Floor Covering Weekly January 27, 2014 : Page 1
Vol. 63 No. 2 A Hearst Business Publication January 27, 2014 $4 Building for the future S URFACES 2014 Mohawk’s Lorberbaum eyes growth at home and abroad A view from atop one of the world’s largest ooring manufacturers By Santiago Montero Je rey Lorberbaum is not the typical chair-man of the board of an S&P 500 company, but then neither is the nancial performance of the company he leads. Even during the very worst of times, he has quietly built Mohawk into one of the world’s largest ooring com-panies, which earned Mohawk its S&P spot. Meanwhile, the company’s stock price has been on a tear and continues to rise even as it invested hundreds of millions in R&D and new facilities on its way to becoming a $10 billion company during the worst economic recession of our time. Lorberbaum has a di erent pedigree; as the son of two World Floor Covering Association Hall of Fame Inductees — Alan and Shirley Lorberbaum — he has been training for this job his whole life. During his time at the helm, he’s managed to grow through strategic acquisitions and investments that Mohawk claims gives it a 40 percent share in each of the domestic laminate and ceramic markets; it owns Pergo, arguably one of the best known brands in all of ooring; and, all of this has been done quietly, methodically and with hardly any fanfare. No wonder the market senses that neither Lorberbaum nor Mohawk are quite done just yet . FCW Exclusive Je rey Lorberbaum: Acquisitions are a sig-ni cant part of Mohawk’s ongoing strategy. We primarily focus on acquisitions that we can leverage with our present businesses to expand our distribution, maximize asset use or leverage our knowledge base. We use acquisitions to go into new product cate-gories like we did with Dal-tile in ceramic, expand our participation in various chan-nels such as Pergo to increase our laminate business within the home center channel, or to broaden our geographic reach such as we did with Marazzi, which gave us a leading presence in both the European and Russian ceramic market. By the end of 2014, we should have most of the realignment of Marazzi, Pergo and Spano in place. We continually look for acquisition opportunities that align with our flooring business within our present geography or in new markets around the world. We will Santiago Montero: Looking ahead, do you see consider other product categories, but they a need or opportunity for more acquisitions? If are a lower priority than those in flooring so, what other product categories look attractive? where we have synergies. Montero: What is your investment strategy going forward? Will we see you continue building either onto existing facilities (or new ones) or are you more likely to invest in new processes (R&D) as you did with PET? Lorberbaum: In 2013, we invested approx-imately $400 million for new assets in our Jeffrey Lorberbaum present businesses, to enhance our product o ering, improve our processes and support additional growth. In 2014, we plan to spend 25 Continued on page 46 Mannington Commercial On the move to bigger, better impact on the business. We’ve experienced a higher growth rate,” said David [M, G.] Just two Sheehan, vice president, years ago, Mannington commercial hard surface, Mills purchased Amtico, Mannington Commercial, a the U.K.-based commercial position he was promoted to LVT supplier. Since then, last February. Additionally, the company has integrated Al Boulogne was recently the sales forces of Amtico promoted to senior director, and Mannington Commer-commercial LVT. cial, streamlined operations, David Sheehan The expansion in Madi-brought more commercial LVT manufacturing stateside and invested son, announced in September 2013, will play out in phases and quadruple capacity in facility expansion and technology. Most importantly, the company has adding capabilities the company did not secured the leading position in the com-have before. Phase one is to be completed mercial LVT market with some 42 percent by 2015 — construction is well on its way with more than 600 tons of concrete and share, it reported. The company is also well on its way steel in the ground, according to Sheehan. In fact, there is equipment ready to be to reaching its long term goal of bring-ing 100 percent of both residential and put in place this April. “We are moving as commercial LVT production to the U.S. quickly as we can. It’s very aggressive,” he “We’ve been on-shoring the commercial said. In addition, there are other ideas the Continued on page 28 part of the LVT line and it’s had a huge By Amy Joyce Rush P e r i o d i c a l For breaking news updated each business day, visit us online at www.fcw1.com
Mohawk’s Lorberbaum eyes growth at home and abroad
Jeffrey Lorberbaum is not the typical chairman of the board of an S&P 500 company, but then neither is the financial performance of the company he leads. Even during the very worst of times, he has quietly built Mohawk into one of the world's largest flooring companies, which earned Mohawk its S&P spot. Meanwhile, the company's stock price has been on a tear and continues to rise even as it invested hundreds of millions in R&D and new facilities on its way to becoming a $10 billion company during the worst economic recession of our time.
Lorberbaum has a different pedigree; as the son of two World Floor Covering Association Hall of Fame Inductees — Alan and Shirley Lorberbaum — he has been training for this job his whole life. During his time at the helm, he's managed to grow through strategic acquisitions and investments that Mohawk claims gives it a 40 percent share in each of the domestic laminate and ceramic markets; it owns Pergo, arguably one of the best known brands in all of flooring; and, all of this has been done quietly, methodically and with hardly any fanfare.
No wonder the market senses that neither Lorberbaum nor Mohawk are quite done just yet.
Santiago Montero: Looking ahead, do you see a need or opportunity for more acquisitions? If so, what other product categories look attractive? Jeffrey Lorberbaum: Acquisitions are a significant part of Mohawk's ongoing strategy. We primarily focus on acquisitions that we can leverage with our present businesses to expand our distribution, maximize asset use or leverage our knowledge base. We use acquisitions to go into new product categories like we did with Dal-tile in ceramic, expand our participation in various channels such as Pergo to increase our laminate business within the home center channel, or to broaden our geographic reach such as we did with Marazzi, which gave us a leading presence in both the European and Russian ceramic market.
By the end of 2014, we should have most of the realignment of Marazzi, Pergo and Spano in place.
We continually look for acquisition opportunities that align with our flooring business within our present geography or in new markets around the world. We will consider other product categories, but they are a lower priority than those in flooring where we have synergies.
Montero: What is your investment strategy going forward? Will we see you continue building either onto existing facilities (or new ones) or are you more likely to invest in new processes (R&D) as you did with PET?
Lorberbaum: In 2013, we invested approximately $400 million for new assets in our present businesses, to enhance our product offering, improve our processes and support additional growth. In 2014, we plan to spend 25 percent more, or an additional $500 million, to satisfy the growing demand in the U.S. market, lower our costs and bring new products to the marketplace. We are optimistic about the U.S. economy, our industry and Mohawk's participation in the industry this year.
Each of our businesses: carpet, ceramic, laminate and wood are aggressively bringing innovative products to the marketplace to satisfy consumer trends. Each of the businesses are expanding their present capacities as well as investing in new opportunities such as Continuum technology in carpet, ceramic wood planks, unique laminate and wood visuals as well as manufacturing LVT.
Montero: As the 2013 GreenStep Pinnacle Environmental winner, it's clear that sustainability is at the core of who you are as a manufacturer. Will we be seeing more investments in this area as well, and if so, what is on the horizon?
Lorberbaum: Sustainability is a major part of our strategy and is a core part of how we operate. We believe that using less resources, reducing waste and recycling to minimize our environmental impact is good for our communities and our results.
Presently we have 10 manufacturing facilities operating with no waste — zero. We have reduced both our water and energy usage to produce our products. We produce electricity from waste and have reduced our carbon footprint.
We have hundreds of products made with recycled materials which would have ended up in landfills. We have carpets that are made from corn and 100 percent recycled bottles. We manufacture rugs from recycled tires. We manufacture carpet cushion from old furniture, bedding and old padding. Most of our ceramic contains recycled industrial waste or recycled glass. Most of our laminate boards have a majority of recycled wood.
We will continue investing in all areas to maintain our environmental leadership in the industry. It is the right thing to do and it improves our bottom line.
Montero: At convention, you mentioned a new LVT plant in Belgium as well as one planned for the U.S. Where do you stand with those and how much capacity are you looking at once complete?
Lorberbaum: Construction on our LVT plant in Belgium is happening now, and we are on track to start that plant up in Q4 of 2014. We anticipate utilizing this plant as a supply base for the U.S. until we complete another facility here soon afterward. We will participate in all price points with our brands and bring unique features and leading styling to the premium LVT market.
Montero: What does Mohawk bring to Pergo and American Marazzi that each business didn't have before the acquisition? What will each of these units do next now that Mohawk is behind them?
Lorberbaum: All of our acquisitions benefit from being part of Mohawk while our existing capabilities and knowledge are enhanced at the same time. With Pergo we picked up the strongest brand in laminate flooring and we are able to leverage our strengths to substantially upgrade their product offering, improve their manufacturing capability and enhance their service levels. With Marazzi we gained excellent manufacturing and product development and we can use our extensive distribution network to expand their business. We expect to grow both of these acquisitions in both domestic and international markets by providing access to capital, implementing best practices and adding technology that they did not have before.
Montero: Mohawk has been touting its new PET Continuum Process as a game changer. How are these new fiber systems changing the market and helping Mohawk?
Lorberbaum: More than any other manufacturer, Mohawk continues to innovate and introduce products that are reshaping the industry in an exciting way. Mohawk is committed to being the premier supplier of innovative products, which is why we invest in new technology, in state of the art equipment, in cutting-edge innovation and in the acquisition of other companies — investments that ensure we will be the best partner for our retailers.
Seven years ago, we introduced Smart- Strand, the industry's first bio-based residential carpet product that offers an unsurpassed combination of performance, softness and sustainability. When we launched Silk two years ago, Mohawk became the undisputed leader in premium carpet. Now we are innovating on the value side of the carpet market just as we did on the premium side, and that's what Continuum is all about.
While PET is not a substitute for Triexta and Nylon buyers, it is important for value-minded consumers. With Continuum, Mohawk has developed a way to produce a polyester filament fiber from 100 percent postconsumer recycled content and it can actually perform better than existing filament polyesters. Our Continuum products provide greater bulk and better value than anything else in the market, and when combined with our attractive styling, we expect for Continuum to mirror the success of our SmartStrand platform.
Montero: What kind of impact do you expect to make with this PET Continuum product given that it goes up against otherwise nonbranded, value-oriented goods?
Lorberbaum: In today's retail environment, brand power plays a key role. Consumers buy brands they know and trust.
Mohawk is the oldest and most widely recognized flooring brand by consumers today. As the largest flooring manufacturing in the world, we are able to offer our retailers both the best products and the best marketing support to reach the consumer. Continuum has allowed us to make our polyester products even more appealing to the consumer who already holds the Mohawk brand in high regard. We are offering over 30 styles covering all designs, price points, roll stocking and value price options with more apparent value at competitive prices. Nobody else in the industry can offer that.
Montero: We see how you've expanded the whole Silk line with new products and display systems. As I recall, dealers had two primary concerns when Silk first came out: maintaining a premium price point and managing channel conflict. How are you addressing these two issues?
Lorberbaum: Mohawk is the only manufacturer that offers three fiber types in the premium soft category, and SmartStrand Silk remains at the forefront. The SmartStrand Silk product mix, which is supported by incredible merchandising and marketing, allows our retail partners to effectively communicate the superior qualities that differentiate SmartStrand Silk and maintain its premium price point. Additionally, to avoid over-saturating the market, Mohawk focuses on partnering with retailers who demonstrate a commitment to the premium soft category.
For retailers who aim to be the premier destination for premium soft carpet, Mohawk is offering a new display system, which showcases the entire SmartStrand Silk collection in one comprehensive unit. The display system transforms the showroom into the ultimate upscale shopping experience.
In terms of managing channel conflict, Mohawk works strategically with our partners to ensure that we are developing the right product mix, merchandising and marketing to help them succeed individually. As the world's largest flooring manufacturer, Mohawk is able to offer a mix that differentiates our customers and helps them reach their specific business goals.
Montero: Is Silk performing as well as you expected? What's next for Silk?
Lorberbaum: Silk continues to exceed our expectations and gain market share. The collection has been in stores for about two years and dramatically changed the consumer expectations for premium carpets. Even after all this time, no other carpet provides the softness, value, durability, ease of maintenance or environmental attributes that are inherent in SmartStrand Silk. This year, we are continuing to invest in Silk and expand the offering to provide unique style and differentiated products. For the consumer who wants the best, SmartStand Silk is the only option. We are introducing a new marketing campaign in 2014 centered around Mo, a yellow Labrador retriever that's very good at creating hard to clean messes. Mo will be featured on television, social media and point of sale to convey the superior features and generate excitement for SmartStrand to the consumer.
Lorberbaum (born 1954) has been Mohawk Industries, Inc. chief executive officer since January 2001. He has served as the Chairman of the Board since May 2004 and has been a director of Mohawk Industries, Inc. since March 1994 with the acquisition of Aladdin Mills Inc. Lorberbaum also served as president of Mohawk Industries, Inc. from 1995 to 2001. Lorberbaum joined Aladdin Mills Inc. in 1976 and served in many capacities including president and vice president of operations.
Mannington Commercial On the move to bigger, better
Amy Joyce Rush
[MADISON, GA.] Just two years ago, Mannington Mills purchased Amtico, the U.K.-based commercial LVT supplier. Since then, the company has integrated the sales forces of Amtico and Mannington Commercial, streamlined operations, brought more commercial LVT manufacturing stateside and invested in facility expansion and technology.
Most importantly, the company has secured the leading position in the commercial LVT market with some 42 percent share, it reported.
The company is also well on its way to reaching its long term goal of bringing 100 percent of both residential and commercial LVT production to the U.S. "We've been on-shoring the commercial part of the LVT line and it's had a huge impact on the business. We've experienced a higher growth rate," said David Sheehan, vice president, commercial hard surface, Mannington Commercial, a position he was promoted to last February. Additionally, Al Boulogne was recently promoted to senior director, commercial LVT.
The expansion in Madison, announced in September 2013, will play out in phases and quadruple capacity adding capabilities the company did not have before. Phase one is to be completed by 2015 — construction is well on its way with more than 600 tons of concrete and steel in the ground, according to Sheehan.
In fact, there is equipment ready to be put in place this April. "We are moving as quickly as we can. It's very aggressive," he said. In addition, there are other ideas the company expects to bring to life in 2016. The expansion is expected to be a $50 million effort.
The process is aimed at eventually bringing all LVT production — both commercial and residential — to the U.S. and better servicing customers here. And, because of the unique custom capabilities Amtico offers, that means everything from increasing line capacity and wear layer application to custom cutting to warehousing — though Amtico is made to order and requires little inventory on Mannington's side. "We're making investments now to ensure our continued market leadership. This will make us more cost competitive. These investments are timely with everyone wanting to get into this business," said Sheehan.
There are many advantages to producing LVT here in the States, according to Sheehan. While facilities in China use a manual static press, here in Madison the process is done with automated equipment. Asian producers offer set formats, for example, while Mannington Commercial is set-up to be flexible and offer customization. Lead times for product coming out of Asia, he said, can be 16 weeks while product made here is a five to 10 day turn-around. In fact, product stacked and waiting to be cut in Conyers the day I visited, had been manufactured just that morning in Madison. It was slated to be cut, packaged and leave Conyers that same day.
The company holds a 98.6 percent on time rate, according to Natalie Jones, vice president of brand development at Mannington Commercial, "90 percent of orders ship in five days."
The company has already brought the first locking system production line to the U.S. LockSolid is now being made in the Conyers facility. That equipment was put in place last July. "Within residential, click is the fastest growing sub segment. lt is also an important player in commercial as well," Sheehan said. "We are the first ones to do that here."
Embossed in register capability will be increased in 2014 and 2015. That business is also important to residential as well as commercial.
And, Jones said, the company is also "enhancing the sustainability features of LVT. We have the ambition to be the environmental leader in LVT." To that end, the company currently uses 30-55 percent recycled (post-industrial) material in its product.
Building the empire
Amtico Road, leading up to the Madison facility, winds through a vast property — some 17 acres purchased by Amtico in the late '90s so there is plenty of room to grow. It will soon include a warehouse that can bundle commercial product and eventually residential product. Already a foundation has been laid to extend the current manufacturing site for further expansion.
Mannington got into the LVT business in 2003 at the request of its distribution partners. It started off simple with just 13 patterns and a 16 X 16 tile format. A year later, it entered the commercial market. "Today we operate multiple brands and product lines," said Sheehan. "It's the fastest growing category."
Prior to acquiring Amtico, Mannington Commercial had about 11 percent market share of the LVT business. "Amtico was definitely the market leader," said Sheehan. Today, he said, Mannington Commercial, including Amtico, enjoys a leader position with 42 percent share.
“We want to grow and extend our market leadership in LVT. And with Shaw and Mohawk in the business, we need to invest in technologies that will provide us with a sustainable competitive advantage,” he said.
As the Commercial division grows, it will preserve the product lines that have become important to the market — Mannington including Nature's Path, Nature's Path Select and Walkways; and, Amtico and Spacia.
Though the sales force for Mannington and Amtico is combined, the brands will continue to go to market in their respective traditional ways — Mannington through distribution and Amtico direct. "On the direct selling side of our business, it's one commercial sales force with our 'Choices that Work' strategy," explained Sheehan.
The Mannington expansion is a significant contributor to growing the local economy. Jones noted that with the expansion and investments, there has been a 30 percent increase in jobs in Madison and in Conyers where the cutting is done.
Amtico was known for its custom work — which happens primarily in the Conyers facility — in the commercial sector and that is a key focus as Mannington Commercial expands and grows. To that end, the company intends to invest resources in this unique capability.
"I think we have a compelling story in residential and commercial," said Sheehan, noting superior styling and performance as part of the story. "We have more than 280 choices that ship in five to seven days," he said. "Nearly all Amtico and Spacia products are produced in the U.S. as is 40 percent of the Mannington commercial line. We are doing this to provide the best service to our customers."