Laminate Update 2008 - August/September 2008

By Brian Hamilton

Today’s laminates are better looking than ever and many have outstanding performance characteristics comparable to more expensive hard surfaces. Manufacturers have gotten more creative in the last couple of years, mimicking everything from exotic handscraped woods, to stone and concrete.

The locking systems also continue to evolve and are easier to use every year. In addition, since 1996, the average wholesale price has fallen nearly 40%. It’s a flooring category that in many ways has a lot of appeal, but the muddied economy makes it harder to see.

However, the laminate industry took its first major hit in 2007 as sales fell off nearly 8% to $1.2 billion, according to Santo Torcivia/Market Insights. While no one we talked to is predicting sales to plummet by that much again this year, flooring executives aren’t exactly optimistic either, as the housing crunch and tight credit market remain issues to contend with. It remains to be seen what impact the federal housing stimulus package has on first-time home buyers, who will receive a $7,500 tax credit. Those buyers account for about four in ten home purchases, according to the National Association of Realtors. Laminate pricing, durability and styling make it a good fit for entry level homes.

Before last year, laminate sales had grown 8% in 2006, 10% in 2005, and more than 30% in 2004. The U.S. FlooReport projects sales to rise less than 1% this year, but that could be optimistic as about 91% of sales are in the residential sector. The only bright spot is that commercial sales rose 1% last year.

There are also some signs that laminate may be becoming a more mature product category, which will lead to less robust growth than in the past. The industry is about 15 years old now and its rapid upward sales trajectory couldn’t continue forever, even with a glowing economy. Laminate makes up about 5.3% of all flooring sales, which is comparable to its share in Western Europe, a much more mature laminate market.

Also, about 70% of laminate sales are in its wood looks, and, unfortunately for the industry, wood prices have been coming down due to oversupply—at least partly due to the fall off in home construction—so that the gap between top of the line laminate and wood is narrowing. Some consumers who might otherwise have chosen laminate are opting for the real thing instead. Retailers like Lumber Liquidators, which is expanding aggressively, are also making wood more widely available and affordable, especially for the do it yourself market. Of course, the laminate players like to say that their product is more durable than wood, especially when it comes to resisting things like scratches from pets and damage from moisture.

Laminate may also be getting squeezed on the low end by vinyl, specifically luxury vinyl tile, which has substantially improved its wood looks in recent years and in many cases has better performance characteristics. Vinyl also doesn’t have the characteristic hollow sound of laminate, which manufacturers have been struggling to deal with since Pergo introduced the category to the U.S. market in the early 1990s. Laminate makers have tried underlayments and other fixes with varying degrees of success.

Because laminate is a heavy user of petroleum products, virtually every major player has seen its raw material costs rise and has instituted price increases this year. And it’s likely more hikes are on the way. The price hikes that have occurred so far haven’t covered the increased costs. Plus, with sales tapering off, manufacturers can’t rely on increasing volume to make up the difference.

THE PLAYERS
Armstrong’s sheer size gives it the ability to do things other laminate companies can’t, and one of them is to continue to spend aggressively on advertising, even in a down market. Armstrong, which outsources laminate production, has increased its advertising budget and in July began a national sale that runs through September with savings of 20%. The company has done national sales in the past but not with the same fanfare. The advertising is being supported with point of purchase materials and materials for distributors.

Armstrong’s fastest growing laminate market is outside the U.S., although its sales base is much smaller. Increasingly it is shifting its manufacturing out of Europe to China and the U.S. to better supply its markets and cut costs.

The company also rolled out new patented technology—developed by one of its Chinese partners—dealing with the way laminate is pressed, to give Armstrong’s upper end products better clarity, so that its wood products look like real wood.. Its recently introduced Grand Illusions line uses the technology.

Like other players, Armstrong’s prices are going up as the cost of raw materials and transportation increases, and it’s likely the price hikes will continue this year and next. The firm outsources all of its transportation.

Armstrong is looking at getting into the commercial laminate market later this year. That sector has held up much better than the residential market, and Armstrong doesn’t see much of a turnaround in the residential business until 2010.

Mannington believes it has held its own in the laminate market in the last year, not losing marketshare but not gaining, either, by continuing its strategy of selling mostly upper end products through specialty flooring stores, and, to a lesser extent, through the builder market. It is trying to stay fairly aggressive in its advertising and marketing, and its new product launch at Surfaces this year was unprecedented for the company. Among its new features this year are variable beveled edge looks and it is working on new products for later this year with the popular glossy “piano” finish. Its new Time Crafted Maple collection, with four different colors, mimics handscraped woods and has proven to be popular.

Mannington is helped by the fact that its products are manufactured in North Carolina, which gives it much greater cost control.

Mannington only has a small commercial business—it doesn’t even advertise commercial laminate on its website—but it is looking at stepping up its efforts in that segment.

Quick-Step, Unilin’s dominant laminate brand (Unilin is part of Mohawk Industries), is concentrating on producing a higher percentage of its direct pressure laminate products in the U.S. By the end of the year it would like to raise that percentage from about 70% to 90%. Unilin began increasing its investment in greater capacity at its Thomasville, North Carolina plant last year—total investment is projected to be over $50 million—and fairly soon should be able to make nearly all products for Quick-Step, as well as many products for the Mohawk and Columbia brands. The plant will have the capacity to produce as much as 500 million square feet. The new equipment will also give the company state of the art capability and high productivity. And additional domestic production should allow Quick-Step to continue to improve its customer service, partly through shorter ship times.

After a fairly significant product launch early this year, Quick-Step decided to forego its usual mid-year introductions and focus on another major launch toward the end of the year.

This year Quick-Step came out with a new locking method called Unilink, which made its debut in the Linesse collection. The new technology cuts installation time and gives wood looks a more natural appearance. The company is still educating customers because it’s different from the company’s Uniclic. Slowly more products will get the new locking system.

Last year Quick-Step invested more of its marketing dollars on displays, and this year the focus is on consumer advertising to get the name more well known in the market.

The Mohawk brand is more focused on the middle price points and higher volume and is the only one of the three to be sold at home centers. Mohawk also sells into the builder market through its Mohawk Portico program. The Columbia brand, part of the deal for Columbia’s wood floor assets last year is sold through distributors Columbia’s products focus on more traditional American wood looks, although it has two collections of tile looks. Mohawk wants all three lines side by side in showrooms, partly because there’s very little product crossover.

Tarkett has spent about $100 million to upgrade a plant in Clarion, Pennsylvania to produce its hardwood coreboard called Americore. The vertical integration allows Tarkett to have tighter control of costs, and coreboard generally accounts for about 70% of the cost of laminate flooring. Tarkett also built a laminate plant right next door. The entire production in Clarion is for the North American market, which should allow Tarkett to improve its customer service to distributors and retailers. Last year was a transition year for Tarkett as it began to ramp up production in Clarion and bring inventory levels down.

The plant is also dedicated to producing designs for a North American audience, where tastes run more toward traditional oaks, maples and cherries, compared to the European preference for exotics. Tarkett says it is appealing to the North American consumer who is starting to like glossy finishes, which are not so popular in Europe, and Tarkett has added 19 SKUs, with glossy looks, including its New Frontiers and Journeys collections. In addition, consumers here have higher expectations for performance. Tarkett is focused on wood looks and is planning tile looks for later.

Tarkett sells through distribution to buying groups and independent flooring stores. It also has a significant business with home center Menards in the Midwest. As part of the recent transition, Tarkett has retrofitted displays with new graphics and samples, emphasizing style and durability. Although Tarkett is focused on the residential market with mid price point products, all its laminates are rated for commercial use.

The big news at Faus Group is its decision to bypass distribution and market directly to specialty retailers. The change came about partly because of the Hoboken bankruptcy. At that point Faus got a crash course in going direct to about 1,000 customers and discovered the company could handle it logistically. However, it’s been a significant shift for the small company. Instead of dealing with a dozen or so distributors, it is dealing with thousands of retailers and all the work that entails, such as maintaining retail displays. Now the firm’s focus is on telemarketing and contacting as many customers daily to make sure it is meeting its customers’ needs. It has added regional sales managers and is adding a layer of district managers. So far, the big surprise has been how many more displays it’s selling, along with product updates and gallery updates, and it says the customer reaction has been very positive. Customers want more focus on products and they haven’t been able to get that through distribution, Faus said. The direct model has also opened up some business that wasn’t available before. The firm does, however, use logistics partners to handle its home center business, which is through a different division.

This year Faus is launching 40 new products and a new merchandizing system with new sample size, cards, and photos. The new products include Innovations, a 5” high gloss wood, and Essentials Plus, a 5” soft scrape. A few months ago, Faus began a new online sampling system, where anyone can order samples directly at no charge, and so far it’s been a successful venture.

The company also continues to add more manufacturing capacity at its Dalton, Georgia facility.

This year Alloc has been putting added emphasis on the commercial market—which accounts for about 35% of sales—because commercial business has held up reasonably well over the last year and its heavy duty aluminum locking system, along with its high pressure laminate with a top AC 6 wear rating, are especially suited for heavy commercial applications. However, just in the last couple of months it has seen some softening in the commercial market. Alloc has been targeting national retail chains such as Verizon phone stores and the hospitality segment. One change the company has seen in the market is the significant competition from engineered hardwood and luxury vinyl tile.

Upper end products continue to sell well for both Alloc, and its sister company, Berry, both part of Beaulieu International Group. Berry sells strictly residential products.

One significant change this year is that the Alloc and Berry sales organizations have been combined into a single residential group, with a separate commercial group. The company saw the potential for growth in the commercial market and it wanted better focus. In addition, it didn’t need to have two sales reps in one territory. However, the brands are still distinct. In addition there’s only one customer service group for both brands.

The company is staying aggressive, with a new product launch scheduled for fall, and another at the beginning of next year. Alloc will be offering new direct pressure laminate products for the residential market later this year.

Alloc and Berry, along with competitor Armstrong, won a patent dispute with Pergo late last year over the validity of its locking systems.

Two years ago Kronotex licensed the Formica name to produce a new upscale Formica Flooring laminate brand. That came two years after Formica exited the North American laminate business entirely. Manufacturing is in Kronotex’s plant in Barnwell, South Carolina, as well as European facilities.

In a sense the organization is still in start-up mode, although the Formica name has a lot of name recognition from its countertop business, and that has helped sales. Still, the company has to spend a lot of time educating retailers. In the last year, sales have been up a bit, with 95% of sales residential and 5% light commercial. Several new distributors have been added, and the company keeps adding to its product lines, with 15 new SKUs this year. New products this year are capitalizing on the glossy finish trend. Bellafina has a high gloss mirror finish in exotic wood looks, Bellezza, natural stone and marble designs with a mirror finish, and Mirabella, wood looks with micro beveled edges and a semi-piano finish.

Kronotex offers products at all price points and sells through all channels.

Shaw, like everyone else, has seen laminate sales slide over the last year and sales have been essentially flat, varying a little from channel to channel. The company is focusing its efforts at the low end, to drive value, and on the high end, with different looks and visuals, incorporating higher gloss and more scratch resistance. It’s trying to give its customers a good reason to move up in price. This year it launched 16” stone looks Majestic Vision and Majestic Grandeur. Its major sellers continue to be the exotic wood looks with deeper, richer colors.

Shaw is also looking at the entire way it goes to market. With fuel prices on the increase and raw material costs rising, shipping from Dalton is a lot more expensive than it used to be. With manufacturing in Dalton and Seattle, and a couple of products imported, it’s exploring how it can move products to different points and provide a better service. Most of its sales are through flooring stores and flooring dealers.

One good sign is that Shaw is seeing many of its carpet stores devoting more space to displaying hard surface products, sometimes as much as 50% of the showroom, and its relationships on the carpet side are helping out laminate sales.

Shaw has a small commercial business and that has been the bright spot in sales. Its products end up in mainstreet applications as well as in military housing.

Pergo, the inventor of laminate, is still working through its purchase last year by Pfleiderer AG, which, among other things, has given the brand more North American manufacturing capability, especially in Canada. This year Pergo has concentrated on its consumer advertising with its Pergo The Dog campaign (a 110 pound Great Dane) through specialty retailers. It is also launching a website around the new campaign, which will focus on its new product lines. Its research shows that 85% of laminate buyers are pet owners and that strong branding is providing a distinct sales advantage as consumers are gravitating to well known names. Pergo sells through distribution and has a significant presence in home centers.

Pergo is also targeting the commercial market this year with Pergo Commercial, a new high pressure laminate line. It wants to be more visible in the A&D community. Also new this year is its “ultra premium” line called Elegant Expressions, with satin gloss finishes and narrow format.

The firm has also come up with a new overlay called Scratch Guard Advance, which it says offers 30% better scratch resistance as well as greater clarity for darker laminate styles.

Wilsonart, which only makes high pressure laminate, has rolled out its version of a piano finish, called Silken, which is not as high gloss as the competition. Four products with the finish, including Flare Cherry and Daring Walnut, are in the top half of the Wilsonart lines as measured by sales. These products also have a five year commercial warranty. About 15% of Wilsonart’s sales are commercial. Its products are sold through specialty retailers and commercial contractors and not through mass merchants.

Last year Wilsonart introduced its first dedicated commercial line of 30 products, along with a commercial sales team. This year it has held back on new commercial products, and has been relatively miserly on the residential side as well, with four new products.

The company is spending the bulk of its marketing budget supporting its Synergy Program, which targets flagship dealers, essentially the top 20% in sales. Last year it rolled out new 13’ displays that were capable of showing the entire Wilsonart line. The program is in its second year and perks include website referrals and advance shipments of new products, as well as financing programs and satisfaction guarantees that are not available to other stores.

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