December 24/31, 2018: Volume 34, Issue 15
By Ken Ryan
While flooring dealers were nearly unanimous in hailing 2018 as a breakout year, some caution that sales may not be able to keep pace in 2019. Some of that sentiment is borne out by anecdotal evidence of a slowdown in construction, which has already led to a leveling off in the builder market. Others view the specter of an increase in tariffs to 25% on Chinese imports as a potential rally killer. And then there is the recent drop in the stock market, which has lost all of its 2018 gains. If that wasn’t enough, the Dow and S&P 500 are currently on track for their biggest December loss since the Great Depression.
While 2019 may not be as robust as 2018, there are still enough strong economic indicators at play to keep the good times rolling, industry observers say.
“No doubt that for any period of high growth, there is a time of balancing,” said Anthony Maye, vice president of sales at Lubbock, Texas-based Yates Flooring Center. “Most dealers I have talked to were up between 4% and 8% in 2018; we could expect a slight move downward in retail consumer business in 2019.”
Flooring retailers are certainly acclimated to the typical ebb and flow of a business cycle; as such, they are expecting a bit of a letdown in ’19 following two stellar years. “We had such an economic boom the last couple of years that we were bound to have a [retraction] at some point,” said Billy Mahone III, vice president of operations at in San Antonio-based Atlas Floors Carpet One. “I feel like the worst should be over barring any unexpected negative events. We are expecting modest growth at the beginning of 2019.”
There remains uncertainty in the market regarding tariffs on Chinese imports. For now, the tariffs remain at 10% through the end of March, after which the moratorium ends. That deadline will be closely watched. Adam Joss, co-owner of The Vertical Connection Carpet One, Columbia, Md., is taking a wait-and-see approach. “It seems a lot hinges on a China trade deal, particularly for the LVT segment.”
Rob Purkins, senior vice president, residential, Gilford-Johnson Flooring, Jeffersonville, Ind., said the delay in the second tariff increase was huge news for the flooring industry, even if it was temporary. “That cloud still lingers but I am hopeful we will not see a second tariff. With that said, business has remained steady and I am optimistic that we will get off to a great start in 2019 which will carry us through the first quarter. Business has held up in the fourth quarter, although we are seeing some slower days a little earlier than normal.”
Others throughout the supply chain have also noticed slower-than-normal activity in December. However, no one is sounding the alarm as of yet. “November and December haven’t had the same feel as earlier in the year,” Joss told FCNews. “The softness is seasonally appropriate for our business. We’re still planning for a solid 2019 and continue to invest in our business.”
Craig Phillips, president, Barrington Carpet, Akron, Ohio, is of the belief the positive momentum in the economy will outweigh any negative downward pressures in the near term. “Fortunately, our business has seen solid growth in all segments through this fourth quarter and strong written business for the first quarter of 2019.”
Regional factorsYates’ Maye suggested that most dynamic regional markets now dictate their own growth and are less respondent to national economic fluctuations. For example, Tennessee’s overall population continues to rise with the Nashville and Knoxville metropolitan areas seeing the fastest growth rates in the state. That bodes well for dealers like Kevin Frazier, owner of Frazier’s Carpet One in Knoxville, who said, “I anticipate a very stable, steady, forward-leaning start to 2019 energized by continued strength in the new and pre-existing housing market, including a continued rise in the value of pre-existing homes.”
Less certain are areas in Ohio and Michigan, which were impacted by General Motors’ plans to close several factories and lay off 14,000 salaried and blue-collar workers in the process. For dealers like Cathy Buchanan, owner of Independent Carpet One Floor & Home in Westland, Mich., news like this is always alarming. “The factors for me are always automotive driven in Michigan, and so I do have concerns for 2019 with the closing of three plants in our area and the number of layoffs instituted by GM. But I always try to keep a positive outlook. It comes down to a matter of trust with the consumer. Where can they get the best product, service and price. We just have to keep sending that message out through our marketing efforts.”
The prospect of a slowdown—either in 2019 or later—has prompted dealers like Atlas’ Mahone to take preemptive measures. “We are focusing on diversifying our business to offer some protection in the event of a major economic downturn.”