Despite pandemic, second half of 2020 saw gains

Despite pandemic, second half of 2020 saw gains

Monday, August 2, 2021 from Floor Covering Weekly

2020 Statistical Report

The U.S. floor coverings industry had a mixed year in 2020 but it was able to survive the COVID-19 pandemic and end the year on a healthy note. The first half of the year was plagued by the deep pandemic recession, while demand surged in the second half as home renovation spending and new home construction increased sharply. The overall result was a 1.3 percent decrease in U.S. floor coverings manufacturer dollar sales (shipments minus exports plus imports) to $26.7 billion and a 3.2 percent increase in square foot sales to 23.9 billion.

However, the year ended with sharp gains. In the fourth quarter of 2020, dollar sales could have increased by 8.2 percent and square foot sales by 15.1 percent. The rebound in demand reversed most of the first half decline due to the pandemic lockdowns and the sharp contraction in U.S. economic activity. Part of the decline in dollar sales in the first half was due to a decrease in average selling prices as demand collapsed. There was also a shift to lower cost flooring by homeowners who undertook do-it-yourself projects while being leery of having a professional installer work in their home.

U.S. floor coverings manufacturer sales began to recover in the third quarter of 2020 as businesses re-opened from the pandemic lockdowns. Demand initially benefited from a turnaround in new home construction as the Federal Reserve cut interest rates to historic lows. Low interest rates also resulted in a sharp increase in existing home sales. In addition, flooring sales benefited from the increased preference for single-family homes as households searched for increased space for at-home work, meals and entertainment. At the same time, government stimulus checks caused a surge in personal incomes with few places to spend the money outside of one’s home. As a result, residential improvement construction spending hit record highs.

These positive trends resulted in double-digit increases in retail floor coverings sales in the second half of 2020. The upturn benefited sales of specialty floor coverings retailers as the pandemic restrictions were lifted. The strongest retail floor coverings sales increases, however, were at home centers and the major hard surface flooring chains that were allowed to remain open during the pandemic. Home centers and the leading chains also developed e-commerce platforms to drive sales when their specialty floor coverings retail competitors were primarily closed.

The major headwind for floor covering manufacturers, distributors and retailers was the weakness in commercial markets. The decline in private non-residential building construction spending accelerated over the year with the sharpest decline coming in the fourth quarter of 2020. The decline in private commercial markets was partially offset by an increase in government building construction spending, which benefited the healthcare and education markets.

The strong fourth quarter 2020 gains have continued into 2021. The gains are being led by a red-hot housing market driven in part by additional government stimulus checks. Residential construction spending was up 21.9 percent over the first four months of 2021, and existing home sales rose by 20 percent over the same period. Meanwhile, interest rates remain near historic lows. This will result in sharp gains for builder and homeowner purchases. Conversely, private non-residential building construction spending remains on a downward trend.

Category Overview 2020 – Carpet & Area Rugs

The carpet and area rug sector experienced some of the sharpest drops in manufacturer sales and prices in 2020. Carpet and area rug sales could have decreased by 7.8 percent in dollars and 2.4 percent in square feet in 2020, pushing sales down to $10.3 billion and 10.6 billion square feet. Average manufacturer selling prices could have declined by 5.9 percent. These trends dropped carpet and area rugs’ share of total floor coverings sales to an estimated 38.4 percent in dollars, and a 44.5 percent share in square feet, down from 41.1 percent and 47 percent, respectively, in 2019.

The residential replacement market weakened as consumers continued to move away from wall-to-wall carpet. The 11.2 percent decline in U.S soft surface factory production in 2020 reflects this trend since most area rugs are imported. Meanwhile, carpet and area rug square foot imports increased by 14 percent in 2020 as average import prices declined sharply.

In addition, carpet manufacturers have an above average reliance on transportation equipment markets, and output in this industry declined by 16.9 percent in 2020.

Category Overview 2020 – Ceramic Tile & Stone

Ceramic and porcelain tile suppliers were adversely affected by their above average reliance on the builder market, which took a hit in the second quarter of 2020; residential replacement sales were also cut. Meanwhile, stone sales were hurt by this sector’s heavy reliance on a weak commercial market. As a result, dollar sales of ceramic and porcelain tile could have decreased by 2.6 percent and stone tile sales by 5.8 percent in 2020. Square foot sales could have declined by 1.5 percent and 6 percent, respectively. This caused tile’s share of total floor coverings dollar sales to decline to an estimated 13.3 percent and stone’s share could have dropped to 6.6 percent. This compares to 13.3 percent and 7 percent, respectively, in 2019.

U.S.-and foreign-based manufacturers have been investing in domestic production capacity. As a result, U.S. dollar ceramic tile shipments could have increased by 7.2 percent, and square foot shipments by 4.6 percent in 2020. This compares to a decline in import shipments in dollars and square feet. Imports’ share of U.S. ceramic tile sales in dollars could have declined to 55.5 percent in 2020.

Category Overview 2020 – Wood Flooring

Wood flooring sales were also hurt by its reliance on the builder market, as well as increased competition from rigid core LVT sales. At the same time, average wood flooring selling prices have increased sharply over the past three years due to rising lumber costs and increased tariff charges on Chinese-made flooring.

Some of the weakness was offset by stronger residential replacement sales. As a result, wood flooring sales, in dollars, could have declined by 3.6 percent in 2020, while square foot sales could have dropped by 4.6 percent. In 2020, wood flooring could have accounted for 12.9 percent of total U.S. floor coverings dollar sales.

In 2020, import shipments declined by 10.3 percent in square feet after a 27.5 percent drop in 2019. The sharp drop in shipments from China led the decline. Rising tariffs resulted in higher import prices, which rose 10.5 percent per year between 2018 and 2020.

Category Overview 2020 – Resilient Flooring

In 2020, resilient flooring sales could have increased by 13.8 percent in dollars and 17.9 percent in square feet. These sharp gains reflect rising demand for rigid core LVT flooring products. In 2020, LVT sales could have soared by 23.3 percent in dollars and 34.1 percent in square feet.

As a result, resilient flooring could have accounted for 25.2 percent of total floor coverings dollar sales in 2020, and 30.1 percent of total square foot sales. This is up from 17 percent and 21.1 percent, respectively, in 2017. LVT’s share of total floor coverings sales rose to 19.8 percent in dollars and 21.2 percent in square feet in 2020. This is up from 13.6 percent and 13.5 percent, respectively, two years earlier. In 2020, LVT sales were driven by the 39.3 percent increase in rigid core LVT sales in dollars, and a 50 percent gain in square feet sales. Square foot sales benefited from a 7.7 percent drop in average selling prices.

Prices weakened as average import prices declined. This is important since 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 been 76.9 percent in 2020, up from 71.6 percent in 2017. Import penetration levels are even higher in the soaring LVT sector. Foreign-made products have made significant inroads in the LVT sector since manufacturers in China and South Korea led the development of rigid core, waterproof, and click-installed LVT. Chinese manufacturers accounted for about 59 percent of total U.S. resilient flooring sales in 2020.

Category Overview 2020 – Laminate Flooring

Laminate flooring is another sector hurt by the growing popularity of rigid core LVT; however, the pandemic actually helped laminate flooring sales. As people spent more time in their homes following lockdown, many undertook home improvement projects. In addition to its relatively low cost and DIY-friendliness,  laminate flooring’s key distribution channel, home centers, remained open during lockdown.

As a result, U.S. laminate flooring dollar sales could have increased by 4.2 percent to $947 million, while square foot sales could have climbed by 3.8 percent to 953 million. This compares to declines of 3.4 percent and 8.4 percent, respectively, in 2019. The 2020 sales increase resulted in laminate gaining share on a dollar basis; however, its share on a square foot basis held at 4 percent.

Domestic manufacturer shipments drove sales. U.S. laminate flooring shipments could have increased by 5 percent in dollars and 8.5 percent on a square foot basis.  Meanwhile, import shipments remained sluggish. Chinese-made product sales declined by 39.4 in 2020, after a 28.9 percent drop in 2019. However, European and Vietnamese manufacturers made up for the decline in Chinese imports.

The future looks bright – Outlook 2021

The strong gains in the fourth quarter of 2020 have continued into 2021. The 21.9 percent increase in residential construction spending and the 20 percent increase in existing home sales could result in double-digit increases in U.S. floor coverings manufacturer sales in the first half of 2021.

Consumer purchases will remain the growth leader thanks to the stimulus checks sent earlier this year, as well as rising employment. Low interest rates are also giving a boost to existing home sales, which further stimulates homeowner flooring replacement projects. The builder market also remains a source of growth. Permits taken for new homes increased by 32.2 percent over the first four months of the year, indicating new home construction should remain strong throughout 2021. On the other hand, the commercial market continues to be adversely affected by declining non-residential building construction spending. Commercial market sales could begin to recover in the second half of the year as more areas of the economy reopen.

The full report with corresponding graphs can be found in FCW‘s digital 2020 Statistical Report issue here.