U.S. wood flooring manufacturers and marketers face a challenging market environment. Manufacturers and marketers have been adversely affected by a housing recession, increased competition from luxury vinyl tile (LVT), and higher wood flooring prices from increased lumber costs in 2018 and higher import prices during 2019. Higher import prices are due to the imposition of additional tariffs on Chinese-made flooring. These negative factors accelerated in late 2018 and early 2019. As a result, wood flooring lost a significant share of the total U.S. floor coverings market during the past two years. For wood flooring demand to recover, the industry needs a boost from a housing recovery driven by lower interest rates. Manufacturers must also introduce more waterproof flooring to meet consumer expectations derived from rising competition from wood-look waterproof LVT.
Dollar wood flooring manufacturer sales (shipments minus exports plus imports) are estimated to decline by 5.8 percent during 2019 to $3.3 billion. Square foot sales could drop by 9.9 percent to 1.5 billion square feet. This is down from $3.7 billion and 1.8 billion square feet, respectively, in 2017. Declining sales during the past two years have caused wood flooring to lose considerable share in the U.S. floor coverings industry. During 2019, wood flooring is estimated to account for 11.8 percent of total floor coverings dollar sales, and 6.3 percent of total square foot sales. This is down from 14.2 percent and 8 percent, respectively, in 2017.
Wood flooring lost share due to its heavy reliance on residential markets. Residential markets slowed in 2018 due to the housing recession resulting from the sharp increase in mortgage interest rates. The housing downturn started in the existing home market where sales declined by 3 percent in 2018. The decline was sharpest in the fourth quarter when the increase in interest rates peaked. The drop in existing home sales resulted in a weakened residential replacement market since the buyer of an existing home is more likely to invest in new flooring than a non-mover.
Meanwhile, the surge in interest rates in the fourth quarter of 2018 caused the builder market to weaken. Declines in home sales continued into the first quarter of 2019. As a result of these trends, consumer floor coverings spending declined in the fourth quarter of 2018 and remained on a downward trend going into the first quarter of 2019.
The weakness in residential markets had a greater effect on wood flooring sales since wood flooring has the highest dependence on residential markets. Some 80 percent of total U.S. wood flooring purchases is for residential applications. In fact, wood flooring has the highest dependence on the builder market than any other floor coverings sector.
Wood flooring also has been adversely impacted by the introduction of LVT. In recent years, Asian manufacturers developed rigid core vinyl planks that offer customers a waterproof floor and wood-looks with improved printed designs and texturing technologies. The original rigid core products utilized an expanded foam polymer core, known as WPC. During the past year, several manufacturers have introduced planks with a solid polymer core, known as SPC. The denser SPC flooring allowed LVT to be used in a wider range of applications. The new LVT floors have been accepted by residential and commercial customers with LVT sales increasing some 40 percent per year in dollars and square feet in 2018 and 2019. As a result, LVT could increase to 16 percent to 17 percent of total U.S. floor coverings dollar sales, up from less than 2 percent in 2007.
LVT prices became more competitive as investments in new production capacity in Asia and the U.S. caused LVT prices to begin to weaken. At the same time, wood flooring prices were rising sharply. This cut into wood flooring’s competitive position. Wood flooring prices rose due to increases in hardwood lumber prices throughout 2018, while import prices increased in the first quarter of 2019 due to the imposition of an additional 10 percent tariff on Chinese-made wood flooring in September 2018. These trends could result in a 4.9 percent increase in average wood flooring selling prices during 2019. This compares to a less than 1 percent increase for total U.S. floor coverings prices.
The additional tariff on China-made wood flooring impacted U.S. selling prices since imports represent about 40 percent of total U.S. wood flooring dollar sales, and Chinese manufacturers account for about one-third of total U.S. imports. In addition, as the price of Chinese-made wood flooring increased, the supply chain shifted to suppliers in Belgium, Canada, Malaysia, and Poland. As a result, average import prices could increase by nearly 12 percent during 2019.
To counter the negative factors in the marketplace, wood flooring manufacturers and marketers need the decline in mortgage interest rates in March and April to spark a housing recovery in the second half of 2019. This is imperative due to wood flooring’s high dependence on residential markets. Wood flooring manufacturers and marketers must also find a way to increase their penetration of commercial markets. Wood flooring is estimated to account for less than 8 percent of total commercial floor coverings purchases. Marketers must find a way to boost usage since commercial floor coverings purchases have continued to increase in late 2018 and early 2019 as nonresidential building construction spending remained on an upward trend.
More importantly, wood flooring manufacturers must introduce more waterproof products to counter the growth of LVT. In the first quarter of 2019, Lumber Liquidators reported that customers were looking for waterproof flooring. Customer preferences resulted in Lumber Liquidator first-quarter sales of LVT to increase by about 22 percent, while sales of wood flooring declined by some 16 percent.
Manufacturers are already introducing hybrid wood flooring to meet customer’s desire for more waterproof flooring. Cali Brands’ line of GeoWood, which combines real wood layered over the company’s GeoCore SPC limestone composite, was expanded in March 2019. Shaw Floors’ Floorté now offers a product with a waterproof SPC core with a hardwood veneer.
Finally, wood flooring sales could gain some traction from the decline in hardwood lumber prices during 2019. Lower lumber costs could translate into more competitive wood flooring prices and hopefully higher demand.
Catalina Research will be tracking wood flooring industry trends during 2019 including an analysis of U.S. manufactured versus foreign-sourced products, customer demographics, and retail distribution, and the outlook for 2020. For more information contact Stuart Hirschhorn, Director of Research at 561.988.0853 or firstname.lastname@example.org. Also, visit our website catalinareports.com.
Stuart Hirschhorn is Director of Research for Catalina Research Inc. in Highland Beach, Florida. He can be reached at 561.988.0853 or email@example.com.