Floor Covering Weekly April 7, 2014 : Page 1
Vol. 63 No. 7 A Hearst Business Publication April 7, 2014 $4 F LOOR C OVERING W EEKLY The Industry’s Business News & Information Resource Finkell is back with 3 new wood venture Mullican outpaces growing market US production, automation drive results By Mallory Cruise [Johnson City, Tenn.] The hardwood flooring industry grew at a rate of 10 percent last year, the first significant industry growth since 2005-2006, according to Neil Poland, president of Mullican Flooring, based here. And his outlook for this year is even more positive as housing starts are projected to be up over 25 percent this year after rising over 22 percent last year. Not only is the industry back on track, he said, Mullican’s business strategy is on target for continued growth that will out-pace the industry overall. “We believe we are taking market share. For this year, given how badly the weather’s been, it has started out better than expected. And our goal for this year is continued double digit sales growth,” Poland said. One factor contributing to the industry’s growth, he noted, is Hurricane Sandy construc-tion, which hit the Northeast in October 2012. “People fail to remember that the New York Metro area, which includes north and central New Jersey and Long Island, is the wood flooring production world’s largest ¾-inch solid stateside in 2012 and Poland hardwood flooring market. said that it has proven to be The hurricane provided a a great growth opportunity, lift in building last year and, adding that Made in U.S.A. because of delayed building, products truly gained momen-will continue to provide a lift tum during the recession. this year,” Poland said. Historically an importer The effects of this perfect of engineered wood flooring, storm still pose challenges Mullican supplied lumber to the company as well as and logs to Asian companies the industry as a whole. But and also partnered with Poland said that Mullican Asian factories to manufac-has worked diligently to effi-Neil Poland ture wood flooring products. ciently meet demand, provide a return on investment and maintain mar-“We transferred the majority of our product gins. (For more information on pricing, see here to our engineered wood facility in Johnson City. When we decided to build a story below.) plant here, we were met with an important question, ‘How can you do this and compete Stateside production Continued on page 14 Mullican moved a portion of its engineered FCW Exclusive 2014 Domotex Asia/Chinafloor boasts new product, innovation, sustainability Pricing effects force suppliers By Mallory Cruise [Shanghai] The 2014 Domotex Asia/Chi-nafloor show held here at the Shanghai New International Expo Centre March 25-27 was packed with excited attendees and exhib-itors, and a bounty of new and innovative product. A number of the key messages at the show this year were focused on advanced technology, sustainability and products that promote safer indoor living conditions. Visitors from around the globe attended the Additionally, show attendees and suppliers 2014 Domotex Asia/Chinaﬂoor show. from all over the world came to build on their brand power and relationships. realistic in terms of U.S. marketability. While innovation continues to influence Piet Dossche, president and CEO of the Domotex Asia/Chinafloor show, this USFloors, said that while a number of year, according to attendees and exhibitors, new product stood out to him, one trend in new product innovation has become more Continued on page 8 to streamline production As supply pressure and price increases con-tinue to plague the hardwood market, man-ufacturers are working diligently to stabilize the category while meeting the increasing consumer demand. While the industry has welcomed the increase in consumer demand for wood products, a harsh winter coupled with fewer sawmills to supply lumber has created an imbalance that is forcing makers to streamline costs, absorb pricing when Scott Sandlin possible and intro-Shaw duce new product innovations in an attempt to right course the market. Passing price increases on to retail has also been necessary. Jack Shannon Jr., CEO of The Shannon Lumber Group, which owns Shamrock Plank Flooring, explained that the tanking economy from 2009 to 2012 took with it approximately 40 percent to 50 percent of hardwood capac-ity. Now that the economy is rebounding, there simply aren’t enough sawmills to meet the growing demand, he said. “Many of the manufacturers didn’t have the capital or the relationships with banks to carry them through the slow times. So, what you have now in the industry are the survivors,” said Shannon. “We’re all smiling because business is great and prices are up but how can we raise capacity when we can’t find anyone to cut the logs?” Kevin Bieder-mann, senior vice president, residential flooring products, Dan Natkin Armstrong Flooring, Mannington added that during the downturn, sawmills also dramatically cut back on capacity and inventory, or simply went out of business, creating a lean supply environ-ment and making it difficult for manufactur-ers to react to the market change. “With spikes in demand of both floor-ing and from other industries, the logging industry wasn’t able to supply. The wet weather in the fall also had a severe impact Periodical For breaking news updated each business day, visit us online at www.fcw1.com Continued on page 14
Mullican outpaces growing market
[Johnson City, Tenn.] The hardwood flooring industry grew at a rate of 10 percent last year, the first significant industry growth since 2005-2006, according to Neil Poland, president of Mullican Flooring, based here. And his outlook for this year is even more positive as housing starts are projected to be up over 25 percent this year after rising over 22 percent last year.
Not only is the industry back on track, he said, Mullican’s business strategy is on target for continued growth that will outpace the industry overall.
“We believe we are taking market share. For this year, given how badly the weather’s been, it has started out better than expected. And our goal for this year is continued double digit sales growth,” Poland said.
One factor contributing to the industry’s growth, he noted, is Hurricane Sandy construction, which hit the Northeast in October 2012.
“People fail to remember that the New York Metro area, which includes north and central New Jersey and Long Island, is the world’s largest ¾-inch solid hardwood flooring market. The hurricane provided a lift in building last year and, because of delayed building, will continue to provide a lift this year,” Poland said.
The effects of this perfect storm still pose challenges to the company as well as the industry as a whole. But Poland said that Mullican has worked diligently to efficiently meet demand, provide a return on investment and maintain margins. (For more information on pricing, see story below.)
Mullican moved a portion of its engineered wood flooring production stateside in 2012 and Poland said that it has proven to be a great growth opportunity, adding that Made in U.S.A. products truly gained momentum during the recession.
Historically an importer of engineered wood flooring, Mullican supplied lumber and logs to Asian companies and also partnered with Asian factories to manufacture wood flooring products. “We transferred the majority of our product here to our engineered wood facility in Johnson City. When we decided to build a plant here, we were met with an important question, ‘How can you do this and compete with Asia?’.” Poland said.
Well, there are a few ways. The cost of raw materials here, on a delivered basis, is cheaper than in Asia, he explained. Secondly, is automation of plant machinery.
“We can manufacture engineered flooring with a fraction of the number of positions that would be required to manufacture product in Asia. As a company, we have made a bigger investment in automation equipment than the typical Asian company would make. Also, removing the freight and energy costs of shipping logs and lumber back and forth enables you to be more competitive,” Poland explained.
At the beginning of this year, Mullican added a shift to its engineered production line and its finishing line. And, according to Poland, the company will “continue to expand production and employment at this facility in 2014.”
He added, however, that the company still imports products when it proves to be more cost efficient. “When you’re manufacturing product, you want to remain efficient and we have continued to import product that, at this place and time, can be more proficiently imported than produced here,” said Poland.
What the industry needs right now, said Poland, is increased lumber production and log volume to come out of the forest.
“I think that’s setting up nicely the hundreds of companies that have plans in place to expand production. Once we get to periods of dry weather, I think lumber volumes will come up significantly and, eventually, towards the end of the year and beginning of 2015, allow prices to come down slightly,” said Poland.
“We’re seeing increased sales volume growth, despite margins facing pressure due to rapidly rising costs. Over time, we believe we’ve invested more in lumber purchasing, veneer purchasing, man power and supporting the lumber industry by being involved over the long term with trade association groups,” he explained.
Green growth in hardwood
As past-chairman and former member of the Board of Directors for the National Wood Flooring Association (NWFA), Poland was one of the founding members of the NWFA’s Responsible Procurement Program (RPP), a joint venture between environmental groups and industry manufacturers committed to promoting responsibly produced hardwood floors.
“We have done the work to confirm that hardwood flooring is a naturally renewable and recyclable product that has a positive impact on the environment. I believe we need to get more members and manufacturers to join the RPP program and communicate that U.S. forests are the gold standard in healthy forests worldwide,” Poland said. In fact, the U.S. forest service has confirmed a growth to removal ratio of 1.8 to 1.
He also noted that unlike a couple of decades ago, the hardwood salesman, retailers and distributors are prepared to talk to the customer from an environmental standpoint. “Today, industry members have access to plenty of tools and links, because of the NWFA and other lumber associations, to explain how healthy our industry is as it’s related to sustainability,” he said.
Pricing’s expansive effects
The hardwood timber supply chain was damaged tremendously during the Great Recession of 2008-2012. Here are just some of the factors that have led to historically high lumber prices which have increased by more than 60 percent in 2012 as demand escalated early this year:
Landowners are reluctant to sell their timber due to historically low prices; a reduction in the number of logging contractors over the past 10 years; the number of hardwood saw mills decreased by more than 50 percent since 2007; and, sawmills reduced shifts of production setting the stage for skyrocketing hardwood lumber prices.
Poland has been at the helm of Mullican since 1999, all the while working with many industry leaders and NWFA executives to guide the industry to more sustainable processes and product in developing the RPP. During his leadership, the industry made great strides assisting companies to become Lacey compliant and become third party certified confirming responsible harvesting.
He began his career in the resilient division at Armstrong in 1983, joined Bruce Hardwood Floors in 1984, followed by stints at Kentucky Wood Floors and Tarkett, before joining Mullican in 1999.
And, spending 11 years on the NWFA board, plus one year as chairman from 2010-2011, has afforded Poland the opportunity to be involved in the industry in a number of ways, as well as gain meaningful insight into an ever-changing segment of the flooring industry.
Read the full article at http://bt.e-ditionsbyfry.com/article/Mullican+outpaces+growing+market/1678982/203959/article.html.
2014 Domotex Asia/Chinafloor boasts new product, innovation, sustainability
[Shanghai] The 2014 Domotex Asia/Chinafloor show held here at the Shanghai New International Expo Centre March 25-27 was packed with excited attendees and exhibitors, and a bounty of new and innovative product. A number of the key messages at the show this year were focused on advanced technology, sustainability and products that promote safer indoor living conditions. Additionally, show attendees and suppliers from all over the world came to build on their brand power and relationships.
While innovation continues to influence the Domotex Asia/Chinafloor show, this year, according to attendees and exhibitors, new product innovation has become more realistic in terms of U.S. marketability.
Piet Dossche, president and CEO of USFloors, said that while a number of new product stood out to him, one trend in particular that made a splash was woven vinyl flooring.
“One of the most innovative products was a woven vinyl flooring product on a PVC base, cut into a tile format. The construction can replicate different looks like linen, sisal or rattan, and even bamboo in various colors and textures. It’s more of a commercial oriented product, but certainly has some appeal as well for modern, urban chic, contemporary, residential applications,” said Dossche, adding that a number of the products he saw while touring the show “are appealing for the U.S. market.”
Another key message at the show was placing sustainability at the forefront of manufacturing efforts. More and more Asian companies are consistently working hard to produce safe and health-conscious flooring.
In fact, while many Chinese manufacturers touted the value of sustainability, one company in particular who placed an important emphasis on sustainability was Novalis. Novalis produces floors on the mantra that “sustainability is closer than you think.”
“Health and safety are at the forefront of everyday concerns for the Chinese people. Many will pay more for the best products and they ask for certifications,” explained John Wu, CEO, Novalis Innovative Flooring. Novalis won FCW’s GreenStep Asia award for Best Practice/Process.
Dossche at USFloors agreed, adding that “Not Made in China but Made in the West still has the seal of quality and environmentally responsible raw materials and comments attached to it which appeals to the more affluent Chinese consumer.”
At Domotex this year, Välinge highlighted a broad range of technologies, including its well-known 2G and 5G mechanical locking systems, several surface technologies such as ACTiO2 for improved indoor environment, Nadura flooring based on Välinge’s Wood Powder Technology and digital printing.
“Domotex Asia/Chinafloor is certainly a growing event and Välinge is really pleased with this year’s show. Visitors at our booth could also learn more about the invisible locking profile for outdoor decking, the 5G locking system in furniture as well as cost saving technologies such as powder backing for laminate and Nadura flooring, lamella core for engineered wood and carving/splitting technology,” said Per Josefsson, business unit director and regional manager China, Välinge Innovation.
And, he said, the high proportion of global visitors contributed to an international atmosphere at the trade show.
“The interest in Välinge’s technologies like 5G-C in LVT from visitors doing business in the North American and European markets outperformed our expectations,” added Josefsson.
Thomas Baert, president of Lamett and president of Chinafloors, likened the Domotex Asia/ Chinafloor show to a candy store.
“What enthusiasm. Worldwide flooring experts came together to enjoy and see what is next in flooring. Domotex Asia/Chinafloor has become the largest hard surface floorcovering event in the world. The show was filled with plenty of ideas, inspiration and the latest innovations. It is hard to absorb in three days but for sure we will all go back with great energy to excel in our lives. Every flooring professional missing this event should respectfully reconsider his priorities,” he said.
And, according to Dossche at USFloors, while Domotex is still predominately an export oriented show, every year more and more Western manufacturers are exhibiting their products in the hopes of breaking into the Chinese market.
“The long-term future of this show is clearly to provide to Western and other global manufacturers as well as local Chinese companies the gateway into the growing Chinese domestic market as the middle class expands, with more disposable income to spend on upgrading their floors,” said Dossche.
Michael Martin, president and CEO of the National Wood Flooring Association (NWFA), said he felt the show exhibited good energy this year, and it seemed as though a lot of business was being conducted, as opposed to just tradeshow conversations.
“Our exhibitors in our NWFA/ American Hardwood Export Council (AHEC) pavilion all reported that the show was great, and many who attended went home with more orders than last year. Members of our Board of Directors also had an opportunity to meet with executives from the Chinese National Forest Products Industry Association and the Dalian Wood Products Industry Association to begin talks about global manufacturing and installation standards, the sharing of education and best practices,” he said.
Pricing effects force suppliers to streamline production
As supply pressure and price increases continue to plague the hardwood market, manufacturers are working diligently to stabilize the category while meeting the increasing consumer demand.
While the industry has welcomed the increase in consumer demand for wood products, a harsh winter coupled with fewer sawmills to supply lumber has created an imbalance that is forcing makers to streamline costs, absorb pricing when possible and introduce new product innovations in an attempt to right course the market. Passing price increases on to retail has also been necessary.
Jack Shannon Jr., CEO of The Shannon Lumber Group, which owns Shamrock Plank Flooring, explained that the tanking economy from 2009 to 2012 took with it approximately 40 percent to 50 percent of hardwood capacity. Now that the economy is rebounding, there simply aren’t enough sawmills to meet the growing demand, he said.
“Many of the manufacturers didn’t have the capital or the relationships with banks to carry them through the slow times. So, what you have now in the industry are the survivors,” said Shannon. “We’re all smiling because business is great and prices are up but how can we raise capacity when we can’t find anyone to cut the logs?”
Kevin Biedermann, senior vice president, residential flooring products, Armstrong Flooring, added that during the downturn, sawmills also dramatically cut back on capacity and inventory, or simply went out of business, creating a lean supply environment and making it difficult for manufacturers to react to the market change.
“With spikes in demand of both flooring and from other industries, the logging industry wasn’t able to supply. The wet weather in the fall also had a severe impact on the ability to physically get the logs out of the forest. These things combined led to the significant continuing increases in raw lumber prices,” he said.
In particular, Neil Poland, president of Mullican Flooring, said lumber supply is currently the largest challenge to the solid hardwood market.
“If you look at the lumber prices going back to August of 2012 and reference the market reports, the prices of red oak and white oak are up more than 60 percent since that time. Veneer prices have also increased during that time period,” he said, adding that the demand for lumber has in fact increased globally as well. “With the increase in demand, we saw a lot of heavy buying from Asia, specifically from China of purchased kiln dried lumber from the U.S. Hardwood has become popular there — especially American branded red oak,” he said. “Also, there has been continued competition for 2 C / 3 A red and white oak from the Industrial segment.”
And the severe winter weather hasn’t helped the situation, according to suppliers. And, added Dan Natkin, director of wood and laminate business at Mannington, “Unfairly traded imports continue to be one of the other big headwinds in the industry. We are awaiting the final results of the first annual review of the ITC case. The second annual review has started as well.”
Scott Sandlin, vice president of business development, hard surface, at Shaw Industries, agreed saying that it is important for the country as well as the industry to stop accepting unfair trade practices from many import suppliers.
“If distributors, dealers, home centers and others do not take a stand here competing against subsidized materials will continue to be a challenge,” he said.
Lessening the impact
Discovering alternative species and manufacturing techniques are just some of the ways suppliers are trying to lower production costs.
“We constantly seek better ways to manufacture the product, alternative species, as well as alternative products,” added Natkin at Mannington.
Biedermann said that, going forward, forecasting demand is also important. “We’re trying to get an idea of what customer demand is as we continue into 2014, and we’re trying to secure sources of supply and consistency in delivery. Hopefully we can help mitigate against pure supply issues. We, and others, are trying to do everything we can to be as efficient and effective as possible but on solid wood there’s a physical limitation,” he said.
Sandlin said that Shaw works diligently on its supply chain to manage every aspect, from accelerating costs to inventory balances in order to help ease the effects of price increases on its customers.
“Ultimately, our number one focus is to service our customer better than anyone and this doesn't give you a ton of flexibility during a time of rising costs,” he said.
For solid hardwood, when it comes to absorbing long term inflation and raw material costs, manufacturers can absorb costs on a short term basis but long term proves more strenuous when promoting pricing stability in the industry, according to Patrick Barnds, vice president of product management, hardwood, at Armstrong.
“I think a big part of our responsibility, as a manufacturer, is to be smart about increasing demand so we don’t leave the industry short of supply. We absorb pricing to bring a steady and consistent supply of material to market. But, the worst thing would be to play games with raw materials and leave industry with shortages which is a much bigger threat than inflation,” he said.
And while suppliers are working to manage the increases, distributors and dealers are also feeling the impact now.
“It isn’t good news to see retail prices increase from $1 to $1.50 and move entry level from $2.99 to $3.50 or even $4 for a solid hardwood. Hopefully it doesn’t change the purchase decision of a consumer. It’s all about educating customers on grade quality and making sure there’s consistency of supply and quality. We’re working with a pricing economy on what we need and what retailers need to promote a viable hardwood industry to support the consumers,” explained Biedermann at Armstrong.
Part of the reality too is that increasing wood prices allows other categories to take market share. “We’re seeing composites, LVT and other green alternatives taking market share away from hardwood flooring. That puts a crunch on solid hardwood flooring industry because there’s competing product coming in that’s putting downward prices on solid hardwood,” explained Shannon.
Mullican’s Poland agreed that while consumers do prefer hardwood to other products, the price of prefinished solid hardwood flooring had gone up so it was at risk of losing share to engineered wood and other flooring options.
“Prices went up too much too quick. We had five industry price increases in the beginning of 2013 and that’s unchartered waters. We have never experienced anything like that in our industry,” he said.
The good news, however, said Biedermann at Armstrong, is that the industry will see supply and demand equate in the near term.
“There’s plenty of hardwood in the forest, that’s not the issue; it’s just a matter of sawmills ramping up. In the next six to twelve months we hope to see supply catch up to demand and see stability in prices,” he said.