Rug Industry Takes a Double-Digit Sales Hit in 2009
Cecile Corral -- Home Textiles Today, January 4, 2010
Plagued by raw material price hikes, finished product price deflation and the overall malaise at retail — particularly at middle and higher end stores — retail sales of area and accent rugs contracted by almost one fifth in 2009, with an 18.5% drop in sales from the prior year.
The suffering varied among segments of the business. Handmade and high-end suppliers took the hardest blow — estimating 25% or more in losses of sales in general — as strapped shoppers backed off from luxury purchases.
Domestic manufacturers fared better as machine-made synthetic wares were favored more by shoppers looking for affordable redecorating items to freshen up their homes. That segment of the industry did see declines in the 10% range overall, but many of them gained new business as retailers and consumers traded down over the year to match their shrinking budgets.
"The price points we compete at certainly held up over the year," said Jeffrey Seagle, director of marketing and product merchandising, Sugar Valley, Ga.-based Mohawk Home. "The $200 or less 5-by-8s didn't get hammered. And the $99 or less tufted and low-end printed wovens did okay, too."
Starting in November and through the holiday selling season that just passed, off-price stores "were doing sensational," noted Paul Sullivan, svp, sales and marketing, Anderson, S.C.-based Orian Rugs, as were the discount department store chains.
"There was a time, early on, when you'd hear people telling [their friends] not to be afraid of parking their Mercedes in Target's parking lot. Today, we see Mercedes-Benz everywhere, like the [off-price stores]."
Sullivan said it is because off-pricers sell branded product at fair price points.
"They aren't price gouging," he explained. "If they by it for $3, they'll sell it for $6. They are offering their customers great deals, and it is working."
Sullivan said customers turned their attention to more aggressively priced goods, leading Orian to give "a bit more concentration to the under $100 range rugs in our assortment." But he said, "There is still a sweet spot for $150 goods."
Concurring was Patrick Moyer, president, Dalton, Ga.-based Balta U.S.
"Off-pricers and discounters for sure benefitted last year. I wouldn't say that they were incredibly profitable, but I would say that customer traffic was driven to them and away from department stores," said Moyer. "Bottom line — people were obsessed with value and low price, and they found it at the off-pricers and discounters."
Product-wise, he said, "The $299 price point all but disappeared," in the woven rug segment. "The biggest growth came from the $99 and under rugs. People were trading down, and they were looking for temporary solutions."
Direct-ship business serving catalogs and online retailers represented Port Washington, NY-based Safavieh's best segment in 2009.
"These products are the ones that sell at our more moderate price brackets and to younger consumers," explained Arash Yaraghi, vp.
Building on that momentum, the company is expanding its licensed program with celebrity designer Thom Filicia. The collection caters to a younger set of shoppers — both in price and design.
It was in 2009 when "there came a permanent change in the way we all think," said Wade Maples, co-owner, Scottsboro, Ala.-based Maples Industries. "People became more value conscious, and now they want products that last them longer and are more basic in nature."
That is how Maples explained the shift in customer preference last year — and into this year.
"From a pattern point of view, we've seen a higher percentage of sales for basic looks," he sad. "Basic rugs don't have to be changed when you redecorate your home. They last longer."
As basic looks dominated the selling scene, price points became increasingly challenged.
"There has been a significant downturn in the average retail price — that is one thing we've noticed," he continued. "And I believe prices in 2010 will be flat."
Troy, N.C.-based Capel Rugs' customers also showed a penchant for the company's basics — braided rugs, or as vp of sales Allen Robertson described them, "our American originals."
"These are the same rugs we've been making for almost 100 years," he said. "That business has really held up in this economy because we don't need to carry a huge inventory of it. We've got them readily available, and we make them right here in the USA."
Domestic manufacturing, he continued, resonated with store buyers and their shoppers more than ever in 2009 as retailers looked to give their customers more reasons to make purchases.
Capel held its prices "pretty firmly" but found itself promoting at 20% higher rates than in recent memory. "We had to promote, with special offers and discounts, to get the business last year," Robertson said.
Established less than a decade ago, the domestics accent rug division of Saddle Brook, NJ-based Nourison proved to be one of the 30-year-old area rug company's bright spots in 2009.
"These rugs are a lot more affordable, so we gained market share," explained Alex Peykar, principal.
Fort Lee, NJ-based Couristan is entering the New Year with a new line of contemporary styles — more than the typically traditional- and transitional-focused company has ever offered in the past.
Price points are also top of mind as the company looks to court new business this month at the upcoming rug markets. But Couristan is being wary to maintain its reputation as a source of better goods at fair prices, explained Larry Mahurter, advertising and marketing director.
"The challenge for us, with our high brand recognition is that we are associated with high-end goods on the residential side, and we don't want to shift that in the rug side," he explained. "We need to maintain our brand recognition in good and bad times, and that is accomplished with solid product development."
Part of this effort has been not only new product offerings but also new selling tools for retailers.
"Business has been picking up lately and steadily. A lot of our accounts are looking for new materials — products and selling tools — unique selling tools that help to educate consumers about the products in today's industry," he said. "While consumers know prices are going down, the quality is still there. We've made more innovation in our fibers and constructions and production than ever before, and we need to educate consumers about these advances."
With the added education shoppers are receiving — both voluntarily and involuntarily — comes a new challenge for rug suppliers — and that is making sure to offer perceived value, said Asha Chaudhary, president and ceo of Atlanta-based Jaipur Rugs.
"That is why we are being planned and strategic in our new collections so that we can be very specific in how we cater to our different customers and their needs," she continued. "We're being very strategic in how our rugs are designed, how we color them, price them. We want to make sure our collections are meaningful to the customer."
After more than a year of absorbing production-related cost increases, Pawtucket, RI-based cmi (Colonial Mills Inc.) has decided to raise its product prices by 3%. The company recently issued a newsletter to its customers alerting them of the change.
"We're facing all types of increases — raw material, health care — every time you turnaround the cost goes up," explained Don Scarlata, president and ceo. "Just the overall cost of doing business has been increasing, and we really tried to be modest with the 3% hike. We've tried to keep it to a minimum, especially in this type of a market when you don't want to come out with price increases. But we can no longer absorb these increasing costs of running our business."
Distribution Channels (billions)
2009 total retail sales: $3.75 billion
Down 18.5% from $4.6 billion in 2008*
|Discount department stores include Kmart, Shopko Stores, Target and Wal-Mart.
Home improvement centers include Home Depot and Lowes as well as regional and local home improvement centers.
Mid-price chains include JCPenney, Kohl's, Mervyn's, Meijer, Fred Meyer, Sears, TJMaxx/Marshalls, Stein Mart and Ross Stores.
Direct-to-consumer includes television shopping channels, Internet and catalog sales
Variety/Closeout includes stores such as Dollar General, Family Dollar, Freds, Value City, Tuesday Morning and Big Lots.
Other includes interior designers and military exchanges
*2008 figures have been revised
|Discount department stores||$1.28||$1.38||-7.6%|
|Home improvement centers||0.28||0.38||-25.4|
|Home textiles specialty chains||0.21||0.32||-33.6|
|Gift/home accent stores and single-unit specialty textile stores||0.18||0.28||-34.8|
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