[Delray Beach, Fla.] Catalina Research has released its latest Floor Coverings Quarterly Update.

According to Catalina Research, U.S floor coverings manufacturer and retailer sales were about to take off in 2020 when the coronavirus hit the country. In the first two months of 2020 housing starts soared, increasing by 35.4 percent. This followed a nearly 20 percent gain in the fourth quarter of 2019, after being flat over the first three quarters of the year.  Existing home sales also increased at double-digit rates in early 2020, after rebounding in the fourth quarter of 2019 from weak sales earlier in the year. The rebound in existing home sales resulted in homeowner residential improvement spending also increasing close to 20 percent over the first two months of 2020. And then the country was shut down.

Depending on the number of weeks or months before the economy can get back to “normal”, U.S. housing demand can shrink at double-digit rates in the second quarter of 2020, while manufacturer floor coverings sales could decrease at a similar rate. This weakness is expected to extend into the third quarter, until consumers regain confidence to spend on discretionary items. Commercial market sales could be hurt even harder, since private nonresidential construction spending has been sluggish over the past year and the sharp drop in corporate profits during 2020 will not change this situation. However, opportunities in government markets have already turned upwards.

Once the reins are taken off the economy and consumers regain confidence, floor coverings demand is expected to spring back. Historically low interest rates should give a boost to housing demand, and we could expect housing sales to resume double-digit growth rates. Households may also begin to trade up to a larger dwelling if they determine they need more work-at-home space.

Floor coverings sales could also receive a boost from non-movers. Non-movers may be motivated to invest in their homes since they will put off vacations and could also limit visits to restaurants or attending sporting and entertainment events. On the other hand, homeowners will be definitely ready to spend on new flooring and furnishing after spending weeks and months looking at their old and now much more worn furnishings.

If the recovery unfolds in this manner, floor coverings manufacturer sales are expected to take off. Any upturn in demand will result in strong retail orders since floor coverings retail inventories are quite low. Inventories have been drawn down over 2019 and early 2020 since retail floor coverings sales have outpaced manufacturer shipments (domestic and imports) since early 2019.

Any upturn in manufacturer sales will provide opportunities for U.S. floor coverings producers. Chinese manufacturers already lost share in 2019 due to the imposition of the 301 tariffs on Chinese-made flooring by the Trump administration, as well as countervailing and anti-dumping duties placed on ceramic tile and engineered wood flooring (the Administration has recently put off collections of tariffs during the current crisis). In 2019, Chinese producers accounted for 20.3 percent of total U.S. floor coverings manufacturer sales. This is down from a 22 percent share in 2018. Chinese manufacturer’s share of U.S. floor covering’s manufacturer sales could drop to 16 percent to 18 percent during 2020 based on early 2020 import data. This trend can be seen at the Tile Shop.  The Tile Shop reported that 32 percent of their sourcing was from North America in 2019, up from 21 percent in 2018. At the same time, Asian sourcing dropped to 23 percent, down from 43 percent. Manufacturers in Brazil, Turkey and Vietnam, and other countries benefited from the shift away from Chinese sourcing. The U.S. floor coverings industry could continue to move away from Chinese sourcing once demand recovers, despite the elimination of 301 tariffs on select resilient and engineered wood flooring products. The continuation of tariffs on most Chinese flooring products and the concern with the coronavirus will cause manufacturers, distributors, and retailers to continue to diversify their supply chain.

Meanwhile, the short-term outlook – four to eight weeks – still looks precarious. Even after this period, the recovery could be slow until consumers regain confidence. Once confidence is regained, U.S. floor coverings sales are expected to soar in 2021, a delay of one year.

For more from Catalina Research including Floor Coverings Quarterly Updates, visit www.CatalinaReports.com