Carpet industry in a ‘down cycle’

Jamie Jones
jamiejones@daltoncitizen.com

March 05, 2008 10:52 pm

— CHATTANOOGA — 2007 wasn’t a banner year for the carpet industry. And Randy Merritt, president of Dalton-based Shaw Industries, doesn’t believe 2008 will be much better.
Last year, units sold were off 10 percent from 2006. Dollars from sales were off 8 percent. Since 1991, when carpet had a 73 percent share of the floorcovering market, that share has dropped to 64 percent.
Merritt, the No. 2 executive at Shaw Industries, said the carpet industry’s slump in the current floorcovering “down cycle,” which has been ongoing for 18 months, will turn around. But not in 2008.
Exactly when will the turnaround start? He can’t say.
“I don’t want you to look up here and say, ‘That’s Pollyanna. His head is in the sand. He doesn’t have a clue where he’s coming from,’” Merritt said at the Fibertech conference put on by additives and color manufacturer Techmer PM. “Nor do I intend to sound like Chicken Little and say the sky is falling.”
Merritt is confident carpet will stop hemorrhaging as consumers begin to re-embrace the product for its aesthetic qualities, slip resistance and cost.
“I don’t believe we’re ever going to lose carpet in the bedrooms,” Merritt said. “For one, the aesthetic properties, and it’s softer when you get out of bed in the morning. It’s also an economic factor. Carpet remains the best value in flooring. I just don’t think the residential U.S. customer is going to put $100-a-square-yard wood in the bedroom when they can put a beautiful carpet in there for $20, $30, $40 a square yard.”
But the situation today isn’t pretty. Carpet only accounts for about 55 percent of floorcovering in new homes, Merritt said. Shaw Industries is the world’s largest manufacturer of tufted broadloom carpet, yet in recent years the company has diversified to manufacture hard surface products including wood.
The floorcovering industry has been floored by the “housing fiasco,” as Merritt calls it. Residential sales and new home construction have both slowed substantially. The subprime lending problem caused by banks approving loans homebuyers couldn’t afford persists, along with the accompanying credit crunch. Fewer homes being sold, and fewer people moving into existing homes, means less floorcovering being used.
“There’s just a tremendous, tremendous problem in the housing industry,” Merritt said.
Despite the tough times, Merritt sees opportunity. In 2005, the total wholesale flooring business (hard surface and soft surface) was about $23.9 billion. In 2006, when the downturn started, total wholesale business dropped to $23.4 billion. In 2007, Merritt estimates the total wholesale flooring business was $21 billion. And this year, he expects it will be somewhere between $19 billion and $20 billion.
“In that three-year period, that’s going to be a loss of about $4 billion of wholesale business,” Merritt said. “Now that’s a downturn. Now I tell my salespeople at Shaw, there is still $20 billion worth of business out there. So there’s still plenty of business for people who can do it cheaper, better and faster.”
The floorcovering industry will also have to deal with skyrocketing raw material costs.
John Manuck, president and chief executive officer of Clinton, Tenn.-based Techmer PM, said he doesn’t see an end to rising raw material costs. The price of a barrel of oil continues to be more than $100. Business will continue to be challenging given the housing crisis and the worsening stock market, Manuck said.
“What are the issues we face when you pick up the newspaper each morning?” Manuck asked. “They will continue to be a challenge.”
Techmer PM has five manufacturing facilities in the U.S., including a fiber center in Dalton off East Waterworks Street that is currently undergoing significant improvements.