Sluggish floor coverings sales growth in Q1
Thursday, April 11, 2019 from Floor Covering Weekly
Non-mover’s pent up demand held up consumer spending in recent years. However, the decline in existing home sales finally affected the residential replacement market. By the end of the first quarter of 2019, existing home sales declined for five consecutive quarters. At the same time, builders’ purchases weakened as housing starts and completions declined in the fourth quarter of 2018. Starts continued downward in the first quarter of 2019. The weakness in residential market sales were not offset by continued gains in commercial markets since non-residential sales represent only some 38.0% of total U.S. floor coverings sales. Meanwhile, government markets are now adding to growth after a number of years being a drag on sales gains.
The accumulation of inventories also affected U.S. manufacturer and importer sales. Inventories accumulated as manufacturers and marketers significantly increased import shipments in the second half of 2018 as demand was leveling off. Square foot imports increased by 15.3 percent in 2018 as distributors and retailers pushed up orders for Chinese-made flooring to beat the 10 percent tariffs imposed on Chinese-sourced products in September 2018 and the possibility of 25 percent tariffs imposed sometime in 2019.
The surge in imports resulted in relatively strong gains in dollars and square foot sales in 2018. However, slowing residential demand in the second half of 2018 finally caught up with manufacturers and importers in the first quarter of 2019. Catalina estimates floor coverings sales (shipments minus exports plus imports) could have increased by only 2.3 percent in dollars and 1.1 percent in square feet in the first quarter of 2019. These are some of the lowest industry growth rates over the current recovery period, and down from 5.9 percent and 5.4 percent, respectively, for all of 2018.
The slowdown, however, did not slow the surge in luxury vinyl tile (LVT) sales. LVT and other resilient flooring sales could have continued to increase over 20 percent in dollars and square feet in the first quarter of 2019. Resilient flooring could have accounted for 22.8 percent of total dollar floor coverings sales in the first quarter of 2019, and 26.8 percent of total square foot sales. This is up from 18.5 percent and 22.1 percent, respectively, in the first quarter of 2018. LVT is primarily taking share from wall-to-wall carpet and wood and laminate flooring. In fact, the decline in wood and laminate flooring could have been in double-digits in dollars and square feet in the first quarter of 2019.
The estimated 9 percent drop in U.S. carpet mill production in the first quarter of 2019 led to a decline in carpet and area rug sales. Soft surface flooring could have dropped to 42.2 percent of total dollar floor coverings sales and 46.6 percent of total square foot sales in the first quarter of 2019. This is down from 44.4 percent and 49.5 percent, respectively, for the same period of 2018.
Meanwhile, ceramic tile continues to make inroads as new products and improved designs drive demand. Improved competitive pricing has also been a plus in the ceramic tile market.
Sluggish floor coverings sales growth could continue into the second quarter of 2019 since the decline in the U.S. housing market over the past year still overhangs domestic demand. Growth, however, could pick up in the second half due to the sharp decline in interest rates in the first quarter. Dollar sales growth could be closer to 3.0% in the second half, up from a 2.0 percent to 2.5 percent gain in the first half. Despite this improvement, U.S. manufacturer and importer sales growth could increase at its slowest rate since 2010.