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  • Cecile Corral

Rug vendors held over a barrel

Cecile Corral, Staff Staff -- Home Textiles Today, May 28, 2001

NEW YORK — With no relief in sight for the country's energy crisis, high costs for crude oil in its many forms are being felt across the country in every sector.

But the rug industry is taking one of the worst beatings, with the effects of the impact ranging from raw material suppliers to production expenses to shipping surcharges.

According to the Bureau of Labor Statistics, from April 2000 to April 2001 costs have increased 16.8 percent for gasoline, 0.5 percent for textile home furnishings, 1.4 percent for floor coverings, 5.6 percent for synthetic fibers and 28.2 percent for crude non-food materials (including crude oil). Only the cost of raw cotton declined by 17.4 percent.

Whether domestic manufacturers or importers of area, accent and scatter rugs, most rug companies are being forced to absorb those added costs.

"Truckers are hitting us with surcharges that are 2 percent higher than normal," said Steve Mazarakis, president of Hellenic Rugs, based in Atlanta. "They tack it on as a separate entity to the bill."

For Hellenic Rugs, an import house which spends on average $300,000 to $400,000 on transportation annually, the 2 percent hike translates to about $6,000 more per year in freight costs for the company.

"But we see it as a temporary thing. That's why we're not increasing pricing on our rugs," said Mazarakis.

For importers, freight costs are where energy costs are most harmful.

But for the many manufacturers producing domestically, high energy costs are a daily reality in every facet of business, starting with increasing costs of oil-based raw materials used to make rugs.

Arnie Stevens, vp, Maples Rugs, based in Scottsboro, AL, said, "We get our raw materials from the extruders, and they certainly haven't been bashful about making us pay surcharges."

Dalton, GA-based Shaw Rugs is paying one of its suppliers an extra 2 percent, "a pure energy cost surcharge they passed on to us for pre-dyed colored yarns," said Brian Henton, director of operations.

Lucky for Greensboro, SC-based Burlington House Floor Accents, having recently exited the tufted rug business helps "because a large portion of that business was polypropylene. The new focus we are taking helps us from that perspective," said Ralph Grogan, former president of Burlington House Floor Accents, and current vp, sales for Lees Commercial Carpets, a division of Burlington House.

But nonetheless, in its existing businesses, Burlington House has also had to pay up for cost increases on polypropylene and other raw materials and utility fuels used to operate its plants.

To help ease any burden, Burlington House has tried to "do a better job of purchasing raw materials," Grogan noted. "But the truth of the matter is that at the end of the day it affects your margins. Unfortunately, the marketplace doesn't allow us to pass on those costs to our customers."

The impact of rising energy costs doesn't end once raw materials are purchased. "We are noticing the energy price increases most in our plants with higher gas, oil and electricity charges," said Kevin Kennedy, president of Glenoit consumer products division, based here. "But we anticipated these increases and we've budgeted accordingly."

For Shaw, electricity is the top energy use, building heat is second and Laytex curing and dying is third.

"Overall, our energy costs have increased by 25 percent," Henton said. "Percentage-wise, that's a very big increase for us, especially since we haven't passed along those costs to our customers."

What saves Shaw, Henton noted, is that energy costs in the rug manufacturing process — excluding yarn extrusion — makes up only 1.5 percent of the cost to build the rug.

Shipping rugs to retail customers in some cases has resulted in being one of the costliest aspects of the energy crisis.

John Shepherd, ceo of Greenville, SC-based 828 International, said according to company records that effective last August, Federal Express raised its ground transportation charges by 1.25 percent. In February, UPS followed suit raising its ground transportation rate by 3.1 percent.

"We also did work with some common carriers who this year haven't yet tacked on any fuel surcharges to our bill, but last year raised their rates by 5.2 percent," Shepherd said.

That goes in line with what is being experienced at CMI, formerly known as Colonial Mills, based in Pawtucket, RI.

"The biggest problem we're seeing is the cost attributions to freight," said Donald Scarlata, president and ceo. "Right now these added costs are squeezing our margins."

Half of CMI's offerings are percent polypropylene; 25 percent of the business is comprised of nylon products and the remaining 25 percent are rugs made of wool and other synthetics.

"Obviously, we'll continue to keep track of those costs," Scarlata said. "It's inevitable that we'll have to some adjusting in-house to continue absorbing them. One thing we'll have to do is raise the prices of our rugs."

Scarlata isn't the only one expecting to potentially have to raise rug prices.

In fact, Shaw already nudged its rug prices by 6 percent last fall because of the increased price of resin pellets, which are made from crude oil and used to make polypropylene rugs.

Others hope to continue absorbing the added costs.

"I'm concerned, but right now there's nothing we're doing about it except hanging in there," said Paul Kershaw, executive vp, sales and marketing for Carpet-Art-Deco, based in Montreal. "We're already absorbing the added costs of polypropylene, and when the time comes to adjust, we'll see where we can start saving money in other areas of the business."

Maples Rugs' attitude is similar. "For now it's just something we know is affecting all businesses out there."

Glenoit, which produces mostly polypropylene rugs (which take up 75 percent of its business), does not intend to raise prices to its consumers.

"It's cyclical," Kennedy said. "It hasn't become a real blow to the business yet, but it will affect it more and more and impede sales. We're expecting a bigger spike in energy costs in the summer when travel is up."

While 828 said it hasn't raised the prices of its rugs, its retail partners have tacked on freight surcharges to the price tags of 828's rugs, causing the price points to escalate. "We have our retail partners pay the full freight costs," Shepherd said. "They then pass the surcharges on to the rugs and raise the prices."

Maples, 828 and several other companies continue to feel the effects of travel expenses as they relate to energy costs.

Producer Price Index
Unadjusted % change in prices (Compared with April 2001)

4/00 3/01
Source: Bureau of Labor Statistics
Finished Energy Goods 13.5% 1.5%
Finished consumer goods, excluding food 5.1 0.6
Textile home furnishings 0.5 0.4
Gasoline 16.8 13.7
Floor coverings 1.4 0.5
Intermediate materials, excluding foods and feeds 2.1 -0.1
Synthetic fibers 5.6 0.3
Crude nonfood materials 28.2 1.6
Raw cotton -17.4 -11.3

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