Area Rug Makers Test Higher Prices
January 14, 2008,
Considering the thorny obstacles that area rug companies endured in 2007 to keep their respective businesses afloat, it's almost a miracle the industry eked out a modest but valuable 1.3% sales increase last year to $4.81 billion.
At the core of this report are the top five players, who in 2007 collectively accounted for a $1.09 billion, or 22.7%, of the industry's total sales.
A closer look shows that this group reported a mixed bag of results for last year. Category leader Mohawk Home refocused its strategy strictly on rugs — area, accent and bath — and as a result made significant gains, driving sales 11% higher to $373 million.
On a separate track, Oriental Weavers USA dropped 13.5% to $179 million, mainly due to the general impact of the economy.
Shaw Living and Maples Rugs remained flat for the year, at $231 million and $150 million respectively.
Springs Global, which had over the past few years claimed the No. 5 spot, decided to exit the floor covering business, making room for a newcomer to the list.
In came Saddle Brook, N.J.-based Nourison, the first pure import house in recent memory to make a home among the HTT Top 5 Supplier Giants (see HTT, Jan. 7, 2008).
This milestone is indicative of importers' growth in this category over domestic manufacturers and suppliers. Nourison muscled its way onto this list at the No. 4 spot with $155 million in area and accent rug sales, sending Maples Rugs a notch down the list.
Fort Lee, N.J.-based Couristan's Larry Mahurter, director of marketing and sales promotion, has noticed stepped-up competition from importers over the past five years. "You're seeing more and more companies coming into our industry as importers rather than domestic manufacturers," he said. "That's forcing companies like ours to become not just manufacturers but marketers."
Added Steve Mazarakis, president of Brooklyn, N.Y.-based Hellenic Rug Imports: "We're seeing more and more people selling rugs now than ever before. There are a lot of new players out there."
Aside from new players, Mazarakis pointed to price increases for the "inevitable" growth of the rug industry last year. As he and many of his peers agreed, many suppliers were finally forced to raise their prices because they were unable to absorb cost hikes for raw materials and other related products anymore.
"Inevitably the industry is going to grow — because prices went up about 10%," he said.
Maples Rugs has raised its prices in some segments of its business between 5% and 10%. Wade Maples, president of the Scottsboro, Ala.-based company, told HTT his team has undertaken "a combination" of tactics to offset "tremendous price increases in costs of olefin, latex, nylon, natural gas, transportation, and on and on" that have been impacting his business.
New technologies in printing have recently allowed Maples to create more intricate designs that use added colorways not previously available to the company. These goods beckon better prices than their predecessors, he said. And some existing programs, "more from our commodity line," Maples said, are bringing higher price points now.
Oriental Weavers USA, based in Dalton, Ga., introduced price increases of more than 10% in September in response to a then-new price upswing in raw materials. It was only the second time in the company's recent history, looking back more than 13 years, that OW increased its prices, noted Mike Riley, president.
"The real challenge is that the market has been and continues to be so difficult," Riley continued. "Until housing turns around it's going to affect flooring. All we could do was go up [in prices]."
Thankfully, retailers "were probably more readily accepting [to Oriental Weavers' new prices] this time than in past."
That's because "we're all in the same position — us and the retailers," explained Alex Peykar, president of Nourison, which raised its prices by about 5% in October across the board of its offerings.
"There's no choice," he continued. "We needed to pass along our price increases. But we see it as a healthy move for the industry."
Peykar explained that increased price points at retail make consumers comfortable with their purchases of higher-ticket, big investment goods like area rugs.
If prices for rugs decrease too much, that has a psychological effect on the consumer," he went on. "If they buy something at one price, and then see it later for a cheaper price, they feel they've lost. But if they see that product at the price they paid or better, they feel they've made a good purchase and they'll feel good about buying again."
Also looking to be "healthy" is Sugar Valley, Ga.-based Mohawk Home. Come Feb. 1, the company will tack on 5% to 8% increases to its floor coverings. As president Bill Kilbride told HTT in an earlier interview, the hikes come at a point when the company has "absolutely no choice" but to raise its prices "to be healthy."
Good news for the industry, growing not just by supplier count but by price point, is the emergence of new retail venues to sell products.
Mohawk Home's Mohawk Select business unit was established over the past year to tap a customer the company was not serving. And the strategy has worked, said Jim Quist, vp, sales.
"We continue to invest in product development and design, and we have enjoyed significant growth in the Mohawk Select business which focuses on the traditional furniture store and rug dealer channels," Quist said.
While these channels were hard hit in the second half of 2007 because of their direct correlation to the softened housing market, Mohawk said it managed to "break into" this retail channel to create new business that didn't exist before for the company.
For manufacturers offering indoor/outdoor rugs, there is the added option of selling to patio and furniture stores, among others, said Allen Robertson, vp, sales, for Troy, NC-based Capel Rugs.
LaGrange, Ga.-based Milliken's specialty and novelty lines — including its sports rugs featuring logos of professional and collegiate teams — and holiday accents "helped us" with gift-oriented retailers said Rob Beistline, market manager for area rugs.
"In today's times when you go buy a gift, what do you get someone? People already have everything, but a rug is different," he said. "College rugs went really well for us last fall, so did our NFL rugs. And our holiday rugs have grown so much we're showing new looks at [the January Atlanta International Area Rug] market."
To support the upturn in price points, rug companies have stepped up their marketing efforts to justify their brands, product quality and role in the industry.
To compete against its closest peers, Couristan has concentrated much of its efforts over the last six years on building its house brand.
"This business is a different monster than it was six years ago. Today, marketing is the driver," Mahurter explained. "We use national advertising and new display units to attract different target audiences. We have new and different avenues to romance and market our product to a more target audience. Marketing now is far more sophisticated than it was five or six years ago."
Area Rugs ($millions)
2007 total retail sales: $4.81 billion
Up 1.3% from $4.75 billion in 2006
|Retail share of market by channel||2007||2006||2007||2006||change|
|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, Mervyns, 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, Fred's, Value City, Tuesday Morning and Big Lots.
Other includes interior designers and military exchanges
|Discount department stores||24%||24%||$1,154.4||$1,140.0||1.3%|
|Home improvement centers||19||17||913.9||807.5||13.2|
|Home textiles specialty chains||7||6||336.7||285.0||18.1|
|Single unit specialty stores||1||1||48.1||47.5||1.3|
|Gift/home accent stores||1||1||48.1||47.5||1.3|