A commercial market that started hitting the skids in the second half 2008 was reflected in the attendance at NeoCon ’09, which by all accounts was down significantly from years past. Still, flooring exhibitors continue to find bright spots, in terms of both business and quality of show traffic.

When it comes to commercial, just about everyone agrees the only segments worth talking about are government, healthcare and education. And as for the show itself, most exhibitors told FCNews while they were seeing fewer people, those who spent the money came to Chicago with active projects.

Glen Hessmann, president, Tandus, said the people he saw were serious about material specifications. “This year we are having much more engaged conversations.”

He added while traffic was down, his third-floor showroom was packed Monday afternoon. Not only that, but he did not sense any doom and gloom. “I think there’s a general sentiment that things are not continuing to deteriorate,” he said. “The firms we are talking to are stabilizing as far as layoffs go. They may not be talking about recovery, but they are talking about things not getting any worse. Some firms are even starting to hire back. There are certainly projects out there.”

That sentiment was echoed at the Beaulieu Commercial space, which houses the Bolyu and Cambridge brands. “We have been pleasantly surprised,” said James Lesslie, president. “Our showroom was full all day Monday. We didn’t get out of here until 6:30 p.m. The people who are attending are all working on projects, but they are very specific as to what they are looking for. And they are optimistic things will pick up.”

What are they looking for specifically? “They are looking for tile,” Lesslie said. “They are looking for highly textural patterns. They are looking for what’s new, to see where the trends are going.”

Chip Braulick, vice president of marketing for CBC America, makers of the Ceres and Toli brands, did not see great traffic but said the leads were legitimate. “People are serious. They are telling us, ‘We need samples tomorrow.’” The company markets cork, recycled rubber, PVC-free sheet and PVC plank.

While the numbers may have been down significantly, exhibitors tend to not measure success in a show based upon attendance. Carmen Pastore, senior vice president of Johnsonite, is a case in point. “I’m more concerned about the quality. And there are lots of decision makers here. We’re not seeing as many international folks, but we are seeing a good share of contractors.”

Mark Falanga, senior vice president in charge of Merchandise Mart Properties (MMPI), proprietor of NeoCon, noted that a number of designers have been laid off in the last year, so while head count may have been down, the number of A&D firms represented was just about on par with last year.

“Companies have to have some representation,” he said. “The design community knows it must attend a show like this to remain competitive. The common theme is you don’t shut down in a recession because there is a lot of pent-up demand. Designers need to remain current with product knowledge and education.”

The one thing not in decline is NeoCon exhibitors, which remains stable, Falanga said, and for good reason. “This is a mature industry. One of the great advantages of operating in a mature industry is these companies have been through recessions before, so they are not rattled. The sky is not falling and they will continue doing what they have been doing.” In illustration, while NeoCon was 100% occupied in its permanent space, it is the temporary areas that act as a barometer. “Our two floors of temporary areas are full. That surprised us a bit.”

Amtico is a case in point. Tyrone Johnson, president and CEO, North America, referred to NeoCon as the most important show of the year. “We are a style and design company,” he said. “We scale down in other areas of our business, but when it comes to this show we try to put our best foot forward. We will not sacrifice quality for cost at this show.”

Falanga added that the manufacturers recognize that the world has shifted, and no one has unrealistic expectations. “They remain upbeat,” he said. “We still had 300 Best of NeoCon entries.”

Johnson agreed. “No one is under the illusion it will be like it was a couple of years ago. No one’s sales are growing 20%, but people need confidence, and that’s what we are seeing.”

Despite the rough seas, Falanga said he has been seeing business as usual, for the most part. “We have not seen any bankruptcies, we still see companies investing in new products, we see them as optimistic. Those companies that continue to invest in getting in front of their customers, in advertising, in marketing, in reinforcing branding and positioning, are in much better shape when the market turns around. And when it turns around it spikes because there is plenty of pent-up demand. A lot of spending is released.”

He also believes the commercial market slump may not be as protracted as the residential doldrums. “Today we are seeing much more positive news. Banks are starting to slowly and reluctantly lend again. Plus, there have been fewer job losses over the last few months, and a lot of the office industry is tied to employment stats. The stock market has been more positive, consumer confidence has been up, so we may be moving in the right direction.”

As for the projects that are out there today, most seem to involve education, healthcare or government, with the latter becoming a major focus for many companies. “Government is really its own world—everything from healthcare to education to offices,” said Al Kabus, president of The Mohawk Group, the umbrella for the Bigelow, Lees, Durkan and Karastan brands. “And you must give best nation pricing. That’s the entry criteria.” He added that government is Mohawk’s most active segment. “We showed double-digit growth here last year and are doing even better this year.”

What is driving this? “Government spending put out by the new administration is earmarked for construction expansion,” Kabus said, “and we are making our products and services readily available to intercept those funds.”

Eric Wroldsen, director of marketing, Patcraft/Designweave, agreed. “Any time there is a change in administration, there is an influx of dollars.” He also noted there is a lot going on in the greening of government. In fact, Patcraft/Designweave was a recipient of the 2008 Evergreen Award, which is bestowed on companies that are providers of green product to government.

Recognizing the strength of this segment, J&J/Invision now has a team focused on GSA (General Services Administration). “That is an active part of our business,” said Jenny Rogers, irector of marketing. “The government has handed out lots of stimulus money; if you don’t use it you lose it.”

Shaw Contract Group has been involved in government work for several years now, according to Tim Baucom, vice president of commercial sales and marketing. “The fact that we have had a consistent commitment ever since the tech days of six or seven years ago is paying off. It’s an understanding-their-requirements game. It’s making sure you have the right product.” And he, like everyone else, told FCNews the drivers are price, performance and environmental.

Amtico’s Johnson believes government and military will be strong this year for the company. “There is a lot stimulus money going into VA hospitals, military housing, and things like aircraft carriers and submarines. And state and local governments are doing courthouses, capitals, etc.”

Falanga put it in perspective: “Government spending has been tremendous. For the first half of the fiscal year, it has spent $3.6 billion on office furniture, more than 150% of its entire expenditure for all of 2008.”

Education

There is still activity here, albeit higher education. And there are projects in the pipeline, manufacturers say, thus, the outlook remains strong over the long term.

“Community colleges are spending money as they become more competitive with four-year schools as families look for value during those first two years,” Falanga said. “The trend is community colleges seeking to look like four-year colleges.”

Universities are also spending, according to Amtico’s Johnson, as they attempt to attract a new breed of students. “We think a lot of people are going back to school because they don’t have jobs,” he said. “People are using the recession to improve their skill sets.” He added that a lot of money is private— from people that may not have been as adversely affected by the recession.”

It’s not just older people heading back to school. Mohawk’s Kabus said because of the tight job market, many younger people are staying to graduate school as opposed to immediately entering the work force.

But opinions vary as to what exactly what the future has in store. While Shaw’s Baucom knows there are many projects in the pipeline, he is concerned about what will happen with public money because of tax issues. Nonetheless, universities and colleges still must compete for “the look,” and dorms must be refurbished.

It’s not so rosy for K-12, however. It is here, Kabus said, where everyone is looking at budgets. “Economics are driving the decisions as opposed to performance,” he said.

Tandus’ Hessmann agreed, noting that K-12 has been hit hard. “Some municipalities and districts are in such desperate shape that they can’t even afford to keep teachers hired,” he said. “Therefore, replacing carpet in the summer is a low priority.”

J&J/Invision has a more positive outlook. “We think we will see education skyrocket,” Rogers said. “The government sets aside money for green schools. Higher education has always been green focused. Now you are starting to see that in K-12 because of asthma and allergy issues.” To that end, the company in July will be introducing a collection for the K-12 market, half modular and half broadloom.”

Dominic Rice, vice president, product management, Armstrong, summed it up: “The underlying dynamics are still positive with increasing enrollment. But short term, the fiscal condition of the states will crimp K-12.”

Healthcare

“Healthcare doesn’t recognize the fluctuations in the economy as much as other segments,” Falanga said. “They realize the environment is a very important competitive factor in attracting patients as well as top doctors.”

While flooring manufacturers admit business is slowing in this segment, how they view it individually is dependent on their respective product portfolios. For example, Shaw’s Baucom actually referred to business as “strong,” particularly in the assisted living community. “It’s really just a fact of aging,” he said. “We have EcoWorx broadloom, so we can meet moisture requirements with stylish products. The industry is flat but we as a company are up.”

For The Mohawk Group, healthcare remains strong, particularly nursing homes and assisted living due to the aging baby boomer population. “On the other hand, medical office buildings are less likely to do well right now,” Kabus said. “And hospitals are feeling the pressure because of collectables— all the things that go hand-in-hand with unemployment can create challenges.”

J&J/Invision is also hoping for growth in the senior living market. “This is new for us, because we have not focused on healthcare in the past,” Rogers said. To that end, the company introduced Origins, a collection of broadloom and tile. The key here is that a designer can do an entire facility with the line given its range of colors and patterns. “Designers put on yellow glasses so they could understand how seniors’ eyesight changes.”

Business here remains “pretty robust” for Amtico as well. “First, our product portfolio is geared toward that segment, whether it is a hospital, assisted living or a doctor’s office. The majority of our sales are here, whether it is Stratica, the PVCfree line, Spacia, the value line, or Amtico, the design line.”

Armstrong, which sells a good deal of VCT to this sector, is seeing a delay in new construction here. “There are good underlying demographics, but we generally see people being more cautious about the uncertainty,” Armstrong’s Rice said.

Hospitality

Business here is a mixed back. By many accounts, hospitality business could be off as much as 40% in 2009. Mohawk’s Kabus explained how Las Vegas is very challenged right now, as are destinations that are isolated. “But we think there is pent-up demand, so you have to be ready.” He said a good indication of what’s going on in this segment is how local businesses that are typically challenged by people taking vacations have been busier because no one is leaving.

Shaw’s Baucom agreed that there is plenty of pent-up demand. But the business out there now is very price competitive. “Companies like Marriott and Disney are putting a whole lot of pressure on the buy. That market has consolidated, so they are trying to exert their muscle.” He added that the company believes it is taking share because it is well positioned with the bigger players.

Wroldsen also sees his division taking share in this segment. “We are still living off some of the good things we worked on in ’08. We’re also getting some good business outside of North America, like in Dubai and India, all projects that were specified here.”

Even Beaulieu’s business in this segment—through its Aqua Hospitality division—had continued to see “great growth” until recently, Lesslie said. “We have been able to introduce that brand to very established, well seasoned people. We have Optimum tufting technology that hospitality people can use to customize their styles and patterns. The Optifects machine gave the industry its the first pattern-on-pattern capabilities.” What else is driving business? “We are a relatively new brand, and people are always looking for what’s new. We’re also a large mill that acts like a small mill. We are very responsive.”

Corporate

The office, or corporate segment, comprises between 35% and 40% of the commercial market. It is also down about 40%, which is the anchor for the market as a whole. Three reasons: corporate downsizing (layoffs), higher than normal vacancy rates, and the credit crunch. It’s the perfect formula for recession.

“We are seeing project postponements and cancellations,” Tandus’ Hessmann said. “There are also many projects in the pipeline being delayed.”

Shaw’s Baucom added that the company is still seeing some new construction but refurbishing is being put off.”

Retail

Only the corporate segment is having a tougher time of things. Why? This is the sector most related to the economy. Armstrong’s Rice said retail is most impacted by consumer sentiment and unemployment. “People are simply spending less.” And that means fewer stores are being built and renovated. Plus, he cited the number of retailers going Chapter 7.

There are still some companies that are finding business here, albeit spotty. Baucom called it “either very good or nothing. We have certain people who say in the downturn, ‘Things are slower, we are going to refurbish. We have to compete.’ Others have cut it off entirely. New construction is certainly down. Some customers, like [one very large department store chain], are opening fewer stores but refurbishing those they have.”

—Steven Feldman