It’s only a matter of time before the flooring industry is released from inflation’s grip and suppliers and their retail partners can take full advantage of strong housing fundamentals—including an aging housing stock in need of renovation and pent-up demand for new home sales.
That’s the consensus among the top executives in the flooring industry, some of whom see the market getting “meaningfully better” once interest rates lower enough to spur home sales and remodel activity.
Precisely when that occurs is the $64,000 question. In the meantime, there are positive trends working through the industry, including supply chain obstacles that are generally behind us, especially as it relates to ocean and trucking freight.
Brian Carson
CEO, AHF Products
The flooring industry in the first half of the 2024 is going to be down year on year, with commercial doing better than residential.
The first quarter looks like the fourth quarter of 2023 with things getting gradually better after that. I’m expecting the back half of next year to be up. Commercial will still be up but softening as we go through the year and residential improving.
The residential business is 80% remodel and very dependent on single-family remodeling. A lot of the remodeling is done when homes are bought and sold. Interest rates have been a real barrier to home sales as people don’t want to give up their mortgages. And that’s not including the 40% who don’t have mortgages. If you have a mortgage, you’re not going to give up 3% for 7%.
The stock market has been on a roll for the last month. We view that as inflation getting under control. The market was factoring in that [increase] over the course of next year. There is a growing sense that rates will ease by more than 1% next year. If we see interest rates at 5% or 5.25% next year, then that starts looking pretty attractive.
We also have housing stock that is aging and under-built for the population. Therefore, the environment is going to get better, meaningfully better, as an improving interest rate environment should spur home sales.
I’m as optimistic as ever for the long-term prospects for the residential market; it’s just a question of when.
We’re expecting to be better than the overall market and we’re investing for the future to do just that.
James Lesslie
chief operating officer, Engineered Floors
It is an unfortunate fact that the flooring industry is the “tip of the spear” in the government’s attempts to reduce inflation by raising interest rates. The housing industry and flooring industry feel the brunt of the impact more than almost any other segment.
In our estimation, 2024 is going to be driven by the government and what they decide to do with interest rates. When, and if, rates come down next year will have a significant impact on the industry. We project the first half of 2024 to be a continuation of 2023 business conditions. The good news is that when rates do come down there will be a significant housing shortage that should boost new construction. Lower rates should also help the decline of existing home sales, which is a key driver in the retail flooring business. Once that channel rebounds, replacement business in multi-family will improve as people will start moving again.
In looking at trends, polyester solution-dyed carpets will be the fastest-growing category of the soft floor covering business. As solution-dyed PET carpets grow in volume, mills will be facing more complex supply chain issues. Yarn systems will grow by 10x over piece-dyed production models. This will significantly limit the “go power” of the industry to catch increases in business conditions. Engineered Floors has demonstrated the ability to manage the complexity of solution-dyed carpets through the pandemic as well as the supply chain shortages of 2022. We will maintain our leadership position with regard to service and quality.
Technology-led, innovative products that can disrupt existing products and give our customers new solutions is what motivates and excites us.
Jimmy Tuley
senior VP of sales, residential, Mannington
We don’t see any relief on interest rates until late ’24 and even then, it will be slight. That will continue to drive slow existing home sales and slow starts for new construction. Having said that, the U.S. is still extremely underbuilt, and that will induce some pressure to keep activity going. With all these headwinds, we expect residential flooring sales to be down between 3% to 5%.
There are a host of short-term economic challenges for 2024, but one of the largest macro challenges is the continued risk of supply chain disruptions out of Asia. The hard surface side of our industry is heavily reliant on Asia-sourced products, and we have had multiple years of major disruptions like COVID-19, UFLPA, container cost fluctuations and tariffs. Domestic raw material and labor costs make it very hard to compete with Asian imports, but having the ability to offset the risks is critical.
The steady under-building in new housing over the last several years is a fantastic long-term upside for our industry and being prepared and aligned with the market as that comes back will be key. Having the right partnerships combined with the right service platform and products is critical.
For Mannington, we will continue to focus on style and design leadership and innovative products, but 2024 will be a year to focus on operational excellence and further aligning with our key customers. We are really excited to be re-establishing our supply chains and getting back in front of our key customers with some fantastic new product innovations and delivering those with excellence.
Jeff Meadows
president of residential sales, Mohawk
We expect the first half of 2024 to be flat, with hope for a better second half. The biggest challenge we’re facing in the flooring industry is inflation and mortgage rates. People have less discretionary income to spend.
When it comes to flooring, what really moves the needle—which is what we saw in ‘20 and ‘21—are existing home sales. However, we’re probably at the lowest level in some time because of mortgage rates. When someone buys a home, they may want to renovate a room. And the person selling the home moves into a new place and wants work done, so that generates a couple of flooring jobs. We’re not seeing much of that right now. If we can get rates under 5%—which is a psychological barrier for many people—it will trigger buying.
Looking ahead, we have geopolitical events to be concerned with, where an escalation can really change the dynamics of flooring. We also have a presidential election year. In years past, there may be six to eight swing states where advertising costs go up 40% because the political candidates are dominating the airwaves, making it hard for a flooring retailer to advertise, especially on TV. So that does impact flooring a bit.
As for Mohawk, regardless of what is going on, we look at our share of market and say, “What are the things we can do to change the outcome with the share we don’t have.”
Where we are under shared gives us an opportunity to capture share, and we can do that by building our product portfolio. You’re going to see a lot of innovation from us in 2024. In soft surface, we’re introducing [product] in the meat of the polyester market—30- to 70-ounce. In hard surfaces, we’ve expanded our LVT offerings.
Raj Shah
co-CEO, MSI
Overall, I think 2024 will continue some of the current trends we saw in 2023. Interest/mortgage rates remain high; thus, the home improvement industry will remain pressured through most of 2024. My best-case scenario is the industry will be flat in ‘24.
There are some pieces of good news this year vs. the early parts of 2023. Most of the flooring industry has worked to get from an over inventory position to a more normalized position. In addition, the supply chain obstacles are generally behind us, especially as it relates to ocean and trucking freight. We have challenged the team at MSI to push for significant growth in 2024. There is a large market to go after, despite economic headwinds. We need to inspire retailers and consumers both to invest heavily in hard surface categories. We believe it can be our strongest year in history, but it will take a lot of work.
As for challenges, macro-economic forces have created an environment in which there are very few existing home sales. New homes are being built at a record pace but that can’t make up for the huge slowdown in existing home sales. Without these sales a large part of the industry slows down as it relates to remodels. In addition, even with those willing to invest in this environment labor remains difficult. This impacts installation but also distribution and retail.
The good news is the opportunity is huge. The housing stock continues to age. In addition, the country remains under-built and about 40% of homeowners do not have a mortgage. All of this provides great opportunity and shows that the future is extremely bright. As we prepare for this boom we need to invest heavily in inspiration. Consumers need to see their dreams before purchasing them. As an industry we need to deliver that inspiration; if we do, the rewards will be huge.
Tim Baucom
president/CEO, Shaw Industries
We anticipate the market will remain sluggish through the first half of the year, with a rebound expected in the second half. This projection takes into account housing affordability pressures and low housing turnover created by elevated interest rates, plus strong housing appreciation, plus low inventory of homes for sale.
Millennials want to enter the housing market, and many feel the added burden of the restart of student loan payments. Potential economic uncertainties, such as the U.S. presidential election and conflicts in Ukraine and the Middle East, are also factors.
Despite these challenges, we are strategically positioned to deliver mutually profitable growth. Home renovation is active, but projects are smaller and being staged over a longer time frame. New single-family home construction is advancing despite the financial headwinds.
At Shaw, we are prioritizing the development and promotion of our most valued brands and exciting new products; strengthening operations by focusing on excellence in supply chain management, manufacturing processes and optimizing our go-to-market strategies; aligning our product development and delivery strategies with market demands; and maintaining a commitment to specialization and a targeted market approach. These efforts allow us to stay nimble and responsive to specific industry dynamics and customer preferences.
The foremost challenge for the flooring industry lies in underselling consumers and end users. While projects are smaller, we need to offer differentiated products that make the renovated spaces more impactful. The pervasive threat is the commoditization of products. Earning higher returns reflects the industry’s ability to anticipate evolving needs and deliver exciting solutions. By focusing on more profitable avenues that bring greater value we not only set ourselves up for success but also our customers.
