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Although the growth of prefinished hardwood flooring has slowed since a peak in the 90s, hardwood flooring manufacturers still see it as a positive mover and hope to see a return to double-digit growth in the remainder of 2002.
Manufacturers say the moderate growth is fueled by the educated consumer who is strapped for time and wants to add character to the home. Still, there are rip tides that bear watching, including a sudden rise in the cost of raw materials and the growing threat of quality imports.
Riding the wave
The hardwood flooring market as a whole suffered, as did everyone, after the attacks of 9/11. "I have heard a lot of different numbers thrown around, but generally, wood flooring sales were off by about 5 percent last year," says Jim Morando, president at Johnson City,Tenn.-based Harris-Tarkett. "We were on a very fast clip until 9/11. In fact, we were tracking to be up over 20 percent until that day."
Morando predicts that when all is said and done, the second half of 2002 will propel the market into mid to high single-digit growth. "In the first half of this year, our business was up in the mid-single digits, but we are seeing that we are going to have a significantly better second half. I do see the prefinished flooring industry eventually getting back on track into double-digit growth, because people are still choosing hardwood flooring over alternative choices."
Outpacing the average growth of the hardwood flooring industry, the prefinished segment quickly is becoming a core business for Tembec's Huntsville Wood Flooring Division in Huntsville,Ontario. There, prefinished hardwood flooring has grown into 55 percent of the company's business—up from 30 percent just three years ago.
A higher disposable income is creating a demand for hardwood flooring, according to Robert Belisle, sales and marketing director for Tembec's Huntsville Wood Flooring Division. "If you look back at the past few years, the residential housing market has been very positive. The dealer-contractor-builder is offering hardwood flooring as a standard in its homes. Also, many people are upgrading their homes by tearing out their carpeting and adding hardwood flooring," he says.
Prefinished wood flooring also is outpacing unfinished product at Mullican Flooring in Johnson City, Tenn. Although only a year into the prefinished flooring market, Mullican President Neil Poland sees growth at 12 percent for the prefinished product as opposed to approximately 4 percent growth for unfinished flooring.
The same holds true for Somerset, Ky.based Somerset Hardwood Flooring,says Paul Stringer, the company's director of marketing. Somerset introduced prefinished hardwood flooring three years ago and still is seeing double-digit growth, with prefinished now 60 percent of its business.
And at industry giant Armstrong,which encompasses the Hartco, Robbins and Bruce brands, prefinished hardwood flooring accounts for the majority of the company's sales growth the past few years. "The story is still getting out into the marketplace about the benefits of prefinished hardwood flooring," says Michael Badar, vice president of Armstrong Flooring and Wood Products. "Consumers are catching on to the fact that prefinished flooring offers a more consistent look because the finish is applied in a controlled environment and not inside the home. And, with the growing number of choices being made available in prefinished, we will continue to see it grow."
Badar predicts the growth of the prefinished flooring industry for 2002 will be some where in the mid to upper single digits. "We look at the market as about one-third solid prefinished, one-third prefinished engineered and one-third unfinished," he says.
Growth of prefinished flooring for Saint Georges, Quebec-based Mirage/Boa Franc has been remarkable, according to Sales/Marketing Director Louis Morin. Morin says that because of an effective marketing plan backed up by a consistent, high-quality product, the company has seen anywhere from 16 to 23 percent growth for the past five years. "We also credit our success to our strategy of helping to grow our existing customer base, instead of growing through all new accounts," Morin says.
Making it easy
One of the reasons credited with the stable growth seen in prefinished flooring is the convenience it affords the consumer and the contractor.
"The flooring industry is a lot like the cabinet industry," says Jeff Cloer,vice president of sales and marketing at Franklin, N.C.-based Zickgraf Hardwood Flooring. "Most cabinets were built on-site 25 years ago. Crews came out and measured the space, cut the materials and sanded and finished it right there. But today, with the time constraints put on the builders and with homeowners needing to get into their homes more quickly, the prefinished product is the better way for them."
A common mantra for most industries is that "time equals labor andlabor equals costs." Prefinished hardwood flooring means that contractorsdo not need to hire and train sand andfinish crews, allowing them to installmore flooring in shorter time spans.
"An additional benefit in prefinished hardwood flooring is that the distributor can show the consumer exactly what the floor will look like before it is installed," says Cloer. "When you look at an unfinished sample in the store, it is not wholly accurate in appearance. You can't rub a board with stain and get an accurate idea of what the floor will look like. With prefinished, you open up a box, and what you see is what you get."
Exotic appeal
More than ever, people who have lived with domestic species for decades are looking for something different, says Harris-Tarkett's Morando. "There is a demand for wider planks and exotic species, as well as regional demand for some distressed product. I am also seeing demand for some of the character species like walnut, hickory and cherry,"he says.
Further fueling the demand for exotics is the fact that certain species of exotics are seeing a decrease in pricing as more readily available domestic lumber becomes more expensive.
"Consumer trends go through phases,but you will see some species increase in demand due to availability," says Belisle. "For example, Brazilian cherry at one time was available only in limited quantity, so the costs were high. Now it's a commodity, and almost anyone can get it."
Successful testing of newer exotic species has paved the way for Armstrong to introduce new floors into the marketplace. "We have applied the same testing techniques that we have traditionally applied to oak flooring to ensure that the products will perform up to or better than the standards that are in the marketplace today," Badar says. "We want to make sure it performs in more liberal applications, and we are not going to put anything in the marketplace that does not perform." He adds that because consumers are demanding different wood species, Armstrong now is looking all over the world for material.
In addition to the demand for exotic species, consumers are looking for other unique products, such as "domestic exotics" ash and beech. And, of course,there remains a consistent demand for oak, maple and birch.
"We believe exotic trends are here to stay," says Morin. "People have seen the more common species for years and want to see something different. Consumers want something that looks very nice, unique and rich."
As preferences in species have changed, so have consumers' tastes in finish. Somerset's Stringer has noticed a movement away from high-gloss finish."Consumers are interested in seeing more character in their wood flooring, and lower gloss levels allow the character to come out," he says. "If people are paying more for exotic woods, they want to be able to see them. Tigerwood has been very popular for us, and santos mahogany and Brazilian cherry are moving quite well."
More than ever before, manufacturers are looking at color trends from a regional standpoint, according to Armstrong's Badar. Also important to color trends is the new role played by hardwood flooring in the home.
"Consumers are more aware of the impact a floor can have on the overall look of a room," Badar says. "The floor is becoming more of a fashion item and can dramatically change a room, much like paint on the wall, wallpaper or a new piece of furniture. More and more, people are understanding and wanting to have that kind of impact with their flooring."
This consumer philosophy has changed the production process at Armstrong. "Five or six years ago, we were blessed in that we could sell all of our available production. Everyone wanted a wood floor, and that is where the sophistication ended in most markets," Badar says. "Today, consumers are saying that they want something unique to their tastes."
Tougher than ever
The sudden explosion of prefinished hardwood flooring onto the scene can be directly related to aluminum oxide. This mineral is quickly becoming a household term for consumers looking to find hardwood flooring finish that lasts.
"Consumers are driving demand for prefinished hardwood flooring by asking for it, and that is a product of the new finishing technologies," says Tembec's Belisle. "Consumers are much more educated today about the quality of finish available. They are aware of the improvements in floor durability and even know that it is aluminum oxide that strengthens many of today's finishes. We have consumers calling us and asking for it by name now."
How much aluminum oxide is needed or mixed into a finish is debatable by many manufacturers. Although most manufacturers claim to have the mineral in their finishes, the amount of mineral in the formula varies from manufacturer to manufacturer.
"The claim that a product has aluminum oxide in its finish can be misleading," says Zickgraf's Cloer. "You can have it in one coat, or you can have it in all seven coats. Because there are so many variables and there is no standardization, consumers and distributors have to be cautious when a manufacturer claims to have aluminum oxide in its finish. The telltale sign as to whether or not a finish has the proper amount of aluminum oxide is when an abrasion test is performed. At the same time, too much of the mineral can cloud the appearance of the finish on the wood."
The prefinished hardwood flooring industry can thank the laminate flooring industry for the advancements in finish that allow manufacturers to market more durable flooring through long-term warranties, says Somerset's Stringer. "I do believe the wood industry can credit the threat of the laminate industry for the gains it has made," he says. "When the laminates first made a push with their 25-year and 50-year warranties, it forced the wood industry to follow suit. And that drove us to improve. I think it caused the flooring lines to have to step up their quality, which they have."
Now, consumer perception coupled with a greater profit makes prefinished hardwood flooring a more attractive option than laminate flooring. "The biggest difference between the hardwood flooring industry and the laminate flooring industry is the consumer's perceived value of hardwood flooring has increased," says Morando. "When you look at the laminate five or six years ago,retail was above $5, and today it is about$1. They have taken some share, but in the mind of the consumer, wood has offered some real value, where the laminates are having a difficult time maintaining some price points.
"With hardwood flooring, you are not getting that repetitive look that you get from laminate flooring," he adds. "At some point, the retailers have to promote items they can make money on. Making 30 percent on $1 a square foot is not nearly as attractive as making 30 percent on $5 to $10 a square foot."
Foreign ports
While laminate may not appear to be the looming threat it once was, many domestic manufacturers still are looking over their shoulders—at foreign markets. Prefinished wood flooring imported from overseas is becoming more consistent and less expensive. The furniture industry proves that product coming in from China and South America is of a much higher quality today than it was 10 to 25years ago.
A laborer in China works for the equivalent of $2 per day. Add to that the lack of federal regulations governing foreign plants, and it's easy to see just how much less expensive it is for product to be milled overseas.
"Imports are a major concern of ours,"Stringer says. "Because of their cost advantages in places like the Far East,they can cut the material here, ship it there, mill it and finish it and then ship it back here for less than what we can do it for here. Then, consumers see the lower prices being imported and wonder why domestic manufacturers cannot match."
However, Stringer says, there still are inconsistencies with some imported products. "You have some mills providing some quality product from overseas,at the same time you have some product that is not very good in that it does not meet specifications, and that causes problems in the industry. It is that inconsistency that helps the domestic manufacturers, but nevertheless, the pricing offered by imported product skews the marketplace."
One manufacturer using the "If you can't beat them, join them" philosophy is Zickgraf. The manufacturer successfully is importing milled, ready-for-finish hardwood flooring from Brazil.
"We used to bring Brazilian cherry here, dry it and manufacture the flooring here, but now the Brazilians have caught up to the technology of floor manufacturing. So, they are milling it there to our specifications, and we are finishing it here," Zickgraf's Cloer says. "The economics are better for us to have it milled in Brazil, and the quality is great. We see every piece when it comes in just as we would our own. Now we are doing the same thing with tiger wood and santos mahogany. By having it manufactured overseas, it is saving us approximately20 percent in manufacturing costs."
By forming an alliance with one of the major producers in Brazil and by teaching the Brazilians how to better manufacture hardwood flooring, Cloer says Zickgraf has overcome the poor moisture contents and poor milling practices that have plagued product imported from overseas.
Storms at sea?
As they face challenges from abroad,manufacturers face another recent challenge at home—increases in raw material costs.
"Right now we are seeing significant increases in our raw material prices,"Morando says. As more and more furniture manufacturers close up shop due to the influx of product coming in from China at unmatchable prices, so too have the sawmills that provided manufacturers with raw materials.
"Today, there are fewer sawmills producing less product, and the lack of supply is driving raw material costs up,"Morando says. "The cost of lumber on our yards is up over 15 percent from the beginning of this year."
"I expect raw material prices, which have skyrocketed in the past three or four months, to continue creeping up throughout the remainder of the year,"says Mullican's Poland.
Harris-Tarkett and Mullican Flooring are two of the manufacturers that recently announced price increases on some of their prefinished solid product in an effort to recoup lost ground.
To help offset sudden fluctuations in raw material costs, Mirage/Boa-Franc pre-orders the majority of its materials based upon a yearly projection of demand. "We have agreements with our suppliers that are based on a projected yearly volume," says Morin. "We send them a projection of all of the volume we need from them for the next year. They then secure the material for us, and these hiccups in supply do not necessarily affect us."
Whatever methods they choose to use to compete, prefinished wood flooring manufacturers optimistically are pursuing plans for growth this year and beyond. They see a bright future for the prefinished wood flooring market. Morin sums it up: "As long as we continue marketing ourselves effectively, continue making quality flooring and remain as efficient in our production processes as technology allows, we should continue to see solid growth in this industry."
Making the transitions
While the wild proliferation of factory-finished wood flooring lines is widely discussed, there’s a complementary product category that has grown largely unnoticed—prefinished moldings. Just as the prefinished wood flooring market has grown and matured, so has the moldings segment.
Not so long ago, “most molding companies were shipping them to a picture-frame finishing company or a finishing company,” explains Jerry Yeager, sales manager for Beverly, W.V.-based Colonial Millwork. “It had to go from the sawmill to the molding person to the finishing person; that caused a lot of hassles,” he explains. The concept of prefinished moldings really took off in the mid-90s, he says.
As the colors, species, styles and profiles of the wood exploded in number, so did the matching moldings. That made them something of a white elephant for distributors, who scratched their heads as they attempted to inventory and sell the seemingly endless SKUs in their warehouses. Many times distributors were left holding the bag— suddenly outdated moldings—when manufacturers discontinued flooring lines.
“That made them a necessary evil,” says Wayne Voigtschild, consultant for Roseville, Minn.-based Artistic Finishes. “That image now has changed.” Artistic challenged that image by carefully consolidating lines, determining which manufacturers’ flooring lines were compatible with the same colors and profiles of moldings.
At the same time, moldings manufacturers are stepping up to offer complementary products for the proliferating number of exotic species offered by factory-finished flooring suppliers. Moldings stained to match certain species are no longer good enough. “It used to be that molding companies would say, even though you’re asking for santos mahogany, we’ll take regular mahogany and stain it, and say that’s as close as we can come. The consumer now says that isn’t good enough,” Voigtschild says.
Moldings suppliers also have had to keep pace with improvements in finishes. Just as aluminum oxide is the norm on wood floors, it has become more commonplace for moldings, also. “It did take a while to perfect it. Spraying on floors compared with moldings is much different–you can’t rollcoat a molding. You either spray or vacuum it on, and it’s challenging,” Yeager says. For that reason, it is still mainly only the larger moldings manufacturers that offer aluminum oxide.
With the growing sophistication of the molding market, look for manufacturers to keep pace with future changes, trying at once to offer what the market demands yet make the products as easy as possible to handle, all the while keeping on eye on the competition. For now, there seems to be enough business for everyone, as Yeager says: “It’s always competitive, but business in this little section of the industry seems to be pretty good for us and most of our competitors.” —K.M.W.