2020 Industry Outlook

NWFA members expect 2019’s robust market to continue into 2020. A sizeable majority – more than 64 percent – of manufacturers, distributors, retailers, and contractors who responded to the association’s annual outlook survey forecast that demand for wood flooring will increase in 2020.

Of those, half expect demand to grow by 3 percent to 7 percent, while just over 14 percent expect sizeable growth of more than 8 percent.

However, a greater number of respondents were pessimistic about the next year than in recent years’ surveys. Nearly a quarter said they expected sales to be down, either somewhat or significantly in 2020 compared with 2019. In 2018, just 9 percent said the same about 2019.

The shift seems in line with other national surveys that indicate a slight slowdown in spending on items like flooring. The Leading Indicator of Remodeling Activity (LIRA), released in July 2019 by the Joint Center for Housing Studies of Harvard University, estimated that annual gains in homeowner expenditures for improvements and repairs would shrink from 6.3 percent in the current quarter to just 0.4 percent by the second quarter of 2020.

The researchers blamed declining home sales and homebuilding activity coupled with slower gains in permitting for improvement projects. But the slowdown may soften, said Chris Herbert, managing director of the Joint Center for Housing Studies, if mortgage interest rates continue to fall, incentivizing home sales, refinancing and remodeling
activity. National Association of Home Builders data for the first part of 2019 reflected a similar assessment: growth will continue, but not at the same rapid pace.

“The remodeling market has decelerated somewhat due to ongoing supply-side challenges, as well as yearover-year declines in existing home sales,” NAHB Chief Economist Robert Dietz said when the data were released in August 2019. “However, remodelers’ confidence continues to be positive. Market conditions would be better if not for labor shortages and rising construction costs making it difficult to complete some projects at prices homeowners can afford.”

For the remainder of 2019, half of NWFA survey respondents said they expected their annual sales of wood flooring would remain roughly equal to 2018. Still, respondents are troubled by the prospects for the economy in the coming year. And they’re equally worried about competition from nonwood, including wood-look flooring.

In fact, when asked to rank their concerns for 2020, the potential for economic slowdown tied with competition from non-wood flooring as the No. 1 issue that keeps NWFA members up at night. And about two-thirds indicated that non-wood products were having a negative impact on their wood-flooring revenue.

Pie Chart“I’m very concerned. I don’t like the national debt,” said Paul Stringer of wood floor manufacturer Somerset Wood Products, in Somerset, Kentucky. “And the way housing costs are getting so high, I think with the election coming up there could be a lot of turmoil. And that can make it hard for people to buy things like wood flooring. But if the economy slides, wood flooring could take the brunt of that. That worries me a lot.”

Christopher Keale, Owner of T & G Flooring in Denver, Colorado, said that while wood-particle composite and other laminates remain more popular in commercial settings than in homes, he expects LVT and WPC creeping into homes as the quality of those products improves. “It will take market share. Is wood still the most desired thing? Sure, it is. It’s still the most luxurious, but WPC is going to eat into it. I don’t doubt that at all.”

Forecast: Lighter Style

The style trends in hardwood floors that manufacturers, distributors, and retailers see coming in 2020 can be summed up in four words: wider, longer, lighter, and natural. “A few years ago, people were looking at 4-inch-wide boards. Now there are a lot of people who won’t even consider that. It’s 5- or 6-inch-wide, minimum,” said Scott Tarpinian of Berlin Flooring in Boulder, Colorado.

“Dark colors, which were very big until recently, are kind of fading. No pun intended,” he said. He added even the greys, which have been soaring in popularity, seem too dark for some customers, who are turning to white
shades, reminiscent of the 1980s. “It was gone for a while, and now it’s making a comeback.”

The drawback of white – its tendency to show stains and wear and tear – likely will prevent it from appealing to families with young children or big dogs, he said. “But when you’ve got this modern minimalist design where everything is very clean looking… there are definitely more white floors than there were a few years ago.”

One survey respondent said homeowners want products that look great with less maintenance. “Gone are the dark smooth, shiny finishes that caused so much grief to everyone.” The appeal of shiny floors appears to be dulling, as well. “Matte sheen is increasing in popularity as people want a natural, ‘organic’-looking floor,” said one survey respondent.

One trend that most respondents felt is all but over is hand-scraped finishes. Those “will become more unpopular as homeowners discover the difficulty of cleaning,” one respondent said, explaining why more than 54 percent of respondents expect demand for that finish to drop in 2020. “Textures are still in demand,” one survey respondent said, “however, preference for the type of texture is evolving.” Consumers want a “lighter degree of scrape” that provides dimension, but doesn’t change the feel.

Among species, oak is king – particularly white oak – and domestic species continue to be in higher demand than exotics. “Domestic hardwoods continue to hold their share because of cost, availability, and quality,” one survey respondent said.

The Tariff Impact

When it comes to the impact of government-imposed tariffs on Chinese imports, NWFA members offered varying assessments, with 32 percent saying the tariffs had resulted in smaller margins, 25 percent saying they had raised prices on wood flooring as a result of tariffs, and about a fifth saying they had changed their product mix as a result. Some manufacturers have seen an impact on the cost of their machinery and other supplies.

Some companies lower in the supply chain said that the price increases were absorbed before reaching them. And others said that their higher-end customers were not sensitive to price increases, so they were able to easily pass on any that did affect them.

More than 40 percent said tariffs have had no impact on business whatsoever. Among those who said tariffs made no difference to their sales or margins, the primary reason was that their business did not rely on Chinese imports. “We stopped importing from China a long time ago,” one respondent said.

Another said: “About 99 percent of our new installations are solid, unfinished flooring manufactured in the U.S. The wood, underlayment paper, staples, sandpaper, floor finishes, etc., are all made in the U.S., so we haven’t noticed any price increases on materials due to tariffs.”

Stringer said he expects the industry will continue feeling the effects, but that they won’t last. “There are a lot of low-priced engineered products that come from China. But China is being replaced by other Asian countries, like Cambodia and Vietnam. The manufacturing will just move to a different location, so it’s a short-term effect.”

Wood-Look Threats Grows

Eighty-one percent of manufacturers who responded to the survey said that wood-look flooring has affected sales of wood flooring. Nearly 88 percent of distributors and 67 percent of retailers said the same. One manufacturer even said that they are exploring the waterproof category (one of the key benefits of some of the emerging wood-look competitors) as a “hedge.”

Tarpinian senses that demand for synthetic floors probably varies not only by budget, but also region. In Boulder, where he installs floors, price put many homes out of reach for all but the very affluent. And those homeowners are less likely to be attracted to synthetic floors simply because they are less costly. “But maybe somewhere in the Midwest, someone who is buying a $250,000 house – which you can’t get here – may be looking to get rid of carpet, and they may be on a tight budget, so they’re going to go with vinyl plank, and that could hurt hardwood-flooring contractors.”

Gretchen Moline, co-owner of Domino Hardwood in Portland, Oregon, echoed the sentiment that synthetic floors’ popularity varies with region. “People are looking for wood. I don’t see any competition at all – I’m not worried about the laminate industry.”

Tarpinian is not necessarily a fan of the synthetic products, but Berlin does install them, he said. However, he said for his business, and probably for many other flooring specialists, the demand is low. That’s likely because budget-conscious consumers are turning to big-box stores they believe, often incorrectly, will offer better deals.

T & G Flooring’s Keale said he likewise sells WPC (Wood Plastic Composite),
and, like many who responded to the survey, indicated it is more of a factor in commercial, high-traffic settings where cost is a paramount concern. “WPC is a small piece of what we do. When we sell it, it’s more often a commercial application, like a country club.”

But Keale has observed a trend that troubles many NWFA members who deal only in wood products: the quality is improving. “When I bought into the business 12 years ago, that vinyl product looked like junk. Now, it’s legit. It looks good. Do I think you’re going to see more of that in basements and more of that in playrooms, in some cases whole houses? Sure. I think it absolutely will as it gets better.”

But not everyone sees such a bright long-term future for laminates and other non-wood products. “I think there is going to be a lifespan for LVT and all that,” said Stringer. “But I think people are going to come back to wood. I think we’re just in a little bit of a lull because of the excitement surrounding these – what I call three-letter products. But I think it’s a short-term thing.”

The growing demand for LVT, WPC, and other three-letter products – which tend to come in more options – however is driving expectations for longer, wider planks in real wood, according to one survey respondent. “It’s a difficult production/supply issue for ‘real’ wood manufacturers, but expectations will be there.”

In the same vein, water-resistant wood flooring is an emerging trend that many NWFA members said was one to keep an eye on; many, however, did note that consumers are being trained to look for waterproof and water-resistant, thanks to the synthetic options, and so that is becoming an expectation. “It will make my piece of the pie smaller,” said one manufacturer. Another said they’d look at developing their own offering: “We may offer a small collection in the category to mitigate some of those losses.”

Most were uncertain of the impact but were wary of the impact on consumer expectations. “It’s a sham,” said one contractor. A manufacturer respondent said: “It will create, in my opinion, unrealistic expectations, and it will hurt us until the product lifecycle reeducates the market. Short-term, it will hurt.”

CONTRACTORS

As we move toward 2020, NWFA contractors are optimistic about wood-flooring sales with 40 percent expecting sales to be up somewhat in 2020 and 40 percent expecting sales to be about the same. Contractors cited a growing economy, new construction, and expansion into higher-end markets among the reasons for their forecasts.

Compared with 2018, NWFA contractors are reporting wood- flooring installations are about the same (42 percent), up somewhat (28 percent) and up significantly (21 percent). Just 7 percent said that installations were down somewhat (3 – 7 percent) and none reported that they were down significantly.

Contractors are still struggling to find adequate skilled labor, with 57 percent of respondents saying they are having problems in this area. Several contractors stated that the younger generation is not interested in manual labor, and those that want to work already have jobs. Fluctuating work throughout the year and a changing market can compound the labor issues. According to Scott Tarpinian of Berlin Flooring: “We may need to find workers because we’re busy now, but if we hire somebody, we don’t know if we’ll be able to keep them employed full-time through the winter. So that can be tough.”

Competition from wood-look products like LVT, WPC, and laminate continues to be a threat to wood-flooring installations, but 53 percent of contractor survey respondents felt these products did not negatively impact their real-wood product sales. Several contractors pointed out that the wood-look products typically are used in scenarios where real wood wouldn’t be the best option, and many said that high-end customers still see the value in higher-quality wood flooring. One contractor said: “People want real wood. They use vinyl plank flooring for basements or maybe for rental properties, but not the main living areas of their homes.”

In 2018, 53 percent of contractors said they purchased wood flooring directly from manufacturers, and 89 percent said they installed wood purchased from wood-flooring distributors. “We have been doing business with the same distributors and manufacturers for many years, and when we need something in a hurry, we can always depend on them,” said one contractor respondent. The percentage of contractors that said they installed wood purchased and supplied by the client rose from 41 percent in 2017 to 46 percent in 2018, and 7 percent of contractors said they installed wood purchased from big-box retailers in 2018.

Like last year’s survey, the most common cut of flooring was plainsawn (85 percent), and the most common method of installation was nail down over wood subfloors, accounting for 78 percent of the survey responses. In 2018, water-based finishes accounted for 60 percent of the responses, followed by oil-modified finishes at 32 percent.

Regarding trends, the contractors that responded to the NWFA survey generally saw a movement toward wider planks and a more natural look. “I believe textured, natural, and lowsheen floors will continue to grow in popularity as the trend toward more natural and earthy elements continues across all design aspects,” wrote one. Darker colors were reported to be trending down as more natural, lighter and medium colors are returning. White oak is in demand with 66 percent of contractors stating that they expect demand to be even higher in 2020.

Price competition continues to be a concern for contractors with some reporting a race to the bottom on price. One reason for this is because customers often lack realistic expectations about the cost of high-quality wood floors. Tarpinian said: “People don’t do hardwood flooring projects often and so they usually underestimate how much it will cost.”

As contractors look toward next year, they plan to continue investing in employee training, offer better customer service, and expand their offering of products and services.

MANUFACTURERS

About 25 percent of NWFA manufacturers surveyed indicated that sales of wood-flooring products in 2018 stayed about the same compared with sales in 2017. Another 25 percent reported sales were down somewhat (3 – 7 percent) and almost 19 percent said sales were down significantly (more than 8 percent) for the year.

Sixty percent of manufacturers estimated that their total volume of wood-flooring related product sales was up to $25 million, with about 75 percent of respondents utilizing traditional wood-flooring distributors as their primary sales channel. Other sales channels included direct to flooring-specific retailers (50 percent) and direct to builders and installers (44 percent). A quarter expects to shift channels in the coming year.

Halfway through 2019, respondents were asked about their forecasts for the full year 2019. Almost 30 percent expect sales to be down significantly (more than 8 percent), while almost 24 percent expect modest growth (3 – 7 percent) and about 18 percent forecast significant growth.

Many manufacturers are optimistic about 2020 sales growth. More than 47 percent expect to see modest improvements in sales (3 – 7 percent), while almost 18 percent expect to see significant overall growth. When asked why, one manufacturer answered that pricing is trending slightly upward; another offered that their forecast is due to an increase in market share. Regarding pricing, a majority of manufacturers (60 percent) reported that prices largely remained the same in 2019. It doesn’t appear that pricing will change much in 2020 either, with more than half of manufacturers saying they’ll hold steady on pricing.

Manufacturers report top opportunities going into the second half of 2019 and into 2020 to include:

• a more level playing field for wood flooring due to the tariffs; • increased awareness of wood flooring quality;

• prefinished and wide wood flooring products;

• the adoption of automation;

• new product launches; and

• a focus on continuing to be a trusted vendor to customers while the wood flooring industry is in transition.

Based on current trends, manufacturers shared insights on-demand expectations for certain wood flooring products going into the year 2020. Products they believe will remain the same for demand include dark colors, gray stains, white stains, unfinished, and water-based finishes. They expect demand in the following product categories to increase: wide plank, long boards, natural wood colors, factory finished, matte finishes, and engineered. Hand-scraped flooring is anticipated to decrease in demand in 2020 along with solid flooring and semi-gloss finishes.

Manufacturers in the survey said that buyers are looking for products that are lower maintenance and eco-friendly. One manufacturer explained the shift is likely due to an increase in consumer awareness of composite “waterproof” wood flooring alternatives. Yet another manufacturer said: “We believe that we will begin to see consumers tiring of all the vinyl and resilient in the market and making a move back to prefinished hardwood. The overall market is going to demand wider, textured, lower-gloss products.”

Manufacturers reported demand for certain species to shift in 2020, with bamboo falling in popularity and white oak continuing to rise. Reasons for these expectations include trends toward grays and whites, as well as U.S. consumers favoring heavier grained, more-common species. One manufacturer said: “Bamboo has a poor track record with many retailers, so is not really a viable option, and the cork sector seems to be limited to underlayment versus a choice for flooring itself due to the dramatic increase in vinyl products.”

About 38 percent of manufacturers reported seeing smaller margins on wood-flooring sales as a result of Chinese tariffs. In addition, 31 percent of manufacturers have witnessed a decrease in overall wood-flooring sales, 31 percent have changed their product mix as a result, and 31 percent reported no impact on their business from the tariffs.

Despite favorable forecasts for 2020, manufacturers admit they have some worries going into the new year. When asked to select their top three concerns, they listed non-wood floor covering competition, the economy, and the political climate. Only about 13 percent indicated any concerns about a potential housing market bubble collapse.

DISTRIBUTORS

NWFA distributors that responded to our 2020 Industry Outlook survey revealed mixed responses to the state of the economy. Distributors mentioned competition from woodlook products and a slowing economy as top concerns.

Looking ahead to next year, NWFA distributors expect wood-flooring sales to be about the same as this year. One distributor cited a “softer real estate market” than in previous years, and said pricing competition continues to be a challenge. One distributor mentioned commodity-level pricing is being driven by “thinner top-faces and cheaper core boards.”

For distributors that sell non-wood flooring products, about half reported that their wood-flooring sales are growing more slowly than the nonwood flooring sales. About a quarter of the distributors that responded only sell wood flooring products.

Many distributors said that competition from wood-look products has negatively affected their real-wood product sales, with LVT identified as the biggest long-term threat. But as one distributor commented: “Wood-look is cheaper than hardwood with the look of hardwood, but hardwood will always be the original and most valuable, especially when selling or buying a house. It’s still the top product.”

Steven Suntup, a representative of Elastilon in Holland, echoed these thoughts when asked about competition from wood-look products. “There
are two reasons I think they’ll make inroads,” he said. “One is on price, because it’s obviously a lot cheaper than a hardwood floor, even an engineered hardwood floor. And second, it’s very difficult these days because there are such good copies out there of the real thing. But the real thing will always be the real thing. Everything else will be a copy, but they are copied so well that it almost looks like the real thing, so even a professional can be fooled sometimes.”

NWFA distributors see their top two opportunities going into 2020 as product diversification and geographic expansion. Their two biggest concerns are the economy and manufacturers selling direct. One distributor’s strategy moving into the second half of 2019 and 2020 is to “align ourselves with manufacturers that support the distribution model and who actively partner with us to grow our territories.”

Most distributors feel that continuing to offer training for their customers on the products they sell is important, with nearly a third saying it is “extremely important” and just over a half of respondents view it as “somewhat important.”

RETAILERS

In 2018, 36 percent of NWFA retailers reported sales up somewhat (3 – 7 percent), 27 percent reported that sales were up significantly (8 percent or more), and 9 percent reported sales were about the same. Just 18 percent reported that 2018 sales were down somewhat (3 – 7 percent) and 9 percent reported sales down significantly.

Looking into the remainder of 2019 and into 2020, NWFA retailers are expecting sales on wood flooring to be affected by the economic slowdown and political climate. They also are concerned about competition from online sales. Expectations for 2019 full-year revenue were up somewhat for 33 percent of retailers and down somewhat for an equal 33 percent. Sixteen percent of retailers forecasted sales for the remainder of 2019 would be about the same.

For 2020, NWFA wood flooring retailers in the survey are cautiously optimistic with 8 percent forecasting sales will grow significantly, and 41 percent expecting sales to be up somewhat. One retailer said: “It depends on our local and national government. The attitude of our customers to spend is what we rely on. It’s a very tough political climate.”

Many retailers cited competition from LVT and WPC as a top concern with 66 percent saying wood-look products are having a negative effect on their real-wood product sales. While some are moving more into LVT and carpet for the builder market, another retailer mentioned their strategy in late 2019 and into 2020 will be to “target custom homebuilders and architects in lieu of showroom sales to residential homeowners.”

NWFA retailers estimate that services including installation, refinishing, design, repair, and training will make up a good portion of sales, with 41 percent of retailers saying services account for a quarter to half of their sales. And half of retailers said they predict this percentage to stay the same in 2020. Accessory sales made up 10 percent or less of sales for 83 percent of retailers in 2019, which is expected to remain the same for most in 2020.

Going into the second half of 2019 and 2020, retailers see their top two opportunities as product diversification and improvements to operations. One retailer said they planned to offer “some value lines and new product offerings.” Christopher Keale, T&G Flooring in Denver, said he is using new apps to improve the surface segment of his business. He said: “We have project management apps we’ve recently rolled out on all of our crews’ phones so you can press a button and notify a customer that you’re on your way. You can press another button and tell them when their appointment is scheduled. You can see the entire schedule for every project for the next four months.”

NWFA retailers plan to remain competitive by educating customers on products and providing highquality customer service. Many mentioned their well-trained sales staff and providing customers with value as a top strategy moving forward.

WHAT’S NEXT

Keale said he is positioning T & G Flooring for the future by bringing technology into the picture. Before entering the wood-flooring business, he worked in technology and sees opportunity for greater efficiency in the contracting and construction fields.

“These are the things that I’m trying to put in place so that if a recession comes, we’re going to weather the storm better because builders are going to say, ‘Look, I don’t have any headaches with these guys.’”

Technology was a top option selected by many survey respondents. Many manufacturers said they planned to continue automating their processes.

For contractors, ongoing education for their crews was key going in 2020. And companies throughout the supply chain want a stronger presence on the Internet going in the next year. Product and end-market diversification was also top of mind. One distributor said they want to build an offering with other product lines that go beyond flooring: “The market is oversaturated.” Another was focused on the bottom line. “Bring out better products with better margins,” said one survey respondent. “If the decline is inevitable as long as LVT is growing at the rate it is, we need to have better margins and profit on the wood business than we have.”

BY Karen Garvey, Shannon Gayton, Lindsay Tallman, and Lindsay Young

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