Flooring News Article (2020)

Posted by Rob Banks on

We switched our blog up and had to report these. I have taken several flooring news articles and just dropped them all into this one post. Sorry, its very long. But if you feel like digging through some of our old news articles for updates on the industry (some before Covid and some after) then dive in. We are a locally owned flooring company (showroom on Bridgeport Road in Richmond BC plus a a robust ecommerce website and a large warehouse full of containers of flooring – laminate, engineered hardwood and Vinyl floors). Enjoy!

(Sorry, missing some of the original images and graphs)

Word of Mouth Floors Richmond BC

Flooring Tradeshows during COVID-19 Update October 2020

The Executives of Word of Mouth Floors have been doing this for a lot of years. Rob, one of our co-founders (along with James) has been to ~100 tradeshows in flooring over the past twenty two years. Usually between 4 to 6 per year. Most of these have been flooring shows, but some are general Building material or Builder shows, like Canton Fair in China. Asking Rob, he has confirmed he has not been to any shows since January 2020. Early January 2020 James and Rob attended Surfaces in Las Vegas, the largest flooring show in North America. And Rob also attended Domotex Hanover in Germany mid-January (the largest annual flooring show in Europe).

They were scheduled to attended Shanghai Domotex at the end of March in China, but that show was delayed (and ultimately ran as a domestic show in China the first couple of days in September). So it is clearly an unusual year. Lots of key meetings happen at these shows and they have been missed. As posted back in April, we attended the NWFA virtual tradeshow. I applauded the association for putting in the work to put the virtual event on. They take a lot of effort and they did a nice job. I just have to say that in comparison to the usual events, it was just not as rewarding.

Here was our recap from end of April:

This brings us to today (end of October 2020). I saw a post that the Shanghai Domotex China event is a go for its regular time slot, March 24-26, 2021. I found it interesting that they are advertising that it will be expanding the exhibition floor size to over 1,000,000 sqft to accommodate increased demand. Interesting, lets see how that turns out. We are not currently planning on attending, but that could change over the next 5 months. Let’s wait and see.

Germany Hanover Domotex Flooring Show

The German Domotex show has a website, but it’s down for maintenance. I assume that show will not occur in January 2021. I saw one online post saying May 18 to 20th, 2021… but I have not verified if that is true. I expect that once ticket sales are available, then it is real.

Surfaces Las Vegas, normally in January, will be delayed until June 16-18, 2021. Let’s hope it is safe to attend by then. With the border between Canada and USA closed for the foreseeable future, that one also remains uncertain for us to attend.

 

Here is a piece of current news, it is in the home décor and furniture sectors, so pretty similar type tradeshow. It is actually a massive show called High Point, and it is the event of the year in the North American Furniture industry. Spread over multiple days (9 days I believe) the event was a go. As expected, it was running about 1/3rd capacity. Last years event (2019) was the largest ever event that have had, so numbers may read a worse than expected compared to such a busy year last year. Here is a published update fro Floor Focus:

“High Point, NC, October 26, 2020-Early estimates from the High Point Market Authority show market traffic through Monday was between 35% and 40% of what it was last fall, making turnout at the nine-day event better than expected for many exhibitors.

Taken largely from data from on-site scanners, the 35% estimate is based on attendance by individuals at market compared with October 2019. The 40% estimate is based on the number of companies here this market compared with last October, which officials said was the highest attended market in the past 12 years.

According to data provide to the market authority, attendance from the West Coast was the lowest-as anticipated-at 25% from last year, while the Midwest and Southwest were better than expected at 34%. Attendance from the Southeast, mostly drive-in traffic that included buyers from North Carolina and Virginia, was the highest at 50%, while traffic from the Northeast was 28%.

Officials attributed the low attendance from that region to quarantine restrictions in several Northeast states. In addition, North Carolina was considered by 11 states-including nine east of the Mississippi-to be a hot spot for COVID-19 cases.

Market authority officials reported that protocols-including social distancing and the wearing of face masks-received very little push back from attendees. 

Of the attendees, some 17 reported they had symptoms, and one of those was COVID-19 positive.”

  

Flooring Industry Stats 2020 | Vinyl Rapidly Growing

To continue the series on industry stats and more importantly following the trends on which categories.

We are a BC Canada flooring company, but Catalina and big industry reports are rarely (if ever) produced for just BC, so I use the USA numbers. In my experience over 20 years, they are very similar USA to Canada. So, this is some updates from a recent 2020 market report for the USA flooring industry. This has a slant to the fastest growth category, Vinyl. And the fastest growing portion of LVT (Luxury Vinyl Tile) is Rigid Core Vinyl. The Rigid core types of vinyl are often called WPC or SPC Vinyl.

 

Look at the growth. Remember, in general, the flooring industry as a whole is flat, and actually is shrinking. The overall market is not growing, and LVT Vinyl is exploding as a category.

 

In showing the above 2018 to 2019 growth numbers, Carpet is dropping 5.1%. Wood (which includes solid hardwood and engineered hardwood flooring) is down 12.4%. Laminate is off 6.2%. But look at LVT (luxury vinyl tile) and see it grow an incredible 25.3% year over year. What this image doesn't show, is the growth the year before was almost 50%, and the year before that, almost 50%. So the year, over year, over year, over year growth is something that the flooring industry has never seen.

This image shows the forecast for 2023... and almost another doubling of the market. Vinyl is crushing all other hard surface flooring types, and this is absolutely true in BC as well. We see rigid core demand (SPC) is through the roof.

 

Here is my take on the above chart. Rigid core is the fastest growing portion and the best option in the vinyl sector in our opinion. You can see that WPC is $2.3B and SPC is $1.1B (estimated). But remember, SPC is new. So it is growing much faster. We project that in 2020 and 2021 you will see SPC grow even faster. The other relevant information is WPC is primarily a US Floors product, which is now owned by Shaw. Shaw and Mohawk are the two largest flooring companies in North America, so if Shaw promotes something, it sells. So they bought a company (US Floors) that specializes in WPC rigid core products, and they have been promoting the heck out of it for years. I just am letting you know my opinion... in BC, we sell SPC sell way, way more than WPC. And in North American market in general, we see SPC being the dominate product for years to come. I would be shocked that in the 2023 forecast that SPC isn't the largest portion of the industry.

Watch the team from Word of Mouth Floors in our Richmond BC showroom discuss flooring trends we are seeing locally for the Summer of 2020. We are BC's best kept secret in flooring and we'd love to connect with you. Today’s post is to introduce a video we shot in our warehouse showroom discussing the top choices we see our customers going with for Vinyl and Engineered Hardwood flooring. We run through 8 products in under 3 minutes, so dive in and check it out. The links to each product are listed below the video.

This video focuses on SPC vinyl and engineered hardwood flooring. These are our hottest products in 2020, watch the video to see the colours and specs that are on trend for Greater Vancouver, Vancouver Island, Interior and Fraser Valley BC.

Come give us a visit in Richmond. Close by to most people living in the Greater Vancouver, BC area. Only 20-minute drive from downtown, 30-minute drive from Langley, etc. North East part of Richmond BC, under the Knight Street bridge, in behind Home Depot and IKEA. The warehouse is full! Pallets and pallets of flooring, stacks of vinyl flooring, engineered hardwood, laminate and lots of underlayment for flooring installation. We have a showroom in the warehouse as well. Come by and check us out, we'd love to see you. Word of Mouth Floors, BC's best kept secret in flooring!

 

 

Vinyl Market Overview

This is pulled from a report from Stifel, the introduction to a detailed report in September of 2018 about the vinyl flooring industry and its huge affect on the North American flooring industry. Tis report was written for American market, but it equally applies to Canada. The BC flooring buyer can learn lots about the various types of vinyl flooring. This is writtent from non-flooring experts, these people are invesment bankers. But, they have done a nice job breaking this down, and I feel it is valuable to share with the public and British Columbia flooring buyer.

 

Start of the report:

We have made a considered effort to learn more about the Luxury Vinyl Tile (LVT) market and assess its current and potential impact on the flooring market from both a manufacturer and retail perspective. We have reached out to Chinese producers, private company manufacturers in the U.S., trade press, consultants as well as the companies we cover to pull together as much information as we can about this rapidly growing and rapidly changing product category.

We summarize our key points as follows:

  1. 1)  LVT is a roughly $2.5 billion industry in the U.S, growing 25-30%, and accounts for approximately 10% of the U.S. wholesale shipment value. We believe that LVT can double its penetration in the next three to four years. Overseas markets are seeing growth in LVT but not the 30% pace.
  2. 2)  LVT is currently accounting for an estimated 75-100% of the domestic flooring industry growth. We have never seen a category of flooring grow this fast and the implications are profound. Demand is so strong and product innovation so impressive that we have not seen an over-capacity/commoditization of the category as we feared a couple of years ago. In fact, LVT is quite hard to make and the numerous capacity expansion announcements by U.S. players two years ago have struggled to come up to capacity.
  3. 3)  While carpet has been in secular decline for years, the impact on other flooring categories is clearly evident. In order of impact from greatest to least currently, we would assess the impact as follows: Sheet vinyl and vinyl tile, wood, laminate, carpet and ceramic tile.
  4. 4)  LVT currently wholesales and retails at a premium to the average ASP of all flooring. This is good. The average ASP of LVT at retail has actually risen slightly in the U.S. as product innovation and advancements have outpaced commoditization at the low end. Margins are attractive for manufacturers and retailers currently.
  5. 5)  A slight majority of all LVT consumed in the U.S. is supplied currently by China. We estimate only 25% of all LVT is made currently in the U.S. and it is all flexible LVT, not the faster growing Multi Layered Flooring products that include WPS and SPC. The tariff issue, depending on the outcome, could benefit the six minor producers in the U.S. including Armstrong Flooring and Mohawk.
  6. 6)  The shift to LVT is so fast that is proving somewhat disruptive to manufacturers and retailers. Retailers of flooring, not to mention consumers, are only just learning about this product and its attributes as the definition of what comprises LVT is changing as the product evolves.
  7. 7)  We only have one Buy rated stock in our flooring universe which is MHK. The disruption to the flooring market from LVT has been a major contributing factor to MHK’s shares falling 30% from its peak in February (vs. a 5% gain in the S&P 500). While we expect the headwinds from LVT disruption will continue near term, and other margin pressures will persist near term, we see many of the headwinds dissipating compared with 2018 which given the drastic change in valuation lower, provides material up-side for the equity.

History of LVT

While LVT as a product type has been in existence since the 1950’s, for all intents and purposes it began making a material impact to the flooring market in 2012 when USFloors (now a division of Shaw Industries) introduced a wood plastic composite product called COREtec and dramatically expanded the U.S. market for LVT. The product had a core that included wood dust that while sustainable, made the product vulnerable to denting with a weak static load performance measure. Nonetheless, the product captured the interest of flooring retailers and consumers and no longer has the wood dust core.

Over a relatively short period of time, this category of vinyl flooring has exploded in growth and now accounts for an estimated $2.5 billion in sales or roughly 10% of U.S. wholesale flooring shipments.



U.S. LVT Product Evolution



1950s: Earliest vinyl flooring products are produced in China as well as in the U.S. with a product by Kentile

Late 1980s: LVT peel and stick tile exported to the U.S.

2000: Congoleum introduces DuraCeramic, designed to take on ceramic tile

2000s: Glue down LVT for residential and commercial applications

2010: Click installation (loose lay or floating floors) with better looks and easier installation help open up higher end residential applications.

2012: USFloors introduces COREtec (a rigid WPC product) and market acceptance explodes.

2016: SPC, or a more dense rigid core with better performance characteristics and looks help drive pricing upwards.



Defining the Products

The speed of change in this sub-segment of vinyl flooring matches the categories unprecedented growth. Along with this rapid change have come new product innovations that are complicating the definitions of various types of LVT and blurring the separation of categories with certain physical attributes that for example include wood and vinyl compositions in the same product. We should note that the changes are so rapid and confusing, that most professionals in the trade struggle to understand definitions and in some cases the acronyms are not fully relevant anymore. If professionals in the trade are confused, one can obviously understand the average consumer’s confusion when it comes to this flooring option. This will in our opinion create some interesting marketing challenges/opportunities in the future.

“Traditional” Vinyl:

A product that uses primarily plasticizers or polyvinyl chloride (PVC) as a base material that makes a somewhat flexible product that can be easily laid down on a floor and printed. Products include sheet vinyl, vinyl tile and vinyl composition tile (VCT). Traditional vinyl products are amongst the least expensive flooring options in the marketplace.



LVT: Luxury Vinyl Tile

Often we see reference to “traditional” LVT which is the early generation of LVT that is flexible (one layer or fewer layers than MLF and a fairly thin profile). “Flexible” LVT was really the first mover in the LVT category but the product was prone to telegraphing (imperfections below the surface telegraphing through) and “movement” when subject to heat/cold. LVT now includes “rigid core” products as well which fall into two buckets, SPC and WPC which we define below.



MLF: Multi Layered Flooring

This is the latest attempt to differentiate LVT between flexible and the new generations of rigid core products of WPC and SPC. The layers in a MLF product are slightly different from the flexible products and are typically thicker. These MLFs are also deemed “rigid core” LVT as the core (which can be a WPC core or an SPC core) makes the product rigid. A MLF trade group has been recently formed that may help define the product in the future and create certain standards.



WPC: Wood Plastic Composite

USFloors (now owned by Shaw Industries, a Berkshire company) is given credit for originating this segment of MLF with its product named COREtec which originally had a wood dust fiber core (somewhat similar to laminate flooring). Confusingly, WPC now does not necessarily mean it has wood fiber in it anymore, but rather that it is a lighter weight polymer core (think air bubbles within the core) that also provides somewhat greater comfort given its lower density. In fact, relatively few WPC products use wood fiber today and the WPC name lives on in name only with the “W” now standing for waterproof.



SPC Vinyl: Solid Polymer Core

This is similar to WPC however the core layers do not contain any foam or air bubbles, making the product more rigid and denser. Typically the product has a greater mineral content in its core which adds to the rigidity, weight and thickness of the product. Compared to WPC, SPC resists crushing (for example WPC products would have static load ratings for 250 pounds/square inch while SPC would be rated for 5,000 PSI), is more dimensionally stable, and somewhat more usable with less than perfect subfloors. The product tends to be used more in residential applications to avoid telegraphing. SPC products are sometimes criticized as being loud or hard, but other sub-layers are often designed to help provide a softer feel underfoot or dampen foot noise.

 

Raw Material Inputs

There are different raw materials in the different layers that make up an LVT floor. On the very top surface, there is usually a wear layer that may have a finish applied on top of it. The wear layer is clear and made with vinyl. Beneath it is the design layer which is a printed pattern or design on a piece of paper. Below this is a core. The key to an LVT core is that it does not have wood fiber like the typical core of a laminate board but has a 100% waterproof core that includes resins, plasticizers, and limestone. Additionally, LVT cores do not require formaldehyde, the ingredient that caused Lumber Liquidators so much trouble with the sale of its Chinese made laminate floors. In the case of a flexible LVT product, the vinyl core is softer or flexible and uses more plasticizers than rigid products. In the case of a WPC board, the core has limestone but only 25% PVC and the core is injected with a foaming agent that expands the core and gives it a less dense and thus softer core. In the case of the SPC cores, a 50% mix of PVC content and more limestone combined with no foaming agent leaves a denser, heavier and harder core.

Why Is LVT Growing So Fast?

There are numerous reasons that we will list in order of what we view as the most important to the least important.

The new innovations have yielded great visuals that are very authentic looking and have texture with in-registered embossed printing, beveled/colored edges, extremely good wear layers and many other improvements. Replicating the look and feel of stone, ceramic or wood are now achievable in strikingly authentic products.

Most LVT products are waterproof

One of the hottest trends in flooring is pet proof/waterproof products. LVT can be placed over moisture laden cement slabs and used in rooms where moisture can be an issue like bathrooms and kitchens. Laminate floors, which have a wood fibrous core, are not truly waterproof. Wood floors and carpet are obvious challenges with moisture. The flooring market is pushing the water-resistant waterproof story and consumers are buying it.

Installation is relatively easy which means fewer contractor call-backs and a happier consumer. Installation labor is extremely tight and a significant driver of LVT winning share. We may have this issue ranked too low as we hear that finding installation labor is increasingly challenging and the time required to install ceramic and wood is significantly greater. Dealers and contractors who can influence the purchase decision give LVT an edge because the product is much easier and faster to install. It is less invasive to the home owner in a repair/remodel. Ceramic tile is usually at

least two-three days of cycle time, even for a small job. The substantially improved installation options with loose-lay floors has also made this an attractive DIY product, in our view.

The price of LVT is generally below wood and slightly more expensive than ceramic, but the cost of LVT ownership is materially lower than those categories when incorporating the overall cost including installation and lack of future maintenance. Currently 80% plus of LVT products are wood visuals. The installation cost of an LVT floor might range from $1-2 per square foot whereas ceramic floor installations in certain parts of the country are in excess of $10 per square foot.

The latest generations of LVT products solve most all of the challenges presented with hard surface flooring. Not only is the product waterproof but LVT now offers superior dimensional stability, exceptional scratch resistance and multiple installation options.

What Flooring Categories Are Losing Share to LVT?

The Exhibit below breaks down the 2017 wholesales manufacturing shipments by product type below and compare this data with 2012 and 2016. The comparative to 2012 is chosen because we deem this to be the year when LVT really began its growth journey. The comparison of 2017 to 2016 shows how rapid the ascent of LVT has been in terms of its impact on other flooring categories.

Carpet has been in steady decline since around the turn of the century as it has ceded market share to hard surface flooring throughout this period and continues to do so through 2017.

In the past five year period, the biggest loser statistically has been the resilient flooring category excluding LVT or the “traditional” vinyl products. Residential sheet vinyl and vinyl tile have shrunk, as has VCT. Laminate flooring has also struggled to grow recently although its share loss is well below that of the traditional vinyl products as water-resistant laminate floors have gained some traction in the marketplace. Ceramic and wood were growing through most of this five year period, but 2017 reveals some headwinds, particularly to hardwood. Since roughly 80% of the visuals in LVT are wood looks, the impact is understandable. Ceramic and porcelain data may be benefitting somewhat from increased usage on walls, countertops and even exterior panels that are mitigating the pressure on ceramic flooring. We believe that ceramic flooring grew slightly last year, the only category to grow outside of LVT.



How Big Will LVT Become?

Current estimates put LVT at around $2.5 billion or roughly 10% of the total U.S. flooring market. Since the vast majority of the product is imported, the data is a bit fuzzy. The growth rate of LVT last year was pegged at around 25-30%. We believe the market is on pace to grow at that rate or even higher in 2018. If we assume that LVT grows $750 million in 2018, that would represent approximately 3% of industry growth on the approximate $25 billion wholesale flooring market in the U.S. Our assumption is that U.S. flooring sales may grow in the 4% range this year so this would once again mean that LVT will account for 75% of all industry growth.

In trying to address how big LVT can be we need to think about where LVT can take share within the flooring trade and why.

We begin with carpet which has been steadily losing share to hard surface flooring in general for the past two decades. The current flooring share of carpet and rugs is pegged around 47% of all U.S. flooring. Carpet was approximately 65% of all flooring in 2000. In our view, carpet will continue to cede share as it is viewed negatively by so many younger consumers. Carpet is not waterproof and it traps allergens. Consumers have increasingly relegated carpet to the bedrooms or upstairs, limiting its square footage usage and also limiting its visual importance as consumers focus on the downstairs areas where more time is spent and visitors congregate. We see carpet losing a share point per year for the next five years. This means the entire hard surface category would have a full five points of share gain over the next five years, therefore if LVT simply kept its share of the hard surface market which is 10%, it could grow to 11% from this factor alone. However, carpet is losing share specifically to LVT. Applications like apartment replacement are increasingly shifting to LVT from carpet. We see commercial settings increasing the percentage of LVT flooring and carpet losing floorspace. The increasing preference for waterproof flooring clearly is a headwind for carpet and a plus for LVT. Younger consumers also seem more concerned about allergens and dirt and stylistically prefere hard surface. We see LVT taking at least 2-3% points of share from carpet over the next five years.

But LVT is clearly taking share of hard surfaces, not just carpet. Traditional vinyl products may account for 7% of the market today. Sheet vinyl is the least expensive flooring option and will retain some position as a result but the upper price points of sheet goods have been/are vulnerable. We think erosion from 7% to 5% of the market in the next five years is likely with virtually all of that share accruing to LVT.

Laminate flooring has stagnated around $1 billion or 4-5% of the market for the last several years. Given the challenges with the Lumber Liquidators stumble and the somewhat challenged waterproof story, the substitution risk with LVT is high. In laminates favor is a materially lower cost relative to LVT and marketing efforts combined with some product composition changes to improve water resistance. Laminate floors are in many ways very similar to LVT with the primary difference being the core. In other words, the advancements in printing technologies and wear layers translate fairly equally. The key will be the marketing effectiveness around a water-resistant core versus the waterproof core of LVT. We see laminate losing a 1.5 point share over the next five years with virtually all of the gain moving to LVT.

Hardwood flooring is approximately 14% of flooring sales. There will always be a real wood buyer. That having been said, today’s visuals of LVT (80% of LVT are wood simulated looks) combined with the texture enabled by in-registered embossing, the ability to make beveled edges (even with color), the lower price point, all combined with the waterproof benefits, and the ease of installation, and the dimensional stability of LVT implies material share gains against wood. We think wood could lose 3-4 share points in the next five years and LVT will capture much of this although laminate may also take some share from lower priced woods.

Ceramic is the next battlefront with LVT. At 14% share, the market is large. Ceramic can be in many cases less expensive than LVT, but the installation costs are significantly higher, although they vary significantly by geography in the U.S.. To date, the LVT visuals that we have seen to mimic ceramic/stone have not been impressive. But we sense that will change. There is the ability to grout certain LVT products to mimic the look and texture of a ceramic installation. LVT can even be laid on top of an existing floor like an existing ceramic surface with no cost in tearing out the existing floor. With installation labor tight, there is a compelling draw for contractors to move to LVT and away from ceramic. We see floor tile losing as much as two points of share, but decorative wall tile and possible countertop applications may soften the loss of total ceramic share loss.

When adding all of these share losses, it results in a 10.8% share gain for LVT or an approximate double in share. This analysis is done in shares but the overall market should grow, implying more than a doubling of sales for LVT in the next five years. This would equate to a 15% plus CAGR growth rate in LVT over the next five years.



Why Is MLF Easier/Faster To Install?

Most of the products can be put down with adhesives or a traditional “glue-down” method. But recent innovations which include a thicker and sturdier product make a “floating” or click/lock installation method an option. Perhaps even more significant is the forgiveness of subfloor imperfections that LVT allows given the rigid core products that hide unevenness or imperfections in the subfloor. In addition, the rigid LVT products don’t need “acclimation”. Some flooring substrates like wood often need to be brought to the jobsite as much as two days in advance to adjust to temperature and moisture levels or the risk or movement post installation increases. Simply put, MLF flooring requires less installation knowledge/expertise, can be done start-finish significantly faster than ceramic or wood, and is subject to fewer call-backs over time.



Has/Will The Growth Of LVT Change Industry ASPs?



While this question on the surface seems quite simple, the answer may be much more nuanced. Carpet remains the single largest category of flooring, accounting for approximately 50% of flooring units sold but now well under 50% in dollars (around 45%). Carpet, along with traditional vinyl and laminates tend to sell below industry average price points while stone and hardwoods tend to sell at meaningful premiums. We believe soft surface flooring (broadloom and area rugs) sell at roughly 75% of the average of hard surface flooring. So the move towards hard surface flooring over the past 20+ years has actually increased trade sales opportunity. Interestingly, ceramic price points are very close to industry averages. The nuances though involve the shifting shares within hard surfaces. Statistically, wood flooring performed the worst last year and this segment being a premium to the average hard surface and trade had a deflating impact on ASP’s for the flooring trade. There is also a notable slowing in stone flooring which sells at a premium of 3-4X the average flooring ASP, but represents a very small unit share of the industry (<2% of volume).

We see LVT ultimately reaching approximately a 20% market share through cannibalization from other categories.

First, we will attempt to give a possible price range for the offerings of LVT and then hone in on an average. In this part of price analysis, we are trying to assess mill wholesale values and not total installation costs to the consumer. Our analysis of the marketplace, and supported by data we have seen from Market Insights, suggests that the average LVT price at retail or mill value is approximately 10% higher than the rest of the flooring industry. However, if the primary share gains for LVT are happening at the stone or hardwood levels, the growth of LVT should be somewhat dilutive to the average price per unit trends depending on the amount of loss that stone and wood incur. We inject here the data that is coming out of Floor & Décor for insights to the product share shift that is occurring. The loss of share of ceramic to LVT would actually be an increase in ASP’s for flooring but the decline in wood and natural stone would be an offset and the decline in the sales mix for Floor & Décor in stone and wood combined was slightly more than the decline in ceramic. The other comment here would be that ceramic and stone in particular require many more accessory sales although this would not be reflected in flooring ASP’s.

  

BC Flooring Industry Update April 29, 2020 

Here is an industry update, with a slant towards BC businesses. But we are all (across North America) materially impacted by the COVID crisis and so we feel it is beneficial to keep everyone updated with stories from all over North America flooring industries, as we are all connected in some way. If mills are closing down in Goergia, that will eventually impact supply chain for some of us in BC, so it is important to stay on top of industry trends.

Today I have been attending NWFA (National Wood Flooring Association) annual tradeshow expo. But for the first time in my life, I am attending a virtual tradeshow. Spread over 3 days, this is a unique experience and I applaud the association for being creative and putting this event on. For details on their thinking, here is a radio interview from Michael Martin, a fellow I know from the American flooring covering industry. He is currently the CEO of NWFA and he speaks to both current industry conditions (with an American slant) and the NWFA virtual convention.

Michael Martin,  CEO of the National Wood Flooring Association (NWFA), and Kemp Harr discuss the NWFA’s plan to hold a virtual trade show April 29 to May 1 using the NWFAexpo.org website as a portal. Listen to the interview for more details.

https://www.floordaily.net/flooring-podcasts/michael-martin-discusses-the-nwfa-virtual-expo489

If you don’t want to listen to the 8 minute interview, a couple of notes… Michael mentioned that many of his membership had stated that the start of 2020 was excellent… most were on track to have excellent years. So this is important to note as the industry was healthy and before the COVID slow down, was growing. I know at Word of Mouth Floors in Greater Vancouver that we were booming. We were having record months, month after month. So I agree that the industry was strong and healthy before this slowdown. I also believe that when we return to normal, or whatever the new normal will be, then I expect to see construction / building industry to pick back up and return to its healthy status. We may not return to the levels we had pre-COVID, but I do believe activity will ramp back up. Hopefully soon for all of us.

Pending Home Sales are down 20.8%

Washington, DC, April 29, 2020-The Pending Home Sales Index (PHSI) decreased 20.8% to 88.2 in March, according to the National Association of Realtors. Year-over-year, contract signings declined 16.3%. An index of 100 is equal to the level of contract activity in 2001.

“The housing market is temporarily grappling with the coronavirus-induced shutdown, which pulled down new listings and new contracts,” said Lawrence Yun, NAR’s chief economist. “As consumers become more accustomed to social distancing protocols, and with the economy slowly and safely reopening, listings and buying activity will resume, especially given the record low mortgage rates.”

“The usual Spring buying season will be missed, however, so a bounce-back later in the year will be insufficient to make up for the loss of sales in the second quarter,” he said. “Overall, home sales are projected to have declined 14% for the year.”

Citing results from NAR’s April 19 – 20 Flash Survey, Yun says technology tools such as virtual tours and e-signings are helping connect buyers and sellers. Fifty-eight percent of Realtors reported that buyers are using virtual tours and 43% said buyers have taken advantage of e-closings.

“Although the pandemic continues to be a major disruption in regards to the timing of home sales, home prices have been holding up well,” Yun said. “In fact, due to the ongoing housing shortage, home prices are likely to squeeze out a gain in 2020 to a new record high. I project the national median home price to increase 1.3% for the year, though there will be local market variations and the upper-end market will likely experience a reduction in home price.”

Again, this is a report pulled from our USA neighbours… but I felt the sentiment was similar to what I am hearing locally. Home sales are down, but pricing is holding pretty steady. More people are using online / virtual shopping habits and overall, the feeling is that the second half of the year we will see activity pick but up ‘somewhat’. I think these are statements that many parts of BC could agree with.

Consumer Sentiment Drops 19.4%

Ann Arbor, MI, April 24, 2020-Consumer sentiment fell to 71.8 in April from 89.1 in March, a 19.4% decline, according to final results from the University of Michigan Survey of Consumers.

Year over year, this represents a 26.1% decline.

“April's final Sentiment Index reading remained largely unchanged from the mid-month figure (+0.8 points), and households with below median incomes expressed the same level of confidence as those with above median incomes (71.9),” said Richard Curtin, Surveys of Consumers chief economist. “This merging reflects somewhat larger April declines among households with above median incomes (-19.8 points) compared with those with below median incomes (-14.0). The seven-day moving average of the Index of Consumer Sentiment indicated a second larger improvement that was quickly reversed (see the featured chart); its cause could not be linked to any direct judgements about the coronavirus. The notable divergence between the two main components of the Sentiment Index remained large. The Current Conditions Index fell by 29.4 points in the past month and by 40.5 points in the past two months, whereas the Expectations Index has posted smaller declines of 9.6 points in the past month and 22.0 points from February. While the decline in both indices indicates an ongoing recession, the gap reflects the anticipated cyclical nature of the coronavirus. In the weeks ahead, as several states reopen their economies, more information will reach consumers about how reopening could cause a resurgence in coronavirus infections. Consumers' reactions to relaxing restrictions will be critical, either putting further pressure on states to reopen their economies, or exerting added pressure to extend the restrictions even if it has negative consequences for economic prospects. The risks associated with these decisions are not equally balanced, with an incorrect decision to reopen having serious repercussions. The necessity to reimpose restrictions could cause a deeper and more lasting pessimism across all consumers, even those in states that did not relax their restrictions.”

GDP Drops

Washington, DC, April 29, 2020-Real gross domestic product (GDP) decreased at an annual rate of 4.8% in Q1 2020, according to the advance estimate released by the Bureau of Economic Analysis. 

In Q4 2019, real GDP increased 2.1%.

The GDP estimate released today is based on source data that are incomplete or subject to further revision by the source agency. The second estimate for the first quarter, based on more complete data, will be released on May 28, 2020.

https://www.floordaily.net/flooring-news/gdp-fell-48-in-q1-2020#

We will keep a close eye on what all this can mean for the British Columbia flooring industry. I will continue to try and share insights from other parts of North America floor industry as we are all somewhat connected. Another key topic that will impact us is the USA / China trade war that likely will continue, and possibly get worse, as the USA Presidential election nears. This potentially impacts us for a few reasons: America is the largest customer for most flooring factories in China. If they stop buying, it hurts the factories. Factories losing their largest customers may not good for Canada… if factories stay open and have the financial power to survive, then Canadian buyers can benefit. Less competition for production spots. But, if profits fall in factories because lucrative USA customers stop purchasing, then prices may go up, raw material purchases may slow down, do delays could be felt by us in Canada. Or, in severe situations, factories close, and access to product is reduced or eliminated. So it is worth keeping an eye on the macro economic impact that a USA – China trade war could impact BC flooring buyers.

Take care, send me a note or drop by our Richmond, BC showroom if you wish to discuss.

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