By Matthew Spieler
As 2007 winds its way down, manufacturers big and small are preparing their products, merchandising and marketing programs based on what has taken place and for what they feel might lie ahead next year.

It is no secret the past 12 to 18 months have seen some of the toughest business conditions the industry has had to face in more than a generation. And various government statistics are pointing to the next 12 to 18 months being much more of the same.

Since manufacturers generally have access to the same data, they tend to develop similar overriding outlooks and strategies. However, within all the sameness, points of difference pop up on how each sees a particular issue or reacts to it.

The majority of FCNews’ readers—specialty dealers, in-stallers, distributors, contractors and so on—rely on manufacturers to provide them with the necessary products and services to succeed, so our editors surveyed some of the industry’s leading mill executives from all floor covering categories to get their take on 2007, what they expect for 2008 and what customers can expect to see from them in the coming months.

As we went through the process of collecting and collating the responses, it became apparent that four of the manufacturers provide a rather unique viewpoint compared to everyone else. These companies— Shaw Industries, Mohawk Industries, Armstrong World Industries and Mannington Mills—are each involved in at least four of the major floor covering categories. So, while they can provide insight into the individual sectors in which they participate, they also offer a more bird’s eye perspective on the flooring industry as a whole.

Below are what the top executives from the above four companies had to say on the state of business, what’s ahead and what their firms are doing to help customers ride the storm out.

What do you see/expect for 2008 in two areas, on the economic/business side and with regard to products/trends?

Tom Davis
President and CEO of Mannington Mills
The housing slump has certainly impacted our business this year and is likely to stretch well into next year, and perhaps even longer. Fortunately, the Commercial markets we participate in remain strong for both hard and soft surface products.

We are fortunate, as a company, to have a diversified product offering so that a slump in any given area can potentially be offset by another. This is the case this year with the slower residential business and the stronger commercial business. Given the overall economic scene, though, we anticipate some slowing of these markets next year.

From a product perspective, we will launch our 2008 introductions next month at Surfaces. These will include new looks that raise the bar on design in every category. Thanks to some technological innovations, we are introducing some really show-stopping products that play into today’s hottest trends. Those trends are very eclectic—they range from sleek, contemporary finishes to really rough, rustic textures and everything in between.

I think one of the best things about flooring today is there is no single ‘trend’ and there is a lot of opportunity for consumers to be creative with their flooring choices.

Jeff Lorberbaum
Chairman and CEO of Mohawk Industries
The general economy is expected to continue positive though at a slower pace in 2008. Most forecasters do not anticipate a recession in the overall economy. The flooring industry is not reflecting the same trends of the economy.

The flooring category has been in a significant recession for some time. The residential business, which makes up the largest part, has been impacted by the collapse of new and existing home sales, tightening of mortgage standards and falling home prices. The consumer has had her discretionary income squeezed by rising food, energy and healthcare costs. This has caused a postponement of her discretionary purchases such as updating her floor covering, which does not impact her daily lifestyle.

The result of these trends is we expect 2008 to remain difficult in the industry. The residential remodeling business will be the first to improve with new home construction following nine to 12 months later. The commercial category is expected to continue positive but slow as we go through 2008.

Randy Merritt
President of Shaw Industries
First, I think 2008 is going to be a continuing challenge. The difficulties we have experienced in the housing market have created a near “perfect storm” and are not over. This storm has the potential to impact the rest of our economy, and I suspect will cause a slowing in all segments again in 2008. 

That said, we must remember that our industry is cyclic, and recent years have been amongst the best in the history of the flooring business. Our approach during the slower retail and builder climate that we’ve experienced during 2007 is to continue what we at Shaw do best: keep looking forward, serving our customers the best we can, while fine tuning our businesses for better days that lie ahead.

Every product type in flooring is down for 2007 versus 2006 with the one exception being carpet tile—which is experiencing strong double-digit growth. Unfortunately, much of the modular carpet growth is not commercial segment growth but rather coming at the expense of broadloom commercial product.

Residentially, wood, laminate and ceramic tile we believe are all down by amounts ranging from 10% to 15% or more. No product category has been immune from the housing slowdown. We do feel like imported product has slowed even more dramatically due to other factors. Where possible today, most customers are looking for and buying domestically produced product, especially in the hardwood and laminate markets.

In the area of product, over the last several years, in virtually all categories of flooring, we have seen a trend toward better, higher-end goods selling. This is certainly positive for our industry and for the consumers/end users buying our products.

And while imported goods have certainly created some interest over the past several years, it seems there is renewed interest in domestically, “made in the USA” products as people have struggled with the lead times to receive items, some of the quality coming from foreign supply, and the value of the dollar that has driven up the costs of imported product.

Frank Ready
President and CEO of Armstrong Floor Products
Market conditions will continue to be tough. The state of the new construction market has been well publicized. In addition, retail activity is spotty at best. I’m not an economist, but 2008 will be a tough market and 2009 is a question mark.

Year to date (November 2007) we’ve exceeded budget in terms of sales and operating margins (profitability). We are also up high single digits to low double digits over 2006. So given the current business conditions, we feel terrific as to where we are positioned right now moving into next year.

With regard to product, some initiatives on tap for 2008 include the successful implementation of Migrations, the industry’s first collection of BioBased Tile (BBT), which offers the affordability of traditional composition tile with enhanced performance and environmental attributes. Our new Migrations BBT incorporates rapidly renewable resources and reduces dependency on limited resources such as petroleum and fossil fuels.

We also will continue the expansion of our product portfolio, with a broader assortment of our ground breaking high-gloss laminates and Locking Hardwood, where we now have a patent position we feel is proprietary. We plan to expand the StrataMax line on the sheet side. StrataMax offers a whole new structure that provides benefits in terms of ease of installation and durability. And, there will be one or two other ground breaking product launches on the horizon in ’08 as well.

What is the company doing in response to what you are forecasting? That is, how is the company positioning itself to ensure success?

Davis:
In response to business conditions, we are managing our business very carefully. We have an eye on spending and investing in our business, but at the same time, will not do things that jeopardize our future.

We have, for example, redoubled our efforts to bring innovative, exciting new products to market in all categories. Whether it’s design and styling, which we are known for—or product performance, or environmental responsibility and green attributes, we want to be seen as the leaders.

We believe that the downturn in this economy presents us with an opportunity to reinforce our position in the marketplace. We are continuing to invest in product developments that bring value to the consumer—developments that will improve the product’s overall visual, ease of installation and durability.

Combined with Mannington’s exceptional service and reputation, we know this is what ultimately sets us apart from the competition and will help us, and our distributor and retail partners, remain profitable through these tougher times.

Lorberbaum:
Let me begin by stating that Mohawk stands ready as a committed supplier to the long-term growth and profitability of the independent specialty retailer to work together through the economic challenges of 2007 in extending to them the necessary support through these unprecedented times.

In this environment, Mohawk is managing its business to align with the current market demands. We have reduced our costs by improving productivity and quality, aligning capacity with market needs, and consolidating or shutting higher cost operations. We are aggressively investing in innovation and new products, more productive assets, training for our associates and retail partners, and new merchandising to improve our value to our customers. In short, we’re making many of the same difficult decisions our retail partners have made at the local level in managing through these difficult economic times.

Mohawk has always been a growth company dedicated to the floor covering business and working closely with the independent retailer. Our continued multi-billion dollar investment back into the business through the form of product capabilities, brand investment, distribution infrastructure and industry leading training on top of our culture of acquisition growth has positioned Mohawk, we believe, as the supplier of choice in the floor covering segment. Most importantly, we look for these investments to create greater profit opportunities at retail for our dealer partners in 2008 and beyond.

In 2008, Mohawk will continue to drive the industry through innovation and design across all major product categories. In our Dal-Tile segment, we will drive product innovation in design and styling that will act as a catalyst for the continued growth of market share gains in the ceramic category. From easier product to install to stronger and more durable product performance, Dal-Tile will expand the market opportunities for consumers in ceramic product options.

Our Unilin business will maintain the lead in technical innovation among all laminate producers through introduction of next generation designs in laminate that will narrow the perceived consumer gap between laminate and wood from where it stands today. Unilin has built a culture of product innovation that has created profit opportunities for all of our retail partners in selling sophisticated and fashion-oriented laminate floors under the Quick•Step and Mohawk brands.

Lastly, in our wood category, our fall ’07 investment in the purchase of Columbia’s flooring assets gives us the second largest wood capabilities within the industry and affords us the ability to catapult the wood business at retail through both existing independent distribution partners of the Columbia offering and Mohawk branded product through our own internal network.

Despite the challenges that carpet may have among today’s consumers, Mohawk has an aggressive launch plan in place for 2008. During our spring ’08 regional shows, Mohawk will introduce over 100 styles of the latest designs, textures and patterns made from technically differentiated performance fiber systems such as Mohawk’s own exclusive SmartStrand made with DuPont Sorona polymer. Mohawk SmartStrand Sorona carpet styles are the next generation of performance enhanced carpet styles made with the industries only bio-based residential carpet fiber. Sorona polymer, made by DuPont, is produced from over 37% by weight of corn or similar bio-based renewable materials; a true industry innovation. SmartStrand Sorona joins a long list of products, programs and initiatives under way at Mohawk that will be positioned together under our companywide GreenWorks environmental initiative. Retailers and consumers are invited to visit us at www. mohawkgreenworks.com to take a closer look at the efforts under way across all of our 30,000 plus employees.

While 2008 looks to be challenging from an economic climate, we remain excited about our prospects for profitable growth with our retail partners across all major product lines.

Merritt:
We want to continue to be there for our customers; there is business out there, and we want to do all we can to help our customers find it and service it with the right products. Our team has a positive attitude, and we realize that the flooring economy we are in is part of a cycle that will end.

Strengthening our programs, offering unmatched customer support, innovative products and continuing on our path toward sustainability are all areas where we will continue to position ourselves as the industry leader.

Ready:
We are anticipating and planning for a challenging 2008. We continue to take the obvious steps to reduce spending. However, we also see this period as a great opportunity to help our customers grow their business during tough times. Armstrong will continue to bring differentiated products to the market. In addition, we will maintain our consumer advertising of the Armstrong brand in both print and television in 2008. We see this as an opportunity to provide our customers the tools they need to drive their business, and through that effort, grow in a tough market.

Our main emphasis has been, and will continue to be on product innovation. Again, the success of Locking Hardwood on the engineered side was a major highlight in 2007, and the reception and demand for our high-gloss laminate has been unprecedented. On the commercial side, the continued expansion of LVT and the success of our new homogeneous line, introduced in 2006, generated great momentum into 2007 that will hold in 2008, reinforced by the introduction of Migrations. New products are the cornerstone of driving sales across categories, and this will continue to be a cornerstone of our efforts in 2008.

Innovation, of course, goes beyond product. Whether it is what we are doing with our retail strategic accounts group or in our facilities to drive productivity, innovation touches everything we do.

On the customer side, I’m proud of our relationship with the National Floorcovering Alliance and what we’ve done with our retail strategic accounts team, who call on retailers direct. We may not sell them direct, but we present our products to them and put on programs in collaboration with our distributors to make them predisposed to Armstrong-branded products.
 
On the manufacturing side we hope to continue to see improved productivity from our plants, which have bolstered operating margins. It’s a continuation of the improvement in processes that have resulted in better output at lower costs.

Going forward, our focus will be to continue growing our business, increasing profitability and improving our products and market share.