Some called it the perfect storm; some the year of dynamic forces colliding; and some simply used terminology not fit to print. But no matter how one defined it, 2008 was not a pretty picture; more like how Rocky Balboa looked after his first go-around with Apollo Creed.

The year, which many hoped would halt the slide of the previous 12 to 14 months, will go down as one of, if not the most difficult the industry has ever experienced. And if once again not for the commercial sector faring better than average, the year would have been an utter catastrophe.

In total, sales and units of flooring both declined, not just for a second straight year or by double digits but to lows not seen in at least a decade. Sales of all floor coverings dropped 11.6% to $19.743 billion, the first time this figure has dipped below $20 billion since the start of the millennium. This is on top of a 9.6% fall in 2007. And like the previous year, sales would have been much worse if not for numerous price increases and surcharges to try and offset rising energy and raw materials costs.

Units consumed fared even worse, with the collective total falling to 19.67 billion square feet or 13.4% as Americans tightened their spending budgets and put off large projects such as remodeling. Like sales, this drop follows a 13.8% fall a year earlier.

What saved the industry from falling off the cliff altogether was the specified contract market, which was purring along for the first two-thirds of the year, growing in the mid to high single digits compared to 2007. It gave it all back, and possibly some more, in the final third when the financial and automobile markets began to collapse (see story on page 5 for full details on how the commercial segment fared in 2008).

While the federal government finally declared the U.S. economy entered into recession in December 2007, most flooring executives say the industry really began its downturn in the fall of 2006, with some going back a few months more, pointing to when the new housing market first began showing signs of weakening.

Regardless of when things started to head south, in 2008 the industry continued to buckle under the weight of an eroding housing market, price pressures at both ends—end users pushing for lowers costs while raw materials and cost of doing business expenses skyrocketed—falling consumer confidence, and a weakening economy. Throw in the unprecedented financial disaster that hit in September and hurtled the world into recession, and all hopes the flooring industry would be able to pull out of the doldrums died with most people’s retirement accounts.

All categories down

No flooring category was immune to the onslaught of negatives but those that focused more on residential and builder markets and the luxury segment were hit the hardest. (Editor’s note: See individual category sales and volume numbers for the last five years.)

The hardwood category took the hardest punch—being the most tied to the builder segment— with sales falling 24.8% over 2007 and units dropping 21.6%. Hit hardest was exotic woods both because of their inherent higher prices and new laws coming into existence pertaining to the harvesting of logs.

Not all was lost in the wood arena, as some areas of the industry showed positive movement. For example, bamboo. Increasing in popularity for nearly a decade, the product continued its upward mobility in 2008 and, for the first time, is shown on its own in terms of types of species sold. Cork also showed positive gains, though not enough to stand on its own.

The popularity of these two wood types has more to do with the environmental movement than anything else as both are at top when it comes to eco-friendly traits. And, while sales of exotic species slowed, American consumers still proclaimed their desire to make their homes unique as sales of “domestic exotic” species other than the traditional oaks and maples gained market share.

One other bright spot in wood was the growth of mechanical locking systems being incorporated into the product. First introduced for laminate products about 10 years ago, these glue-free installation systems may not have taken off as quickly in the wood category, but they have been slowly gaining market share. And, in 2008, they saw their greatest leap in use and now account for approximately 15% of the engineered wood flooring market. Some solid wood producers are using a locking system on their products but the overall percentage is still way too small to accurately measure.

Speaking of engineered wood, it continued its assault on solid products and finally caught it in 2008. It’s taken roughly 20 years but engineered products now account for half the wood floors sold in the U.S. In fact, the product type is even making inroads in regions that have predominately used solid, namely the northern part of the country. In the Northeast, for example, engineered has broken through the 40% barrier and now accounts for approximately 43% of all sales.

Tile imports hit hard

While the percentage loss in sales and units for laminate were slightly worse overall than tile, many argue it was the latter that took a greater beating as it had more to lose, especially when imports are pulled out.

Tile sales—floor only—fell 19.7% and consumption 16.3%, but imports were down in square feet by more than 22.5%. And, once again showing a shift to lower- priced goods, 2008 marked the first time a country other than Italy held the top exporter position. Products from Mexico slipped 4.7%, while those from Italy fell 26.3%.

As bad as Italy fell, it still retained the top rank in dollar value. Despite an almost 20% decrease from 2007, Italy holds a 2.5:1 edge over the next closest country, which is now Mexico. Of the top five importers only Mexico and China posted gains over 2007 in the total dollar value of their shipments, coming in at 3.1% and 3.6%, respectively.

Top importers

Italy, Mexico and China are now the top three tile producing importing countries both in dollar value and consumption, accounting for approximately two-thirds of imports. Spain and Brazil round out the top five but they continued to get hammered in 2008. The U.S. remains one the most important export markets for these countries, but shipments from each were down over 42% with values falling more than 35%.

If there was any question that end users were seeking more value and more bang for their dollar, the categories with the smallest year-to-year percentage losses were the ones that have, until last year, been losing share to the so-called luxury products. Both soft surfaces and resilient did something neither has done in at least a decade: gain market share.

Carpet sales decreased 10.5% in 2008 over 2007, rugs fell 8.7% and resilient sales were off 2.8%. Rubber, a virtually commercial-only product, had the smallest loss with sales dipping 1.9%. In terms of volumes, carpet/rugs were off 13.4% collectively, resilient was down 10.2% and rubber decreased 4.8%.

The net result? Soft surfaces actually gained share, albeit only one point. But considering soft flooring has been ceding market share to wood, tile and laminate since the early 1990s, a gain is a gain.

Likewise, within the hard surface portion of the pie, resilient, which like carpet has been seeing wood, tile and laminate pick away at its market share, saw a jump of nearly four points.

Industry analysts point out gains for carpet and resilient should be expected during these unprecedented economic times. End users still want products that enhance the overall look of their indoor environment but they want them to maintain looking new for as long as possible.

Technological advancements in both fiber and vinyl, which continued despite losing market shares, have allowed manufacturers to create incredibly stylish products while also increasing their performance attributes. Throw in an even greater environmental message, such as taking post-consumer carpet and recycling it into new products, and end users saw more of a value in both carpet and resilient.

Sales of rugs were buoyed by the continued advancement of machine-made products, generally priced lower than their handmade cousins. Consumers seeking to spruce up their dwellings without having to spend thousands of dollars remodeling found the benefits of switching out a rug as a quick fix until they can once again open their purse strings.

As noted, the laminate category overall had a greater loss in sales (19.1%) and units (19.8%) than tile. While the economy played a major reason for the losses, total sales were hit by the added blow of something plaguing the category for years: a move to commodity level prices.

In recent years, the segment has battled an hourglass effect with the majority of sales gravitating to either the upper or lower price points. This continued in 2008 but with the added weight of a recession, the hourglass was distorted as sales points drifted ever lower. The high-end glossy or piano-type finish was considered to be the one bright spot in an otherwise dull market.

Mills are hopeful with the Lacey Act and other environmental concerns over rare, exotic wood species, consumers who still want these unique styles will turn to laminate. They point out their products do not involve cutting down a tree to achieve its visual, and can do more than provide an avenue to exotic floors. They can offer the looks of wood species too soft to be a floor.

Wood looks continue to make up the majority of laminate products, but tile and stone designs are making headway and now account for approximately one-fifth of the segment. And, what was once a category that relied on mostly imports, the shift of European mills setting up shop in the U.S. along with rising production and shipping costs in Asia have resulted in approximately two-thirds of all products now being made domestically.

Change in buying habits

This desire to get the lowest possible price could be seen not just in the sales of certain products but how end users purchased their flooring. Though specialty retailers still make up the lion’s share of consumer purchases, establishments that have a greater focus on the lower-end products gained.

Whether it was home centers, warehouse clubs or non-traditional flooring retailers, each picked up share at the expense of the specialty flooring store.

These gains were apparent in areas such as hardwood as consumers still wanting the look and feel of the real product sought out wood-only dealers or Internet specials. Or in laminate, where warehouse clubs marketed products at historically low prices.

Using these retail establishments over traditional specialty dealers also meant consumers were either installing the floors themselves or seeking out their own mechanics.

This was registered with places such as ServiceMagic.com, which saw a record number of inquiries for installers in 2008. Consumers figured they could not only purchase their flooring for less by using a warehouse/outlet store, but get it installed for less by finding their own installer.

How this combination plays out in a few years when these lesser quality goods start to deteriorate and lose their like-new appearance or start to come up because they were not professionally installed remains to be seen. But, for the short term anyway, it has given consumers a way to redecorate.

As with 2007, many would like to forget 2008, but as was noted in last year’s Statistical issue, “A year from now…they may say ’07 was really not so bad. The reason: The first half of 2008 is signaling the current 12 months may easily trump the previous dozen in terms of losses.”

All signs are pointing to that statement being true this year as the dramatic slide that began with the financial collapse in the fall continued unabated through the first quarter of ’09 and into the second.

While there were signs of improvement within the economy at press time, chances are it will not be enough to propel the industry to being just break-even with 2008.