By Louis Iannaco
With the current state of the economy, consumers are looking for as much value for the buck as they can get. Gone for now are the times when consumers would buy frequently with their eyes alone searching for simply the best style or fashion fit for their project, noted Tom Lape, president, Mohawk Residential. “Her rational side will play a more active role in the bottom of the cycles.

“When times are tough,” he explained, “both manufacturers and retailers need to make sure they are appealing to the consumers need for a good value and solid investment in their home to help them justify their decisions.”

Accordingly, the emphasis by mills, now more than ever, is on the most innovative, state-of-the-art products they can manufacture. “At Mohawk,” Lape noted, “we continue to see success with our Smartstrand and Everstrand products, which are at the forefront of the industry’s move to next generation fiber systems and product options. Each of these collections provides a compelling price-to-value and performance benefit relationship retailers and consumers appreciate. Our customers continue to want broader offerings in these collections, and we plan to satisfy this demand.”

Historically speaking, Lape believes 2008 will stand as one of the most challenging on record for the U.S. carpet industry. “Both units and dollars will obviously be down for the year as a result of the continuing disruptions in U.S. credit markets, their impact on virtually the entire financial system, and most importantly, the resulting impact on consumer confidence, which last month plunged to a 20-year low. The industry continues to rebalance production capacities and schedules to the recent lower demand, while maintaining traditionally high levels of service 2008 compared to 2007. While we’ve been affected by the current economic tsunami, we’re still positioned through our diversification, business model and strong brands to effectively weather this storm.”

For Mohawk, its third quarter results told the story: Net sales for the first nine months of 2008 were $5.341 billion, representing an 8% decrease from 2007. For the first nine months of 2008, the loss was $1.239 billion. The Mohawk carpet segment was impacted most by the downturn, as sales declined by 11% with both costs and revenues under pressure.

In commenting on the mill’s third quarter, Jeff Lorberbaum, chairman and CEO stated, “We generated strong cash flow from operations of $185 million during the period while our earnings were under pressure from falling behind and higher costs.

“Residential home sales and remodeling are at low levels and commercial projects are being impacted by tightening credit and softening business conditions,” he explained. “The European economy has become significantly weaker and affected both our flooring and non-flooring products. We’re hopeful that the declining energy and commodity prices will help strengthen consumer confidence and lead to an improvement in the flooring market next year.”

From sources gathered, FCNews is estimating an approximate 10% decline in carpet sales for 2008.

Emphasis on value

Leary agreed with Lape in that, as the state of the economy declines, the emphasis on value increases. From a fiber perspective, he noted, “we’re seeing what I call a bipolar response from commercial and residential end-users. First, as costs go up, the migration to better value offerings of fiber and construction becomes more attractive for consumers. In contrast, branded styles, as we have seen with Anso and Zeftron nylon, have weathered the storm better than the rest of the pack and actually gained share in the marketplace. When disposable income is tight, the confidence, stability and performance assurance inherent with branded fibers becomes increasingly important.

“Consumers and end-users are holding products to higher standards than ever before,” Leary added, “so third-party certifications like McDonough Braungart Design Chemistry‘s Cradle to Cradle Certification, which Anso and Zeftron received earlier this year, will become critical when making purchasing choices. We will also continue seeing greater strides in recycling in 2009; this is a trend that shows no signs of slowing.”

Sustainability issue

Another important aspect for the carpet industry is the issue of sustainability. The Carpet & Rug Institute’s (CRI) sustainability manager Jeff Carrier commented on a few of the trends currently taking place.

“Looking ahead at sustainability in the carpet industry is a lot like going to a crowded marketplace— there’s so much to see, it’s hard to know where to look first. But surely, the trend toward greater sophistication on the part of everyone involved, from manufacturer to end-user is a trend that is going to continue. Sustainability has gone from a sideline topic to one that is at the front of our collective conscience.”

In the commercial marketplace, Leary noted, modular continues to gain share over broadloom. “Nylon, due to its overall balance of performance properties, is still the fiber of choice for specified commercial interiors. Solution dyed nylon continues to gain favor not only for its performance, but due to its expanding color lines. Residentially, Leary said, polyester BCF is growing share due to improved aesthetics, performance and value. “Polypropylene is trending downward. That said, nylon remains the majority share as it has for decades—again due to the overall balance of properties. A new platform of softer yet high-performance fibers will be at retail stores in early 2009. We’re seeing that staple continues to give up share to BCF.”



Lape noted, just like the fact recessions are generally seen through the rear view mirror rather than the windshield— meaning they are often called after the fact—“I believe recoveries are very similar in this respect. At Mohawk, our goal is to continue to manage the business through this cycle, but be prepared at any time for the other side to emerge, which it will. “The greatest test for any company is to have made the proper investment when times were difficult,” he explained, “new products, sample and merchandising systems and innovations, allowing them to be in position to benefit, with their retail partners, when the good times return and consumers decide they have the means and confidence to once again actively invest in their homes.”

Lorberbaum sees improvement, but not until well into next year. “We anticipate 2009 results will improve from our second half in 2008. During 2009 higher selling prices and lower costs should help our margins. Consumer discretionary spending for flooring will improve from substantial government stimulus, additional liquidity, lower gas and falling commodity prices. We remain convinced Mohawk will be a stronger company when we come out of this cycle.”

Leary’s advice for the future included a change in television viewing habits. “First, turn off the news and tell all your friends to do the same. Residentially, we think new housing construction, which began a downward cycle more than two years ago, will be the first to recover in the second half of 2009. Consumer confidence is key to overall residential carpet recovery and we are optimistic to see some positive signs following shortly behind the new construction recovery. If anything, the investment made in flooring will be more thoughtful with an eye toward a balance of style, fashion, performance and certainly value during these difficult economic times.”

Commercially, he foresees certain segments cooling somewhat over the next 18 months as the economic ripple moves through from the residential sector to commercial.

“However, 2009 units should be close or flat with those of 2008,” Leary noted. “We see the healthcare and education markets continuing to prop up the commercial sector.”