Rug Suppliers Weather a Tough Year
Cecile Corral -- Furniture Today, January 16, 2006
Early into last year it became clear 2005 was shaping up to be plagued with many of the same ailments area and accent rug suppliers suffered the previous year: raw material price hikes, competition against retailers who were stepping up their direct sourcing, and pricing pressures from those same customers.
Then, just as industry players thought the situation was bad enough, it got worse.
In late August, Hurricane Katrina blew into the Gulf Coast and crippled an important part of the country's oil industry. Raw material prices soared, supply tightened, and rug producers struggled to cope and maintain business.
Since then, much of Katrina's industrial damage has been repaired and oil supply levels returned to normal. Yet raw material prices remain high, while many retailers — particularly discount department stores — persist with direct sourcing.
After months of tough experience under their belts in managing raw material prices and fighting off direct imports, many area and accent rug suppliers described 2005 more as a level year with continued flat sales than a time characterized by big losses — an outcome that for many is better than expected.
Based on research by HTT, the rug industry — which comprises accent, scatter and area rugs but excludes all bath rugs — was worth $4.5 billion at retail in 2005 — approximately flat against the prior year.
That's a significant readjustment from the 2004 volume reported earlier, which suppliers and retailers universally agreed was skewed by exaggerated responses.
Market share by retail channel did not shift much over the prior year. Discount department stores continued to be the largest venue with a 25-percent share, or $1.125 billion in sales. Home improvement stores — which prompted a power struggle among some top five category players for shelf space in 2005 — were second largest with 16 percent, or $720 million. Right behind them were furniture stores at a 15-percent share, or $675 million.
Mid-priced chains, direct-to-consumer and carpet-floor covering stores took the next biggest piece each with 7 percent or $315 million.
Throughout the year, major suppliers, like Shaw and Maples and others, dealt with raw material price hikes by either passing along added costs — which is not easily swallowed by retail customers — or reengineering product to keep the price at the same level.
“We have been able to pass along some price increases, and in other cases some retailers have opted to have us change the product,” said Jeff Meadows, divisional vp of Dalton, Ga.-based Shaw Living.
Scottsboro, Ala.-based Maples Industries has had similar experiences. “We were able to get some price increases,” said Wade Maples, owner and president. “But we mostly dealt with it by introducing new styles.”
Troy, N.C.-based Capel has seen “a bump in synthetic, raw material prices” and, like its competitors, “absorbed most and passed a little to customers,” said Allen Robertson, vp, national sales manager.
There are a number of critical issues associated with raising prices that are fundamental to the business, suggested Larry Mahurter, director of advertising and sales for Fort Lee, N.J.-based Couristan.
“If the costs of your materials and shipping and everything else [related to raw materials] are higher, you are taking yourself out of some markets,” he explained. “You have to judge if it is worth raising prices and therefore possibly pricing yourself out of the market, or instead taking in all the added costs yourself to keep the same business.”
Juggle that with direct sourcing, believed to comprise about $1.5 billion of the category's $4.5 billion in sales. (For example, it's commonly accepted knowledge around the trade that one major merchant is directly sourcing as much as 35 percent of its accent and area rug assortments.)
Despite these persistent hurdles, rugs remain an important category in the retail landscape.
Atlanta-based Expo Design Center is already seeing a rise in demand for wool and wool-blended rugs “as we continue to see a rise in cost for synthetics,” said Jeanne Love, soft flooring buyer. “As the synthetic rugs rise in price you'll see the gap between wool and synthetic pricing shorten and you'll see more people go for the wool. Many prefer it anyway because it is a natural fiber.”
Expo's assortment is about 75-percent natural fiber. The remaining quarter is synthetics.
Television shopping channel Home Shopping Network (HSN) is focused this year on growing its rug business, which is largely synthetic styles, based on the successes it saw last year with its category offerings.
This comes regardless of some initial price increases for synthetic varieties.
“We are seeing price increases so far, but they aren't as high as what we expected,” said Kristi Ellis, HSN rug buyer. “It has affected us a little bit, but customers are tuned in with what is going on, and I imagine raw material prices will still go up more. But we are still going after synthetics.”
Kohl's, which boasts a healthy seasonal holiday business in rugs, is also seeing contemporary looks selling well in various constructions.
The plus in this, explained floor covering buyer Gary Nickolie, is twofold. “We're addressing a customer that was probably not shopping us before,” he said, “and in many cases these are better quality rugs that are 15 to 20 percent more expensive.”
Based on the factors impacting the industry, Nickolie said he sees “2006 being a good year. It won't be a runaway success, but a positive year from a comp sales perspective, especially in the spring, which last year was tough. I think the fall will be good, not exceptional but good.”
Distribution Channels ($millions)
2005 Total area rug sales: $4.5 billion
|% of total|
|* Direct-to-consumer includes television shopping channels, Internet and catalog sales.
** Other includes interior designers and military exchanges.
|Discount department stores||25%||$1,125|
|Home improvement centers||16||720|
|Carpet / Floor Covering stores||7||315|
|Home textiles specialty chains||6||270|
|Variety / closeout||2||90|
|Single unit specialty stores||1||45|
|Gift / home accent stores||1||45|
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