These are challenging times for the wood flooring market. Wood flooring’s ability to make additional inroads in the U.S. floor coverings market is being stymied by increased competition from wood-look ceramic tile planks, new and innovative luxury vinyl tile (LVT), and flooring made of plastic composite products (WPC). These competing wood-look floorings are beginning to take share from manufacturers of solid and engineered wood flooring. Wood flooring market growth trends are also being hampered by slower gains in new housing construction, a key driver of wood flooring sales. In addition, rising hardwood lumber costs are making it harder to capture consumer’s growing preference for wood-look flooring. Wood flooring manufacturers and marketers will need to take advantage of stronger gains in the residential replacement market and increased penetration of the commercial market to make further inroads in the U.S. floor coverings market.
Dollar wood flooring sales (shipments minus exports plus imports) are estimated to have increased by only 3.1 percent in dollars and 3.6 percent in square feet in 2016. U.S. sales reached an estimated $3.8 billion and some 1.7 billion square feet. These gains compare to a 12.5 percent compound annual growth rate in dollars and 9.4 percent annually in square feet between 2011 and 2015. Sales gains were strong during this period due to double-digit increases in housing starts. This is important to this market since wood flooring has the highest dependence on the builder market, more than any other flooring material. Housing starts increased closer to 5 percent in 2016, which dragged down wood flooring market gains.
Competition also intensified from ceramic tile and resilient flooring manufacturers, both of which are also able to offer wood-look flooring. In 2016, the strongest competition came from LVT products, especially from click-installed LVT wood-look planks. Catalina Research Inc. estimates the total LVT market increased by 33 percent in dollars and 27 percent in square feet in 2016 (Catalina Report on LVT and Other Resilient Products). At the same time, ceramic tile sales rose by an estimated 6.4 percent in dollars and 4.9 percent in square feet.
As a result of these trends, wood flooring began to lose share to the other flooring sectors that can provide wood-looks. Wood flooring is estimated to have accounted for 32.6 percent in dollars and 16.7 percent in square feet of total sales of these flooring sectors (ceramic tile, laminate, resilient, and wood flooring) in 2016. This is down from a high of 34.7 percent in dollars and 17.5 percent in square feet in 2014 and 2015. Share has been lost in residential and commercial markets. These recent declines compare to sharp inroads made by wood flooring between 2002 and 2014.
Pricing also became a barrier to growth in recent years due to the sharp increase in hardwood lumber costs. This reduced wood flooring’s price competitiveness. Between 2011 and 2015, average wood flooring selling prices increased by 14.6 percent. During the same period, average ceramic tile selling prices rose by 7.8 percent, resilient flooring prices by 10.5 percent, and laminate flooring prices by only 1.1 percent. There was some leveling off in wood flooring prices in 2016 as hardwood lumber prices declined; however, wood flooring average manufacturer selling prices remain double the floor coverings industry average.
Pricing could remain a problem during 2017 due to a 7.9 percent increase in hardwood lumber prices in the second half of 2016. This will put pressure on U.S. manufacturers to increase prices once again. Pricing pressures are also coming from foreign-sourced products. In 2016, average selling prices of imported engineered wood flooring increased by 10.8 percent and average imported solid wood flooring selling prices rose by 8.2 percent. Wood flooring prices could rise once again just as ceramic tile and LVT prices are leveling off. LVT could become more price-competitive as new production capacity comes on-stream worldwide.
At the same time, selling opportunities could slow further in the builder market with housing starts expected to increase only in the low single-digits during 2017. The slowdown in the new housing market reflects a decline in multi-family starts as the need for rental housing becomes satisfied. Conversely, builder purchases could be offset by an increase in single-family home construction as the first-time homebuyer market improves. Stronger gains for single-family home construction could be an important selling opportunity for wood flooring manufacturers since the average new single-family home built is more than twice the size of a new multi-family housing unit.
Selling opportunities are also expected to strengthen in the important residential replacement market. This market, which accounts for about 53 percent of total wood flooring sales, is benefiting from record existing home prices, rising personal income gains, and growing consumer confidence. This key market has been a drag on industry growth for most of the current recovery period; however, an improved labor market is giving a boost to homeowner purchases. The only headwind is how fast and how far mortgage rates increase.
Consumers also seem to be purchasing higher-end flooring. This can be seen in the industry’s pricing trends. The wood flooring producer price index, which measures the price of the same flooring over time, declined by 3.9 percent in 2016. However, average wood flooring selling prices, which measures the price of a current mix of flooring types, was flat.
Meanwhile, wood flooring manufacturers and marketers must find a way to increase their penetration of commercial markets, since commercial markets are estimated to lead floor coverings industry growth during 2017. Commercial market sales could benefit from rising corporate profits and relatively strong increases in the Main Street commercial market — sales to retailers, professional offices, and service providers. The industry must push commercial’s share of total wood flooring sales above the current 19 percent and get closer to commercial’s one-third share of the total U.S. floor coverings industry.
Catalina Research will be tracking wood flooring industry trends during 2017 including an analysis of U.S. manufactured versus foreign-sourced products, customer demographics and factors driving demand, and the Outlook for 2018. For more information contact Stuart Hirschhorn, Director of Research, at 561.988.0853 or firstname.lastname@example.org.
Stuart Hirschhorn is Director of Research for Catalina Research Inc.in Highland Beach, Florida. He can be reached at email@example.com.