Hicksville, N.Y.—With the first half of 2004 in the books, FCNews spoke to several hardwood flooring mill executives to get their take on the year so far regarding sales, products and trends, and what each sees for the category’s future. The following is what they had to say. “Our sales in the U.S. for the first half of the year have seen a significant increase for us over last year, in double digits,” said Robert Coveney, vice president of sales and marketing for Lauzon Distinctive Hardwood Flooring. “Our new introduction of the Next Step engineered beveled product has been a very good source of new sales for us. We introduced it at Surfaces and started hitting the streets with displays about three months ago. The response has been very rapid. Every single one of our territories is showing growth as well.

“We introduced some new stains in brown this year—Truffle, Golden Umber—and they have been going very strong,” he explained. “I believe the trend in regard to these new stains is strongly generated by the kitchen cabinet industry. A lot more hardwood floors are going down in kitchens. It’s funny because, at retail, we don’t necessarily promote the kitchen with hardwood flooring but I guess the consumers are seeing that in design magazines and TV shows and are actually going into the stores and asking for it.” “Things are going like gangbusters,” said Patrick Barnds, general manager of solid hardwood products for Armstrong World Industries.

“I think the thing that really caught everybody by surprise was the strength of the hardwood market this year, particularly the solid hardwood market. “If you look at the trends going back in the last couple years,” he explained, “we’ve seen these tre-mendous increases in raw materials prices which have translated into increases in finished flooring prices in the marketplace. That, combined with the fact that we anticipated a slowdown in the builder market this year, we were really forecasting flat to maybe 2% to 3% growth. We’re seeing much better growth than that in 2004 so far. It’s kind of taken us by surprise.

“I think there are a couple of factors for it,” Barnds added. “One is consumer taste and preferences. When we go out and do consumer research, time and time again consumers are expressing a real preference for genuine hardwood flooring. What’s interesting is, it’s even translating beyond hardwood flooring. If you look at the trends in laminate flooring, far and away the most popular visuals continue to be the wood looks. So, North American consumers really seem to be expressing their preference for hardwood flooring through their spending patterns.

“Also, the continuing decline in interest rates for the last half of last year and the first half of this year has created a lot of demand in the new home construction market,” he added, “where we are seeing more builders selecting hardwood flooring and making it more of a standard product rather than an upgrade product.” On the engineered side, “the year is going well for us in terms of volume and demand,” said Armstrong’s Joseph Wetzel, general manager of engineered products. “It’s been a good year. I’d say we’re up a little bit over 2003 and meeting our expectations. In some products, we are exceeding them. “Some of our new rustic and distressed visuals have continued to do well,” he said. “Our oak plank products have continued to be strong. We had some new product releases at the beginning of the year in the line called American Originals Maple from Bruce which has continued to be well received.”

“We’re significantly ahead of last year,” said Jim Morando, president of Tarkett Hardwood, “and ahead of budget so, we’re doing well. We are well ahead of expectations we had going into the year. “What is doing well for us right now are special surface treatment products,” he explained, “whether it be distressed, handscraped or colorwashed, any of those types. Trendwise, the wider boards, exotic species and the special surface treatments all continue to gain momentum.” “Surprisingly, it’s been quite a strong year for us,” said Harro Jakel, CEO of Pan Tim Products. “We are exceeding our budget and we are expecting to have some good, double-digit growth, de-pending on the builder market. We are really strong in that sector, so we will see what it does, with the interest rate increases taken into account.

“In general, all of our lines are doing well,” he noted. “But, from our new products, the hot seller right now is our hand distressed offering. In our American Classics line, the cherry and walnut in an engineered platform are doing well. The species have definitely been greatly diversified, away from the oak and into anything and everything else. “It’s not so much the darker colors or shades,” Jakel explained. “Even our maples and beeches are becoming stronger sellers now. So, it’s about anything but oak. As far as trends go, we have also seen that the consumers are much more educated. They’re learning to differentiate between different types of products. This has been our experience. People are really seeing the effects of one floor versus the other. As consumers seek a more sophisticated floor, they are looking for more calmer grain patterns.”

Raw Costs The rise in the cost of raw materials has been an issue the executives have all had to deal with recently. “For sure, the cost of raw materials has had some impact on our business,” said Coveney. “We were able to be a little less aggressive in our price increases, partly due to the fact that we own saw mills and were able to divert a little of the cost there, but the impact of the increase in raw materials costs, especially those that we don’t control, have had an impact on our business. We don’t see that diminishing very much in the coming months. “There are going to be two challenges ahead,” he explained, “price and availability. We’re extremely well positioned for those because of our saw mills. We are prepared. Obviously, there is going to be some impact pricewise, eventually, I think most of the manufacturers will be making moves this summer while we possibly see a fall increase and we will try to minimize it as much as we can.”

“We are certainly battling with those price increases,” said Jakel. “We have not raised our prices, we have absorbed the various increases instead, but we are certainly just making commitments six months in advance. Globally, all prices for wood products have been increasing, plywood prices have been increasing dramatically over the last several months. Prices are going up and will continue going up. “On the other hand,” he added, “the engineered product has a much more stable price pattern compared to solid wood, and that also brings some business to us, especially from the builder side which is looking for more stable price protection. Builder prices have been strong. One of the reasons for this is, they can count on our prices for the next 12 months as they are much more dependable.”

"We just took another price increase on solids and obviously, that’s an industry-wide issue,” said Morando. “You’re always taking price increases after the fact so, it does have a controlling affect on your profitability.” “No one wants to raise prices,” said Barnds. “In both the retail and builder marketplaces, we recognize these are independent businesspeople making their living in-stalling and reselling our product. We tried to hold the increases back as much as we could while limiting them to a minimum. So, regarding mostly the solid side of the business, profitability continues to be below satisfactory levels because we had ab-sorbed so many increases. While overall demand is up, we know we’ve lost some customers because of them.

“The engineered side of our business is doing pretty well,” he added, “so, in some degree, the increase in raw materials on the solid side has been offset, and we’re fortunate to be in the position where we offer this variety of products, but it’s offset largely by productivity improvements on the engineered side of our business.” While having to deal with rising costs, all seemed quite optimistic about the prospects for sales for the second half of the year. “I think that the second half is going to be even stronger than the first half,” said Morando. “From everything we’re seeing and the trend lines we look at, everything says we are going to pick up even more momentum in the fall.”

“We see the growth and strength of the year taking on momentum,” said Coveney. “We’re seeing a very strong first half of the year and we’re seeing certain signs on the second portion of the year continuing in that direction. For us, in the past, the fall months are usually strong months. With this momentum and our positioning a lot of new displays in the field with our existing distribution, we believe that they are going to start actually generating some business in the last quarter, so we are very confident about that whole last part of the year.” “For the rest of the year we are forecasting about a 3% to 4% improvement over prior year levels, and those prior year levels were pretty strong as well,” said Barnds.

“Over the next couple years we’re forecasting about a 4% increase in the overall volume of hardwood flooring sold in the market, both solid and engineered, although we believe the engineered market will grow more quickly.” “A lot will depend on what the solid market does,” said Jakel. “In general, it has driven business to us. The price increases on solid made people more aware of engineered products. If the log and lumber prices continue to increase, that will certainly affect the 3/4-in. solid business and the windfall will affect us.”