Ceramic Tile Report - April 2013

By Jessica Chevalier

Ceramic tile was the fastest growing product category in 2012, according to estimates by Market Insights, LLC. The category grew by 6.5%; hardwood, the next fastest growing category, had 4.4% growth. So it’s no surprise that, as a group, U.S. ceramic tile manufacturers are feeling optimistic, buoyed by the upturn in the housing market, which has improved beyond “hope so” into the realm of certainty, barring any unforeseen significant events. U.S. consumers, now that they are spending again, are seeking out materials that feel substantial and will offer longevity. Tile fits the bill, and many manufacturers report that they began to feel positive movement in late 2012, continuing into 2013.

Last year brought a major event to the industry—the news of the pending acquisition of Marazzi by Mohawk Group. In late November, Mohawk Industries announced that it would acquire the Italian tile maker Marazzi Group for $1.5 billion in cash and equity. Following the acquisition, Mohawk will become the worldwide leading supplier of ceramic tile, according to industry analyst John Baugh of Stifel Nicolaus. Marazzi is already the second largest player in the U.S. tile market, behind Mohawk’s Daltile. The Marazzi Group is also a leading manufacturer and marketer of ceramic tile in Russia, Italy, France and Spain.

Marazzi’s 2011 revenues were about $1.16 billion. The company is currently held by the Marazzi family and two private equity funds—Permira and Private Equity Partners. The transaction is expected to close in the first half of the year.

SIZE & SHAPE
Just a few years ago, rectangular formats were making a splash in the U.S. market, new and European in feel. Today, the 12”x24” tile is considered a standard offering, and rectangular formats are popular in both the commercial and residential markets. As wood looks are another U.S. market trend, it makes sense that these formats are being pushed toward the plank shape. Florida Tile is introducing an 8”x36” product this year. European manufacturers push ceramic tiles to 48” lengths.

In square formats, sizes continue to grow; 24”x24” and 36”x36” are now common, and rectified edges are the standard.

Thin tile is another important trend that is anticipated to grow significantly in the U.S. market, although not as much for flooring applications as for interior and exterior walls. According to Florida Tile’s Sean Cilona, “The thin tile trend is still in its infancy here. Only a few factories in the world can produce 3mm tile.” As this trend grows, the industry will have to adapt. The TCNA, for instance, is working on establishing new installation standards for the product category. And the A&D and installation communities will have a learning curve regarding specification, use and installation of the products. Along with that, specifiers and end users will need to grow their confidence in the product. Currently, some are still wary about its ability to perform long term, especially as a floorcovering. Only time will ease those concerns. As of yet, the majority of U.S. manufacturers aren’t offering thin tile. Daltile and Crossville offer thin tile, but both recommend the product for wall use only.

PORCELAIN VS. CERAMIC
Porcelain tile continues to take share from standard ceramic tile. This may be, in part, a result of the recent recession—when consumers spend today, they want to get the best product that they can for their dollar. Porcelain is harder and less porous, and therefore perceived as better, even though regular ceramic tile is more than adequate for indoor residential applications.

According to Emser’s Bob Balducci, because efficiencies and technologies have improved, the price points of porcelain, traditionally more expensive to produce, are moving closer to ceramic price points. In addition, high logistics costs have made it prohibitive to import lower-end products. These combined factors mean that porcelain, a product that carries a higher price tag to the end user, can be produced for a cost that is almost comparable to ceramic, transported for the same cost but sold for considerably more.

Some manufacturers, like many in Mexico for instance, still focus on ceramics because that is what they excel at, but quite a few U.S. producers have gone to porcelain-only production over the last few years.

VISUALS
There seem to be two important trends in the U.S. tile market: a preference for honest looks and an appreciation of more contemporary visuals. Both trends, however, are made possible by the ever-improving inkjet technology that hit the U.S. market a few years ago.

Inkjet printing enables manufacturers to produce much more realistic looks, so stone and wood tiles now feature color variation and texture (both visual and physical) akin to the real product. These products are selling well in a market that, rebounding from the recession, is seeking authenticity and substance.

On the other hand, now that wood looks have been in the market for a few years, some manufacturers are offering second generations of the materials that play more. Lori Kirk-Rolley of Daltile explains, “Wood emerged as a trend about three years ago. Now, we’re seeing, what I call, wood plus. Products with the look of wood that add other characteristics; these could be a stone look, an overlay with a hint of metallic, the application of different glazes. New techniques are combined with wood looks to give them more flair and character. These can push wood towards the contemporary side. There is a lot of interest in the influence of wood—but not with a traditional look.” While the bulk of residential tile sales may still be in travertine looks, contemporary visuals have made some headway. Along those same lines, European-inspired concrete looks are gaining in popularity too.

GREEN SQUARED
The Green Squared certification program, introduced to the market at Coverings 2012, continues to grow. Quite a few manufacturers, and the bulk of U.S. producers, have already achieved certification for their products, or some of their products, and others are pursuing it currently.

The standard, modeled after other respected green building product standards, takes a multi-attribute approach, addressing product characteristics, manufacturing, end of product life management, corporate governance and innovation.

Green Squared covers a variety of products, including ceramic and glass tiles, powder goods, liquid and paste installation products, panel installation products, and sheet installation products. This allows the industry to offer installed systems of conforming products, the first offering of its kind by any building material industry.

Among the manufacturers with whom we spoke, it seems common belief that the education of specifiers is the most significant hurdle that the industry has to overcome currently. Once understanding of the certification is widespread, those products carrying Green Squared certification should have a leg up in the market.

SPAIN’S STRUGGLES
For over a decade, Spain was a strong member of the European market, with a stellar economy. In fact, according to the New York Time’s article, Spain, the country had the world’s highest rate of home ownership during those boom years.

However, the 2008 financial crisis and the recession that followed resulted in high unemployment rates and significant debt. The Spanish tile market has struggled during this time as well. Since 2010, the country has been implementing austerity measures, hoping to right its economy.

In 2006, Spain accounted for 8% of the world’s ceramic tile production, tied with Brazil as second on the list of tile-producing nations, behind China, which accounted for 39%, according to Market Insights. By 2011, Spain was producing only 4% of the world’s ceramic tile consumption.

It will be interesting to see if Spain’s tile production numbers come up as its economy recovers, or whether the countries that have passed it—Brazil, India, Italy and Iran—will hold their ground.

PRODUCERS
Seeing that the market is again willing to make a statement with design, and cognizant of the fact that Italian design is influential, Imola is working to capitalize on its inherent “Italian-ness,” making certain that design is driving production and not the other way around.

Imola believes that the current market is craving honesty and authenticity in materials. When the company launched its Eramosa statified limestone look called Vein, there were others on the market with a cheaper price tag. But theirs, which is not price sensitive, has seen greater success because it is truest to the material both in look and coloration, reports Imola.

While the ceramic and porcelain markets have traditionally been divided along residential and commercial lines, Imola reports that it is now selling a lot of porcelain for residential use. Imola serves the middle and high end of the tile market, but it is not a boutique supplier. The average retail price for Imola tile is $6.00/square foot.

Though Imola has architectural reps and regional managers across the country making sales, those sales are channeled through distribution. The company’s business is split evenly between commercial and residential sales.

Imola is pressing a 4’x4’ tile with a 10.5mm thickness. Because of concerns about cracking with these large formats, Imola is working with thinset manufacturer Laticrete, which has written a warranty for installations using the product. Imola’s tiles are always rectified. The firm is also continuing to work on its prototype click tile product for the commercial market. The product is self-locking and reduces installation time. Imola is marketing its click tile to specific industries.

Imola reports that keeping 2013’s business at the same pace as 2012’s would result in a great year. Early indications point towards that as a likelihood.

Crossville’s ceramic products are all porcelain and it makes all its core collections (besides glass tile and some decorative products) at its Crossville, Tennessee plant.

Over the last year, the company launched Laminam by Crossville, entering into an exclusive distributorship with Laminam of Italy to supply lean profile, large panel tile to the marketplace. Crossville sees this as an opportunity for growth. It maintains inventory in the U.S. to ensure delivery efficiencies. The line targets the commercial market but, of course, can be used residentially as well. Because this is a new category in the U.S. market, Crossville has hosted Laminam launch events with distributors nationwide to educate them about application and installation.

Crossville has been at the forefront of Green Squared certification. It was the first company to earn the certification for its entire U.S. made porcelain tile line. The company includes the Green Squared logo on all marketing and merchandising materials.

Through its partnership with Toto USA, Crossville has recycled hundreds of thousands of pre-consumer toilets that did not meet inspection and would have otherwise been landfilled. This recycled content is found across all its porcelain tile products, which contain between 4% to 20% minimum recycled content.

When Mohawk completes it acquisition of Marazzi, the company will have three significant tile firms—Daltile, American Olean and Marazzi—that account for about 50% of the U.S. ceramic tile market. Currently, according to Market Insights, Daltile is the second largest ceramic tile manufacturer in the world, and Marazzi is the third largest. Daltile also sells tile to Mohawk aligned dealers under the Mohawk name.

This acquisition, says Daltile, is the next step in the expansion of Mohawk’s global tile business. Marazzi has solid management and leadership teams in the U.S., Russia and Europe, and this will allow Mohawk to expand its distribution—leveraging product from its worldwide assets and utilizing these relationships to benefit all product categories.

Daltile and American Olean products are made in the U.S. and Mexico. Daltile is distributed through the company’s 250-plus service centers, which serve as a local resource for trade customers. American Olean is sold through independent distributors across the nation. Both brands sell residentially, for new homes and residential remodeling, as well as commercially.

Daltile and American Olean participate in Green Squared as well. According to the company, “most” of its manufactured floor, wall and mosaic products are certified. The company prominently features the Green Squared seal on its website and in its marketing materials.

Besides the news that it would be purchased by Mohawk Group, Marazzi had another big event in 2012, albeit a sad one, the passing of its chairman and owner, Filippo Marazzi, who died in November.

In Europe, the Marazzi Group makes floor and wall tile in equal proportions, but in the U.S. it only manufactures ceramic and porcelain floor tiles. These are manufactured in Alabama and Texas.

Marazzi sells through all distribution channels and has been steadily working over the last two years to grow its commercial business through independent distribution and its company-owned service centers. Marazzi’s products target the mid to high end of the market.

Marazzi closed 2012 a bit higher than 2011 and saw increasing demand in the second half of the year that has carried over into 2013.

In 2012, Florida Tile put in a second full production line (press, kiln, decorating, packaging) at its Lawrenceburg, Kentucky facility; this increased the plant’s capacity by 30%. The company made a large investment in the facility in 2006, when it was purchased by Panaria, another Italian firm, and began moving away from traditional ceramic production at that time as well. In 2012, it did away with ceramic wall tile production fully and now focuses on large format, through-body porcelain. Following these investments, the company rolled out new product lines in fall 2012 and spring 2013.

One of those new lines is Natura, a high definition wood look. The company introduced its first wood line in 2011, and it became Florida Tile’s number one selling product within the year. That product had a more traditional wood look with handscraping. Natura is less rustic; it comes in seven colors and is suited for both the residential and commercial markets.

The Panaria group has eight brands and five manufacturing facilities in total, but 90% of Florida Tile’s products are made in the U.S.—only a few commercial lines and ceramic tile products are imported. A few of Panaria’s brands are already selling thin tile in Europe, but Florida Tile hasn’t launched any thin tile products in the U.S. yet.

The company sells through all channels in the U.S. and Canada, including via its 19 company-owned stores. Three years ago, seeing growth in the commercial market, Florida Tile decided to invest in that market. To that end, the company built a national sales team that focuses on commercial contractors and A&D; this group is separate from the team that services Florida Tile’s distributors.

All products made in Florida Tile’s U.S. plants are Green Squared certified. Dan Marvin, director of quality assurance and technical services at Florida Tile, is on the committee that helped develop the standard.

Now that the market is indicating that the economy is recovering, Emser is returning to its pre-recession strategy of aggressive growth. The last couple of years, the company invested heavily in its infrastructure; now it is investing in strategies that will result in expansion, such as hiring in the field and expanding its product line. The company had cash on hand for these ventures and plans on opening new markets in 2013 and 2014.

Emser, a Los Angeles based company, sells both ceramic and porcelain tile—about two thirds of its business is in porcelain. Ceramics have always been an important part of Emser’s business, but porcelains are becoming more valuable.

Emser no longer develops wall-specific tile. In the past, this was necessary because setting materials could not support the weight of floor tile on the wall. However, today’s advanced setting materials eliminate this concern, so, three years ago, Emser eliminated wall tile as an independent category.

Emser has a unique business model. It operates as a free agent in terms of manufacturing. Currently, the company has factory partnerships in 25 countries, teaming up with the manufacturers that are best at making what it wants. The company has a large commercial market business. It also sells to the trade and through trade partners.

Emser has produced, used and sold thin tile, but it is not yet convinced that the product is a big piece of the market, so it has not added a thin tile line to its collection.

Some of the manufacturing facilities that Emser partners with have attained Green Squared certification, and the company is working with others to pursue it.

One of Spain’s most innovative producers, Inalco sells mostly porcelain tile. Only 5% of its offering is ceramic, and its products are suitable for both floor and wall use. The company is touting its new Slimmker line, which achieves sizes as large as 39”x118” with a 5.7mm thickness. With its thin profile, Slimmker tiles offer numerous environmental benefits, including a reduction in clay consumption, storage space savings and a reduction in the amount of cardboard used for packaging.

Inalco sells through distribution and to the commercial market. The company offers many large format products and sells both normal and non-slip versions of products.

Porcelanosa, a family-owned Spanish firm, continues to expand its presence in the U.S. In the last year, it has opened two new showrooms, one in Atlanta and the other in Beverly Hills. This year, it has openings scheduled for Boston, Philadelphia and Denver. Last year, the company also consolidated its hospitality division; it has specifications in all major U.S. hotel chains. According to Market Insights, Porcelanosa is the fourth largest ceramic tile manufacturer in the world.

Porcelanosa’s sales are split 50/50 between ceramic and porcelain. However, the company is working to educate the market about using the proper materials for the right applications, believing that porcelain tile is overkill in residential applications, unless it is specified for aesthetics.

Porcelanosa introduced its thin tile collection, XLight, in February. The company hesitated about jumping into thin tile due to performance issues but now believes that its 120”x40”, 5.6mm thick tile meets its quality standards.

The company has also worked steadily on high COF technology and can now offer the exact same tiles, style wise, for interior and exterior applications.

Porcelanosa’s factory runs a water purifying system and the company has ISO 14001 certification for its manufacturing process. It also offers tile with up to 95% post-industrial recycled content.

Florim USA, a branch of Italy’s Florim Group, manufactures its products in Clarksville, Tennessee using Italian machinery. The facility manufactures only porcelain tile. Wall tile represents a very small amount of business, and it is sold mostly in the Northeast.

Florim sells through traditional distributors, floorcovering distributors and home centers. It has some commercial business, which is facilitated by distributors who are commercially oriented, but it is still mainly a residential company. The company creates crossover products that can be used in both markets.

Florim does not produce thin tile in the U.S., but its Italian factory does produce a 4mm tile that is sold through its Italian brands.

Florim believes that its introduction of more rectangular format products helped it achieve growth in 2012. The company produces residential/commercial products with a high coefficient of friction. Though this is a small portion of business currently, Florim believes it could grow over time.

The company is in the process of pursuing Green Squared Certification.

Stonepeak, the U.S. arm of GranitiFiandre which manufacturers its products in Crossville, Tennessee, offers commercially-driven porcelain products that go to market through the traditional distribution network.

Stonepeak is working on Green Squared certification currently. The company uses both post- and pre-consumer recycle material in every product that it produces in the U.S. All products also have a minimum of 6% post-consumer recycled glass.

Stonepeak is making significant investments in large format products. Currently, it offers modular porcelain panels as large as 5’x10’, which can be used for interiors, exteriors, countertops and veneers.

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