaille attributed Mirage’s first quarter success to three factors: “New product introductions we’ve launched over the past two to three years have carried us very well, including the Sweet Memories series, our five-inch product, the Kashmir finish, as well as our Nanolinx finish. Another reason is having a strong brand such as Mirage. You can withstand a slower economy because people are always looking for quality regardless of the economic situation, and a strong brand is a form of certainty in an uncertain world. The third reason is our Maestro Dealer base. These dealers have been very strong contributors, are very well positioned in their markets and sell more product, even in tough times.”

Sills noted that although Anderson is up, he expects the first half will be slow with a nice recovery in the second part of this year. “We expect our growth to be in the high single digits for 2007.”

According to Holm, this year will continue to be a challenge for wood, specifically until the builder business improves because such a large percentage of hardwood goes into new home construction. “Once that segment improves, we anticipate seeing a turnaround.”

The downturn in housing starts was far and away the biggest reason for sluggish hardwood flooring sales in the first quarter, according to the executives, but companies faced multiple challenges heading into 2007. “The slowdown in the construction sector is certainly a challenge we are all faced with, as is the importance of the Asian products in the industry,” Robitaille said. “We have been able to handle them quite well as of now and are confident we will come through with flying colors.”

Korczak agreed the largest impact on the industry currently is the decrease in new home starts. “Those companies that focus primarily on tract homes are feeling the pinch, while those focusing on the remodeling segment, custom homes and expansion of contract markets are weathering the downturn.”

The second area of concern, according to Korczak, is the continuing increase in imports. He said successful companies are addressing this by partnering with international suppliers and improving the quality of their domestic products.

“Our No. 1 challenge is the slowing of business overall,” Holm said. “It has affected not only wood, but other categories as well.” He agreed that the second threat is competitively priced imports. “We remain committed to staying the course with what we believe is a long-term winning combination: providing best-in-class quality products and outstanding service.” He also noted although the Asian influence has grown stronger over the past few years, there are serious challenges looming for China’s manufacturers as raw material supply becomes more difficult to obtain and the government begins to implement tax initiatives.

Robitaille agreed, stating while the Asian influence has been quite substantial the last two years, “we see it leveling off because of the internal taxes, lumber tariffs and other Chinese economical factors. These factors should bring back more of an equilibrium between domestic and imported [products].”

Korczak explained the Asian influence has leveled off due to the decrease in raw material suppliers, the saturation of manufacturing capacity and increasing demand in markets other than North America. “The new tariff laws and ITC rulings have affected Asian imports considerably, so we’ll see a leveling off of the Asian influence over the next several quarters.”

Wilkerson sees the Asian influence as much less of a factor in solid oak and more of a factor in hand-distressed products with no major changes in exotics. A larger concern for Shaw, he noted, has been its new facility and product launch. “Our primary challenges have been tied to the startup of our new hardwood plant in Tennessee and the national launch of our Epic Hardwood program. We are very pleased with the initial market response to the products and their unique environmental story.”

Anderson is not as concerned with the Chinese products as it was last year, according to Sills. “We believe the prices will continue to rise and this will make domestic products more competitive. Our two biggest challenges have been rebuilding our plant that was destroyed by fire and introducing 87 new products. We are finished reconstructing our plant and are on top of our products.”

On price points and where he sees the category going, Sills explained that Anderson sees a large number of low-end handscraped and textured products as well as low-priced exotics being introduced into the market. “We still see growth in the high-end segment of the market and believe that will continue. We also believe the new painted looks will have a significant impact on the category as well. And we continue to see the trend moving to lower luster products.”

Wilkerson sees no major changes from 2006 in relation to price, “except for lower prices on imported handscraped styles. This makes them more affordable to a larger percentage of consumers, which is fueling sales growth in the category.

“As far as the products are concerned, hand distressed finishes continue to increase in popularity with consumers. The trend toward wider planks and exotic species are also continuing to gain momentum.”

Prices to the end user have neither increased nor decreased, Korczak said. “As the economy expands, the cost for having customized floors will increase accordingly.”

On the category’s direction, areas for greatest growth will be in custom work—handscraping, borders, medallions, faux finishes—which provide more fashion, he said. Plank continues to gain market share, though strip remains the most popular style.
As Holm said, there’s growth at both low and high ends. “Low is very competitive but, at the same time, the upper is enjoying growth with ever-expanding price points. The trend is toward new species, texture variety and wider planks. Specifically, we see more sophisticated hand-sculpted finishes and exotics gaining favor.”

Brian Carson, president of Mohawk Hard Surfaces and Bob Leahy, senior vice president noted, “Exotics and wide plank distressed/handscrapes remain popular, yet the race for wide plank seems to be slowing. Engineered woods continue to grow in market acceptance. There is a heightened sensitivity of wood sourcing and its impact on the environment worldwide. Engineered locking systems continue to gain momentum in the marketplace.”

Present, future forecasts

“The industry is in a trough right now,” Holm said, “primarily due to the downturn in new home construction, but this isn’t something that will last. Over time, the demographics will pull through another run of terrific years that will boost business for our industry as well as anyone else involved in the new home construction or remodeling business.”

Robitaille echoed Holm’s comments, noting that right now there is a bit of uncertainty as to what will happen in the next few months. “We might see some attrition in the marketplace, but in the mid-term the situation will stabilize itself and the industry should finally find its feet.”

Wilkerson took a more conservative view with the belief that without improvements in the builder business, the wood flooring industry will be hard pressed to show unit growth during ’07. “In this scenario, those companies that provide reliable service, quality products and innovative styling will grow and take market share at the expense of their competitors.”

In general, business is soft. “We expect remodel to pick up very soon and believe the new home construction will pick up in the late third quarter,” Sills said. “Retail appears to be slow across the country.”

“In solid wood,” noted Carson and Leahy, “Asia is becoming less of an influence while it remains important to the engineered category. South America may become more influential for the U.S. over the next few years due in part to growing popularity of species and location.

“The softer market will help ferret out the strong and weak players in the industry,” they concluded. “Excellent suppliers/manufacturers may gain strength. The builder market most likely will show signs of improvement in early 2008, while the retail segment will offer some continual opportunities.”

The ongoing challenge for the industry is the continued commoditizing of the hardwood category, Ready said. “Focusing on selling 2-1/4-inch strip is not a winning strategy for anyone long term. Our new product strategy has been geared toward mix improvement and providing the retailer value-add products he can profitably sell to his customer.”

At the end of the day, Korczak believes the industry is sound, regrouping and growing. “The industry will continue to adapt to the sluggish building market and will refocus its efforts on remodeling and custom jobs.”