Floor Covering Weekly December 9, 2013 : Page 1
Vol. 62 No. 23 A Hearst Business Publication December 9, 2013 $4 F LOOR C OVERING W EEKLY The Industry’s Business News & Information Resource 2014 Tom Lape Mohawk Randy Merritt Shaw Kim Holm Mannington Outlook Laying foundation for future growth By Amy Joyce Rush e recession is over, according to econo-mists and industry executives. But the strug-gle is not. Nevertheless, most major ooring companies spent 2013 making investments and plans that will unfold in 2014 and bene t them in the long term. Investments in man-ufacturing and processes top the list and are set to help companies meet the demands of a changed consumer. Many of the investments and expansions Shaw announced in 2013 will be coming online or continuing in 2014, according to Randy Merritt, president. But that’s not all. He added, “Shaw will continue to look for opportunities to invest to respond to our customers’ needs and improve e ciency. e company will focus investments in e ective operations and innovative products, as well as customer experience.” Mohawk invested $180 million in the proprietary PET Continuum process and will be a key focus for the company next year. According to Tom Lape, president of residential ooring for Mohawk, “We will invest in processes and capabilities to prop-erly satisfy the anticipated consumer demand on the horizon as well as [invest in] dynamic new products that will excite the consumer,” he said. Armstrong is building a $41 million luxury vinyl tile (LVT) plant in Lancaster that represents the company’s second investment in the Lancaster operation since 2008 when it added berglass-backed sheet vinyl manufac-turing to that plant’s portfolio. “By bringing this manufacturing to the Kevin Biedermann Armstrong U.S., we leverage our manufacturing exper-tise and create a strong cost, quality and service position for a very exciting product category. And, by moving our LVT manu-facturing from China, we expect to realize a more competitive cost structure with shorter lead times and improved customer service. Construction is scheduled to start the rst quarter of 2014, with projected completion Continued on page 18 Beyond the numbers BY KERMIT BAKER Investments position industry Multi-million dollar efforts prepare suppliers for coming demand By Mallory Cruise Wait until this year M uch like faithful baseball fans whose team had a disappointing season, businesses working in the residential markets had their share of frus-tration in 2013. And just like those fans who are sure that next year will be a better one, those serving the residential sector generally feel that 2014 will be a breakout year. A major di erence, though, is that most baseball fans will be disappointed once again, while the “residential rooters” are probably going to be right this time. What happened in 2013? Homebuilding got o to a strong start. A er starting 780,000 homes nationally in 2012, we were closing in on a million starts at an annualized rate over the rst quarter of last year. en the market at-lined, staying at the 900,000 pace through the second and third quarters. Some of the slowdown had to do with a ordability concerns as mortgage rates began to trend up. Some of it had to do with continued tight lending standards for potential homebuyers. Some of it had to do with limited supply of available entitled land in many of the hotter In spite of a still unsure economy, several top suppliers invested millions in domestic facilities this year — either building all new ones or expanding existing plants. ese moves, executives IVC US made a number of investments this year to help the said, will position them well for company prepare for continued growth. an expected uptick in business in 2014 and beyond. the last few years with many of the invest-Whether through acquisition, current ments being made in 2013. plant expansion or by building an all new A few years ago, hardwood companies facility, a number of companies big and like Somerset and Mullican moved produc-Continued on page 18 small have increased their U.S. footprint in Continued on page 19 P e r i o d i c a l For breaking news updated each business day, visit us online at www.fcw1.com For more info, scan the QR tag using your smart phone to be directed to our website Fill out the entry form on PAGE 20 to be apart of the Premier Awards Program this year at Surfaces! Visit us at booths: #S5761 & #B3370
Laying foundation for future growth
Amy Joyce Rush
The recession is over, according to economists and industry executives. But the struggle is not. Nevertheless, most major flooring companies spent 2013 making investments and plans that will unfold in 2014 and benefit them in the long term. Investments in manufacturing and processes top the list and are set to help companies meet the demands of a changed consumer.
Many of the investments and expansions Shaw announced in 2013 will be coming online or continuing in 2014, according to Randy Merritt, president. But that’s not all. He added, “Shaw will continue to look for opportunities to invest to respond to our customers’ needs and improve efficiency. The company will focus investments in effective operations and innovative products, as well as customer experience.”
Mohawk invested $180 million in the proprietary PET Continuum process and will be a key focus for the company next year. According to Tom Lape, president of residential flooring for Mohawk, “We will invest in processes and capabilities to properly satisfy the anticipated consumer demand on the horizon as well as [invest in] dynamic new products that will excite the consumer,” he said.
Armstrong is building a $41 million luxury vinyl tile (LVT) plant in Lancaster that represents the company’s second investment in the Lancaster operation since 2008 when it added fiberglass-backed sheet vinyl manufacturing to that plant’s portfolio.
“By bringing this manufacturing to the U.S., we leverage our manufacturing expertise and create a strong cost, quality and service position for a very exciting product category. And, by moving our LVT manufacturing from China, we expect to realize a more competitive cost structure with shorter lead times and improved customer service. Construction is scheduled to start the first quarter of 2014, with projected completion in early 2015,” said Kevin Biedermann, Armstrong Flooring’s senior vice president.
Mannington continued to integrate Amtico into the fold where it expects to strengthen its commercial offering. In October, the company announced a $50 million expansion project in its Madison, Ga. facility that will consolidate much of its total LVT production — both commercial and residential — to the U.S.
For 2014, Kim Holm, president, residential business, Mannington Mills, said that the Madison, Ga. expansion will be in full swing and is scheduled to go on-line in early 2015. “We’ll be launching an exciting new concept in sheet vinyl at Surfaces,” he noted.
With manufacturing commitments in place, industry leaders expect to bring new and innovative product to market next year.
Shaw will focus on further developing this year's successful product launches, especially around the “extremely successful” launch of soft nylon carpet programs in Anso Caress and Anso Soft Shades, said Merritt, adding that, “Shaw will continue to focus on the rapid expansion and growth of our resilient/LVT program as well as continue to invest in the growth of our entire hardwood footprint including Epic, solid and engineered wood formats.”
Mannington will continue its focus on style and design, according to Holm. “We are kicking off the year, as we always do, with a range of new product introductions at Surfaces in January. This includes new products in virtually every category and a huge initiative in sheet vinyl that could be a game-changer for the specialty retailer.”
Lape pointed to Mohawk’s introduction of the Continuum PET platform as a key target for 2014 — “The industry’s first 100 percent postconsumer carpet product that creates the most sustainable carpet solution in the residential industry,” he said. “Mohawk Continuum PET, along with Mohawk’s innovation in partnership with DuPont to bring SmartStrand Sorona to market, has allowed Mohawk to achieve a near 50 percent target of all fiber materials used in our residential business that come from either postconsumer or bio-based materials.”
One goal for Armstrong as the industry’s largest supplier of hardwood flooring, is to have product always on hand. “We will continue to be a consistent supplier in a world of short supply and high cost. We want to be safe harbor for our customers — they will pick up the phone and we will have the product for them,” said Biedermann. He said he expects the market to be up about 5 percent in all hard surface products.
Forecasting the future
Mohawk’s Lape said that we will enter 2014 with more momentum than we entered 2013. “While we can all find certain challenges on the horizon from a consumer demand perspective, the fact remains that there is still more structural pent-up demand for replacement flooring today than any point in the prior 50 years. Household formations continue to expand. We believe the substantial deferment of floor covering projects since this cycle began five years ago will be a dividend that the flooring industry enjoys for the next several years,” he said.
He added, “We will also continue to invest across all businesses in digital marketing, field sales automation and web-enabled business solutions for retailers to improve all aspects of the selection and procurement of flooring materials for today’s retailers and consumers.”
Merritt said Shaw anticipates the economy is going to continue to slowly improve — driven by the housing recovery, strengthening automotive and other manufactured goods markets — as well as a recovering job market.
“The 2013 industry growth trajectory is positive and the investments Shaw has made as the economy recovers positions the company for continued success. The health of the housing market has the most direct impact on our business and growth in that segment bodes well for Shaw in the coming months and years,” he said.
Read the full article at http://bt.e-ditionsbyfry.com/article/Laying+foundation+for+future+growth/1579293/187396/article.html.
Beyond the numbers
Wait until this year
Much like faithful baseball fans whose team had a disappointing season, businesses working in the residential markets had their share of frustration in 2013. And just like those fans who are sure that next year will be a better one, those serving the residential sector generally feel that 2014 will be a breakout year. A major difference, though, is that most baseball fans will be disappointed once again, while the “residential rooters” are probably going to be right this time.
What happened in 2013? Homebuilding got off to a strong start. After starting 780,000 homes nationally in 2012, we were closing in on a million starts at an annualized rate over the first quarter of last year. Then the market flat-lined, staying at the 900,000 pace through the second and third quarters. Some of the slowdown had to do with affordability concerns as mortgage rates began to trend up. Some of it had to do with continued tight lending standards for potential homebuyers. Some of it had to do with limited supply of available entitled land in many of the hotter markets across the country.
In spite of these supply concerns, the bigger issue in slowing the national housing recovery this past year was disappointing consumer demand. The growth in the number of households — the main building block for housing demand — continued to be disappointing because a high share of younger persons have been delaying forming their own households. A recent Pew Research Center study reported that more than 56 percent of 18-24 year olds were living at home in 2012 (this includes college students living in dormitories), a share that has risen from just over 51 percent in 2007. The share of 25-31 year olds living at home is much lower, but also rose substantially over this period. The major reason for this trend is that the share of employed 18-31 year olds fell from 70 percent in 2007 to 63 percent in 2012. Unemployed Millennials aren’t leaving home and renting apartments, much less buying homes.
This coming year should produce much better results. House prices nationally have increased 12 percent over the past year, and 23 percent since their low in early 2012. Rising house prices mean that fewer owners are underwater in their mortgages, allowing these owners to sell their homes without paying down the difference between the sales price and their outstanding mortgage balance. That’s one reason why the share of owners who feel that it is a good time to sell has risen so sharply, up from just 7 percent in early 2012 to 38 percent in the third quarter of 2013. This will put more affordable homes back on the market, with these sellers generating demand for new homes. As a result, most forecasters are projecting that housing starts will be well in excess of a million units this coming year, probably above 1.1 million. That works out to a 20 percent increase in homebuilding activity, and a comparable increase in floor covering sales for new homes.
Additionally, home improvement spending is also expected to see healthy growth this coming year. After declining by more than $50 billion between 2007 and 2011, home improvement expenditures are estimated to have exceeded $300 billion in 2013, gaining back the majority of the market’s losses during the downturn. Rising house prices and the growing number of existing home sales bode well for home improvement spending this coming year. However, recent strong gains in renter households mean that a lot of the home improvement activity will be focused on the rental stock.
Capital expenditures on rental units saw steep declines between 2005 and 2010, mirroring the steep decline in rental property values. However, rental property values have seen a very health recovery recently, and have effectively gained back all of their losses from the downturn. With property values up, rising rents, and a growing number of renters looking for more upscale units, capital expenditures on rental properties are expected to be strong this year.
Homeowners typically spend a large share of their home improvement budgets on room additions, upper-end kitchen and bath remodels, finishing unfinished space, and other discretionary projects. Rental property owners, in contrast, spend a much higher share of their capital budgets on replacements. Floor covering replacements are often at the top of the list, so look for strong spending this year from your rental customers.
Read the full article at http://bt.e-ditionsbyfry.com/article/Beyond+the+numbers/1579294/187396/article.html.
Investments position industry
Multi-million dollar efforts prepare suppliers for coming demand
In spite of a still unsure economy, several top suppliers invested millions in domestic facilities this year — either building all new ones or expanding existing plants. These moves, executives said, will position them well for an expected uptick in business in 2014 and beyond.
Whether through acquisition, current plant expansion or by building an all new facility, a number of companies big and small have increased their U.S. footprint in the last few years with many of the investments being made in 2013.
A few years ago, hardwood companies like Somerset and Mullican moved production stateside. Mohawk made a number of acquisitions — Pergo and Marazzi. Meanwhile this year, Shaw, Engineered Floors, Mannington, Beaulieu, IVC, Armstrong and Mohawk to name a few, all made significant investments in new plants and processes here in the U.S., preparing them to meet today’s consumer demand.
Creating a true global market
One result of on shoring of product expected in 2014 and beyond will be slowing down the amount of product being imported into the U.S. as well as increasing product leaving the country.
Imports remain a significant portion of product sold here in the States — they rose from one fourth to one third of flooring dollar sales this year — but increased production here will create a balance of imports and exports, according to Stuart Hirschhorn, director of research at Catalina Research Inc.
“Going into 2014, we will probably see somewhat of a leveling-off of imports but I don’t think it will be a significant drop off. I think most of the investments announced in 2013 have been centered on the resilient and wood categories — even some Chinese wood flooring manufacturers have announced building plants in the U.S. What you’ll see will be investments influenced by product sectors. Again, we won’t see a dramatic shift but we will see a slowdown in import penetration levels,” he said.
In fact, exports dollar sales are now up from 6 percent in the mid-2000s to 11 percent, explained Hirschhorn at Catalina.
“The whole concept of sourcing is becoming more global — not only for imports coming to the U.S. but exports being shipped out of U.S. plants as well,” said Hirschhorn.
The investments made this year were significant. Shaw invested $40 million in its Epic hardwood facility in South Pittsburgh, Tenn., along with $85 million in its carpet tile facility in Adairsville, Ga. Mullican invested $14 million in its recently built Johnson City, Tenn., headquarters to bring engineered production stateside, while Mannington is expected to invest up to $50 million in its Madison, Ga., plant to bring much of its LVT production to the States. Mohawk’s acquisition of the Marazzi Group for $1.5 billion will allow Mohawk to harness the production and design power of one of the top tile suppliers in the world.
Russell Grizzle, CEO, Mannington Mills, for example, explained that between finalizing acquisitions, product development and expanding production in facilities, the company made a number of investments recently.
“One of the things we spent time doing this year was finalizing our Amtico integration. And, we made a major announcement to expand our Madison, Ga. facility, doubling the output capacity at that plant. We’ve also been on shoring the Mannington LVT commercial line this year which has been a significant investment,” Grizzle said.
As reported in FCW’s May 6, 2013 issue, Engineered Floors, announced a multi-year expansion plan for new facilities in Northwest Georgia this year. “We are pleased that these new facilities will allow for further job creation for the area,” said Bob Shaw, chairman and CEO.
According to the company, construction of these facilities will take place in multiple phases over a five-year period. When completed, the expansion will represent more than $450 million of investment and result in the creation of 2,000 new jobs.
Adding more shifts to its domestic plants to increase production output is just one investment IVC US has made, according to Xavier Steyaert, co-CEO.
“This year we invested in an additional fourth shift to further increase the output of our sheet vinyl plant in Dalton. This went hand-in-hand with some capital projects to allow for even further increased output in 2014. This, combined with continuously improving efficiencies, will bring our maximum capacity to a new level and allow us to fully embrace all market opportunities for our glass backed sheet products,” he said.
Additionally, IVC US invested in a new LVT facility. “We announced plans to invest $80 million in the construction of a brand new, vertically integrated, LVT plant stateside. This project is now officially launched and it is our intention to break ground in the spring of 2014. As this is a greenfield project, we obviously need to go through the required steps of site location, preparation and design. It is our intention not to let this prevent us from starting up production in early 2015,” said Steyaert.
In 2013, Mullican invested in two of its domestic facilities, allowing the company to move its engineered production back home. “We completed a $14 million investment in our Johnson City, Tenn., headquarters, which has allowed us to begin manufacturing engineered flooring at the site and expand the plant’s finishing capacity. This investment included preparing the plant’s infrastructure for future expansion,” said Neil Poland, president, Mullican Flooring.
The company also made investments in its Norton, Va., plant. By investing in domestic facilities, Poland added, it enables the company to take advantage of the growing demand for hardwood flooring products made in the USA.
“We added more than 400,000 feet of dry kilns increasing the site’s production of prefinished solid flooring by 20 percent,” he said.
Positioning for the future
Hirschhorn noted that the U.S. has the land available and a growing market to consume the growing amount of products made here.
“I think part of re-shoring, say for a growing category like LVT, is a decision to increase capacity as the market grows, and where is the most competitive place to do it? The United States. Demand is rising fast in the U.S. versus the entire world, so the decision of where to place new capacity is on access to markets. And, if you build in the U.S., you are accessing a relatively stronger, growing market with costs that are more competitive on a global scale,” he said, adding, “With the surge in oil and gas production in U.S., it is also making the U.S. a competitive place for manufacturing from an energy standpoint,” he said.
Mannington’s Grizzle agreed. “We’re taking advantage of many things available here in the U.S., like great energy rates and a skilled workforce. We think it helps to provide exceptional service to the customer. And, we think the future is in product options and service made right here in the U.S.A.,” he said. And, Grizzle added, these investments will help the company grow its profits.
“The industry has been getting better and we think 2014 will continue on those trends. We see these investments as an opportunity to grow more favorably and we’re trying to grow our top line, particularly with the on shoring of our products. We’re also continually looking to improve our customer service delivery times and our quality,” said Grizzle.
Randy Merritt, president at Shaw, noted that the company is also investing $45 million to expand capacity within its existing extrusion facility in Dalton. The company also purchased an adjoining piece of land next to this plant for future expansion.
“The state of the art high-speed extrusion equipment will increase the facility’s output by over 30 percent and will be able to run all resin types currently used in the industry,” he added.
Read the full article at http://bt.e-ditionsbyfry.com/article/Investments+position+industry/1579296/187396/article.html.