Stats for 2018 tallied better than expected
Monday, July 22, 2019 by Floor Covering Weekly
The surge in second half import shipments did not fully translate into final sales since residential demand was slowing. This could have increased supply chain inventories. Residential demand slowed due to the decline in existing home sales through 2018 as interest rates rose. This trend accelerated in the fourth quarter of 2018 as interest rates increased at double-digit rates. The drop in existing home sales hurt residential replacement sales since existing home sales have historically driven residential replacement sales. Rising interest rates also adversely affected the builder market by the end of 2018 as housing starts declined. On the other hand, sales growth received a boost from stronger commercial demand in the second half of 2018. Nonresidential building construction spending increased by 4.6 percent in the second half of 2018, after a 2.6 percent gain in the first half.
The overall sales trend, however, reflected a divergence of growth by market sector. In 2018, hard surface flooring sales could have increased by 9.4 percent in dollars and 10.7 percent in square feet. Soft surface flooring sales increased by only 1.2 percent in dollars and decreased by 0.3 percent in square feet. As a result, carpet and area rugs are estimated to have dropped to 43.1 percent of total dollar floor coverings sales and 48.1 percent of total square feet in 2018. This is down from 45 percent and 50.7 percent, respectively, in 2017.
In 2018, the strongest gains were in the resilient flooring sector, led by gains in LVT sales. Total resilient flooring sales could have increased by 22.1 percent in dollars and 23.1 percent in square feet. LVT sales, including WPC (wood polymer composite) and SPC (solid polymer composite) flooring, could have increased by 43.1 percent in dollars and 47.6 percent in square feet. LVT sales soared as manufacturers introduced rigid core LVT which satisfied consumer’s increasing preference for waterproof flooring. In fact, LVT accounted for about 75 percent of the total increase in U.S. floor coverings sales in 2018. Ceramic tile was the only other flooring sector increasing share in the face of soaring LVT sales. Ceramic tile demand is benefiting from improved designs and product innovations, as well as improved competitive pricing. To meet rising LVT and ceramic tile demand, U.S.- and foreign-based manufacturers are investing in new domestic production capacity. Competitors are also shifting sourcing to the U.S. and other countries to escape rising tariffs on Chinese-made flooring.
Floor coverings manufacturer sales growth rates, however, are estimated to slow in the first half of 2019. In early 2019, distributors and retailers were working off excess inventories accumulated over the second half of 2018. However, sales remained weak in the first half of 2019 due to continued sluggish housing demand. Sales growth, however, is expected to strengthen in the second half as supply chain inventories are worked off and lower interest rates stimulate residential demand.
Floor Covering Weekly collaborated with Catalina Research for this 27th annual statistical analysis of the U.S. floor covering market. Catalina compiled and analyzed data from the U.S. Department of Commerce, the Bureau of Labor Statistics and proprietary sources to provide the floor market’s trends in this issue.
In this year’s Statistical Report, sales for some previous years were revised based on new shipment data from the U.S. Department of Commerce. All 2018 numbers, however, are preliminary (except exports and imports) and are subject to revision.
U.S. market sales (shipments minus exports plus imports) are in manufacturers’ dollars and exclude installation costs.
Numbers in Tables 1 and 2 have been rounded. More detailed calculations appear in each product section.
All retail information is courtesy of Jonathan Trivers’ exclusive marketWise report. Product sales are derived from Catalina’s numbers. Numbers for “Who sells it” and “Who the customer pays” are from the Economic Census report.
Carpet & Area Rugs
Carpet and area rugs continued to lose share to hard surface flooring in 2018, increasing by only an estimated 1.2 percent in dollars and could have decreased by 0.3 percent in square feet. In 2018, sales could have been $11.7 billion and 11.5 billion square feet. These trends dropped carpet and area rugs’ share of total dollar floor coverings sales to an estimated 43.1 percent, with a 48.1 percent share in square feet. This is down from 45 percent and 50.7 percent in 2017. Carpet and area rugs have been impacted by the weak residential replacement market — some 54.0 percent of this segment’s sales are from this market.
The residential replacement market weakened as consumers continue to move away from the use of wall-to-wall carpet which could have accounted for less than 59 percent of total carpet and rug dollar sales in 2018, down from two-thirds of total sales a decade earlier. Meanwhile, area rugs held onto their share of total sector sales which is noted in soft surface import shipments as area rugs account for a significant share of total sector imports. In 2018, carpet and area rug imports increased by 12.9 percent in dollars and 15.4 percent in square feet. Lower average import prices in 2018 also stimulated area rug demand.
Carpet tile continues to gain in importance. Its share of total carpet and area rug sales could have reached some 15 percent in 2018, nearly double the level from a decade ago. Manufacturers are also increasing their reliance on carpet tile. Carpet tile now represents more than 60 percent of total commercial carpet sales, up from one-third of total sales a decade ago.
Ceramic & Porcelain Tile & Stone
Ceramic and Porcelain tile sales growth outpaced the overall U.S. floor coverings industry in 2018, and was the only sector to gain share in the face of soaring LVT sales. In 2018, ceramic tile dollar sales could have increased by 7.3 percent and 6.8 percent in square feet and the category’s share of total floor coverings sales could have risen to an estimated 14.4 percent in dollars. This is up from 14.2 percent in 2017.
Ceramic tile has gained significant share over the current recovery period since this flooring sector can provide stone- and wood-looks at competitive prices. Ceramic tile manufacturers were able to provide these more upscale designs by investing in digital printing and other technologies. Innovative manufacturing processes also led to the availability of larger-sized tile and large-thin porcelain panels. Panels are used for floors, walls, countertops and other interior and exterior applications.
To take advantage of sector growth, U.S.-and foreign-based manufacturers have been investing in new domestic production capacity. These new plants moved U.S. output to higher-end products resulting in a sharp increase in average selling prices for products shipped from a U.S. plant. U.S. dollar ceramic tile shipments could have increased at double-digit rates in 2018. This compares to low single-digits gains for imports. Dollar import shipments turned sluggish as foreign-based ceramic tile manufacturers increased their reliance on lower-end products.
Stone flooring sales, however, have not kept pace on a dollar and square foot basis due to ceramic tile’s pricing advantage. Average manufacturer stone floor tile prices could have been $4.41 in 2018 while tile manufacturers can offer stone-look floors for about $1.14 per square foot. Catalina estimates stone flooring sales could have increased by 4.6 percent in dollars, and 3.5 percent square foot sales in 2018.
The whole category of ceramic and stone tile could be hindered by a shortage of installation labor. In 2018, employment at ceramic tile and stone contractors increased by 3.6 percent, while ceramic and stone tile square foot sales increased by 6.5 percent. Meanwhile, the average hourly wage at ceramic tile and stone contractors was 5.3 percent above those for other floor coverings installers in 2018.
Wood flooring sales are estimated to have declined in dollars and square feet in 2018. This sector seems to be the most adversely affected by the surge in LVT sales. Manufacturers claim these new LVT products are more water-resistant and have superior wearability than wood flooring. At the same time, average wood flooring selling prices were increasing along with hardwood lumber prices, reducing wood flooring’s competitive position.
As a result, wood flooring sales, in dollars, could have declined by 3.7 percent in 2018, while square foot sales could have dropped by 5.2 percent. In 2018, wood flooring could have accounted for 13 percent of total U.S. floor coverings dollar sales. This is down from 14.2 percent in 2017. On a square foot basis, wood flooring’s share could have dropped to 7.2 percent from 8 percent in 2017.
These significant declines were a result of a steep decline in import shipments in the fourth quarter of 2018 led by a drop in shipments from China. The sharp drop of imports from China reflects the increase in the anti-dumping rate on Chinese-made engineered wood flooring by the Commerce Department. The higher anti-dumping rates were on top of the tariffs imposed on Chinese-made wood flooring in September 2018 resulting in rising import prices. This coupled with increasing hardwood lumber prices caused domestic manufacturers to increase wood flooring prices.
Resilient flooring has been the industry growth leader for the past few years. In 2018, resilient flooring sales could have increased by 27.3 percent in dollars and 23.1 percent in square feet. These sharp gains reflect rising demand for rigid core LVT flooring products such as wood polymer core (WPC) and solid polymer core (SPC) technologies. WPC and SPC flooring gained acceptance by offering improved stability, indentation resistance, and wearability. In 2018, LVT sales could have soared by 43.1 percent in dollars and 47.6 percent in square feet allowing the category to take back share from laminate and engineered wood flooring and other hard surface flooring that took share from resilient flooring in the 1990s and 2000s. LVT has also taken share from other resilient flooring such as vinyl composite tile and sheet vinyl.
Resilient flooring could have accounted for 20.5 percent of total floor coverings dollar sales in 2018, and 24.6 percent of total square foot sales. This is up from 17.1 percent and 21.1 percent, respectively, in 2017 — its highest share since the late 1990s and early 2000s.
Foreign-sourced products have primarily satisfied the surge in U.S. resilient flooring sales. Imports’ share of total U.S. resilient flooring square foot sales could have reached 77.3 percent in 2018, up from 55.2 percent in 2017. Import penetration levels are even higher in the soaring LVT sector. Foreign-made products have since made significant inroads in the LVT sector with manufacturing in China and South Korea. Chinese manufacturers accounted for a significant portion of the total increase in resilient flooring imports in 2018.
Laminate flooring is another industry sector hurt by the growing popularity of rigid core LVT. In 2018, U.S. laminate flooring dollar sales could have declined by 6.7 percent, while square foot sales dropped by an estimated 3.7 percent and average selling prices could have decreased by 3.2 percent. Laminate flooring is losing share in the U.S. market — in 2018, laminate flooring could have accounted for an estimated 3.4 percent of total floor coverings dollar sales and 4.2 percent of total square foot sales down from 3.8 percent and 4.6 percent respectively, in 2017.
Weaker builder and consumer markets hurt U.S. floor coverings demand in the first half of 2019. The decline in housing starts and existing home sales caused residential floor coverings demand to remain weak. As a result, U.S. manufacturer/importer sales experienced some of the slowest gains in the first half since the floor coverings market began to recover in 2010. Manufacturers and importers are also working off the inventories accumulated in the second half of 2018 since import shipments increased sharply as suppliers tried to avoid rising tariffs.
Growth, however, could pick up in the second half of 2019 due to the sharp drop in interest rates in recent months. Mortgage rates are now at their lowest levels since January 2018. Lower interest rates could spark an increase in existing home sales, which could result in a stronger residential replacement market. In April 2019, existing home sales were already flattening out due to the drop in interest rates. Housing starts could also begin to recover since new building permits are showing signs of turning positive. The drop in interest rates coupled with strengthening personal income is resulting in a better environment for homeowner floor coverings spending.
As a result, dollar floor coverings sales growth could be closer to 3 percent in the second half of 2019, up from a 2 percent to 2.5 percent gain in the first half. Despite this improvement, manufacturer/importer sales growth could increase at its slowest rate since 2010.