While manufacturers weren’t exactly eager to strip their poker faces, major hardwood players recently gave FCNews an exclusive perspective of the game. As if an economic recession wasn’t challenging enough, issues like recent legislation, a rise in material costs and the consumer’s visual market demands keep mills in a state of constant adaptation.

Though the flooring industry was hit hard with the collapse of the home remodeling and new construction markets, companies have started digging themselves out of the hole and reported profits for the early part of the year.

Suppliers have even managed to shine in areas like consumer transparency, making the most out of legislation that regulates supply. Sticking it out in the seemingly limitless economic game is laying the groundwork for bullets in the hole.

The numbers: Making dollars and sense

As could be expected, manufacturers across North America reported that numbers were down in 2009, both in units and dollars. With what has been called the worst recession since the Great Depression, anything otherwise would likely challenge the credibility and mathematical skills of hardwood suppliers and today’s consumer is too skeptical to guess.

“We believe the industry was off approximately 23% to 25% in units for 2009,” said Daniel Call, Armstrong’s vice president of wood product management. “Dollars were probably slightly worse—price was certainly lower in 2009 and mix was also under negative pressure.”

This was backed up by reports from Anderson Hardwood Floors, a division of Shaw Industries. “Our sales and earnings were down almost 30% last year,” said John Woolsey, vice president of marketing.

Things were the same for Mannington. “From 2008 to 2009, we were down 25% in both units and dollars,” reported Kim Holm, president of residential. “We think that’s comparable to what the overall engineered market has experienced.”

The story was the same for almost every manufacturer with whom FCNews spoke. For example, at Mohawk, which markets the Mohawk and Columbia hardwood brands, dollars were down about 25% in 2009 versus 2008, according to Dewevai Buchanan, vice president of hardwood. “Units were down about 23%.”

Canadian suppliers reported similar results. Daniel LeDuc, vice president of marketing, Lauzon, declined to talk specifics being a private corporation, but noted, “We can say that our performance was similar to what the market has suffered, plus or minus a few exceptions.”

An exception to the norm

One company that seemed to outperform the market was Mullican Flooring, which told FCNews its sales in units and dollars “were down high single digits in 2009 versus 2008.” When asked what separated the company from the masses, Brian Greenwell, vice president of sales and marketing, said, “We put together some programs in 2009 to take advantage of the remodel market, which was still very active for us.” Product was also a key driver. “I think we have a broad product range and a high quality product, including the FSC-certified line. The things we had been doing started to pay dividends.”

First quarter results encouraging

Like many other areas, a tone of cautious optimism underlies the numbers. A slight uptick in new home construction and remodeling has driven an increase in the early beginnings of 2010.

Validating the prediction of FCNews’ columnist Lew Migliore, after a few years of hoarding funds, consumers are itching to change the look of their home (FCNews, Jan. 25/Feb. 1). However, it is happening one room at a time, with consumers remodeling what has become an eyesore to them. “People can look at the same floor only for so long,” Migliore said.

Mills agree that the positive trajectory can be attributed to remodeling more so than new construction. “Wood business is up slightly,” Holm said. “Replacement traffic is up, ultimately driving our numbers to increase.”

Luc Robitaille, vice president of marketing at Boa-Franc, makers of the Mirage brand, is seeing consumers a bit more willing to open their wallets. “The first months are better than expected,” he said. “As the economy and housing market improves, consumer confidence in long-term value products is also slowly increasing. People are more willing to spend but at a modest pace. Nevertheless, retail has picked up somewhat and is generating better results than anticipated.”

Shaw also reported taking market share, touting its position as an industry leader, its “Made in the USA” product line and strong service and quality as factors. “The first few months of 2010 are going very well for Shaw hardwood with good momentum in both retail and new home construction,” said Kevin Thompson, hardwood manager.

Mohawk/Columbia are also reporting good things—as good as the slow but steady climb upward can allow. “We are seeing some improvement versus 2009, driven entirely by the residential replacement market,” Buchanan said. “New home construction is still minimal.”

Lauzon is seeing improvement as well. “This first quarter is definitely positive when compared to last year,” LeDuc said.

Then again, the first few months of 2009 were considered some of the lowest of the recession. Anderson spoke more specifically about the factors affecting the first quarter. “January was very slow, driven mostly by reduced store traffic caused by abnormal winter storms,” Woolsey said. “February and March picked up very nicely and sales area up in double digits from 2009. We [believe it is] the response to our new introductions at Surfaces and their immediate success in the marketplace.”

Mullican echoed those sentiments. “2010 has been OK,” said Neil Poland, president. “We believe it to be good news given the terribly cold and snowy weather.” The company was up month over month in January and February, and March is expected to be positive as well.

Indeed, the first few months of the year saw radical storms, crippling even the nation’s capital. “Some regions were particularly hampered by the unusually bad weather this winter,” Call explained. “To the extent the mid-Atlantic and Northeast— both key hardwood markets— were hit by multiple weekend storms, retailers have seen those sales pushed into the future.”

Rising material costs equal higher product pricing

Arise in the cost of lumber has undoubtedly affected the category. “Reduced supply of raw materials has driven up pricing significantly in the last six months, particularly in solid wood,” Buchanan said. “This is requiring all producers to raise prices.”

Raw material supply isn’t the only factor prompting the price increase. A lack of logging, reduced demand and unusually bad weather since the start of the year have all worked their way into the pricing equation (FCNews, March 8/15).

Reduced logging efforts have materialized in several ways. With the poor state of the economy, demand fell, as did pricing. “A tremendous number of sawmills have been shut down over the last two years,” Poland said. “Therefore, our lumber prices have increased considerably since the first quarter of 2009.”

Mannington also cited supply issues as grounds for pricing increases. “The rise in raw material costs is driven by a lack of harvesting of timber,” Holm said. “Typically we harvest lumber for our Alabama factory within 25 to 50 miles but with the lack of demand resulting in a lack of harvest, we currently have to gather materials from as far away as 250 miles. For us, the cost has become getting the materials.”

Some manufacturers are holding off on increasing prices as long as possible, noting consumers will be less than pleased. “Recognizing that the consumer market is more price driven than ever, Anderson is doing everything it can to avoid having to pass these costs on,” Woolsey said. “However, we would not be surprised to see an across-the-board industry price increase in the first half of this year.”

Indeed, that is just what is going on. “We are seeing unprecedented inflation rates in raw materials,” Call said. “This has led to announced price increases by the large players, and quiet but certain increases by second-tier hardwood flooring companies. As this gets pushed through retail to consumers, everyone in the industry will benefit.”

One company that is not raising prices is Mirage. Robitaille told FCNews that the company is doing all it can to help the consumer in these tough times and will hold the line on pricing, at least for the next couple of months.

However, Mother Nature has thrown another variable into the mix: unpredictable, and at times crippling, weather. “The cold and wet winter has made it extremely difficult for loggers to harvest timber, which has tightened the lumber supply and increased prices even further,” Poland said.

Editor’s note: For full coverage on the rising cost of materials, read the Page 1 article in the March 8/15 issue.

Visuals go far and wide

Wide-width boards are the resounding trend from mills. At Anderson, bigger is better. “Wide widths continue to be the choice in Anderson’s market but as widths get wider, lengths have remained the same, producing a less attractive boxy or tile look,” Woolsey said. To address the challenge, the manufacturer debuted Natural Reflections this spring, an engineered product at 59 inches, 17 inches longer than traditional 42-inch boards.

Visually, trends have remained constant over the past few years. End users still want unique flooring with character and texture. “The most popular looks in both engineered and solid [continue to be] domestic exotic species and character looks particularly in wider widths,” Buchanan said.

Executives at Mirage noted similar trends. “Consumer purchases are driven by a desire for less distressed wood featuring natural character, wider boards, subtle color variations and knots to recreate the appeal of old-fashioned flooring,” Robitaille said.

Differentiation in product offerings is the last piece of the visual puzzle for retailers. With visual trends spread out as “a little bit of a lot things,” one has to find something unique, Holm said.

“Ask any retailer; original design, color and performance are still the value add in any sales experience and differentiates those products you have from commodity to mass-market choices,” Woolsey explained.

Lacey Act: Keeping hardwood green

Consumer awareness is undoubtedly piquing these days. It started with fair trade coffee in liberal social circles and has spread to every corner of consumerism, hardwood included. Sourcing responsibly grown and harvested lumber is now a legal matter and failure to comply can result in the seizure of goods and fines up to $200,000. Though the flooring industry has followed suit so far, other hardwood product manufacturers like Gibson guitars, have experienced the consequences of neglect (FCNews, Dec. 7/14).

Though the Lacey Act is over 100 years old, the most recent revisions—of which there have been several—were enacted May 22, 2008. From that point forward fines and penalties are applicable for knowingly or unknowingly trading illegally sourced wood or falsifying import declarations. In addition to forfeiture of goods and fines, insubordinates can face up to five years in prison.

“Even though no immediate effects have been felt [at Mirage], these requirements have created a more level playing field,” Robitaille said. “They will encourage legal wood harvesting practices around the world.”

That is the hope. Even better than leveling the field, the Lacey Act had a positive impact for Mannington hardwood. “There’s been a decline of exotics coming in,” Holm said, “which has led to a proliferation of our product lines.” Like many hardwood flooring manufacturers, the mill was in compliance before the law was revised. “Larger players benefited from this because those manufacturers can afford to comply and verify point of supply, whereas smaller players tend to source cheaply,” Holm explained.

In addition, Shaw, Mohawk, Lauzon, Mullican, Anderson and Mirage all claim to have followed the guidelines of the Lacey Act long before 2008. “This is reinforcing that it is just too big a risk to purchase imported wood and further reinforces the value of “made in the USA” products,” Shaw’s Thompson said.

California Air Resources Board (CARB) phase II also entered into effect at the beginning of the year, but again, the industry seems less than phased by this. Holm reported that Mannington, as well as most other manufacturers, have been ready for the second phase regulation. Mohawk claimed to follow the new guidelines a year before the law’s target date of Jan. 1, 2010, and Armstrong said it was following CARB II as early as 2008.