2005 a Flat Year in Bath
Cecile Corral -- Home Textiles Today, May 15, 2006
New York — The elimination of quota last year — with the jolt of new category players and increased retailer direct importing it sent through the industry — was just one of the reasons the bath industry stayed flat at $3.7 billion in sales in 2005.
Unrelenting raw material price hikes that kept costs climbing throughout the year for oil-based goods — from nylon for bath rugs to plastics and resin for bath accessories — kept the industry at bay in margins as well.
Adding salt to the wound were stunted price points, which grew only slightly for parts of the business and not at all for other segments, suppliers said. In some cases, prices even went down.
“Although the volume in terms of quantity has grown, the average retail price of many products has gone down,” explained P.K. Markanday, joint managing director of towel manufacturer Trident/Abhishek Industries Limited of India.
Together, these factors resulted in little change in sales, distribution or merchandise mix for the bath industry in a year that otherwise stirred fiercer than normal competition for shrinking shelf space.
At the forefront of the most challenging issues was quota, which set the tone for 2005 when it was officially lifted on New Year's Day. What rapidly ensued was a scrambling by waves of vendors and retailers hoping to bank on real and potential opportunities.
Miami-based J.R. United, which for 30 years has been importing its bath towels and ensembles, said it fared well because of its long experience in overseas sourcing.
“All of these other people don't have the experience we have,” explained Salo Grosfeld, president. His company in 2005 was the third largest importer of bath towels with $85.6 million — a 23% jump form the previous year.
“They are making garbage, screwing it up, and people are realizing it isn't as easy as it looks,” Grosfeld continued. “Our business is actually doing better and I see a very bright future for us because a lot of these guys are still figuring out what it really is all about. They see a billion-dollar business and hope to carve a piece out for themselves, but it's not that easy. The reality is that there are fewer customers, less opportunities and not a lot of room for mistakes.”
He admitted that while major Indian companies like Welspun and Trident are “well positioned and taking a lot of the business away” from some of the major U.S. mills, companies like his are still able to make gains because of the marketplace niches it serves.
“We basically work in fashion and luxury towels. We don't spend time or energy in opening price points,” he said.
Depending on what each mill or supplier offers in services, retailers stood — and still stand — to gain in many aspects in the first post-quota year, noted Gidi Landau, senior vp, sales and marketing, Caesarea Creations. The company is headquartered in Israel but operates its U.S. office in New York.
“Direct importing is definitely growing [because] retailers prefer to buy direct and cherry-pick the most suitable product for their needs, rather then depending on an importer,” Landau said. “Retailers realize that they can never be the cheapest in the market and in any case the better goods are turning better margins for them. They tend to lead their own destiny by developing their own designs through their own private labels.”
Positioned as an established and “well organized” Indian mill whose offerings are made up almost entirely (95%) of private label goods for retailers, Welspun is indeed “enjoying opportunities to take market share from competitors who are not well placed,” explained Charles Gaenslen, coo and executive vp for the company's U.S. office in New York.
But Welspun is not letting its advantage ride at that. Product innovations and moves into uncharted retail channels are some of the efforts it is making to prepare for a more uncertain future.
“At some time in the future, that low-hanging fruit will be taken, and then we'll see a more interesting landscape,” Gaenslen continued. ”There is a tremendous growth in capacity. And over the next couple of years we'll have to see how that shakes out.”
While direct importing is something retailers definitely explored in the bath category in 2005, this did not pose a threat to Welspun because of its capabilities in India.
“We supply the retailers. We don't treat them as competitors,” Gaenslen said.
“If direct importing is the trend, it is a good thing for us,” he said.
New York-based Croscill Home is another company providing direct importing to some of its retail customers to stay competitive.
“There has been more and more direct importing going on, and what we need to do is provide design that they can't get themselves,” explained Carl Legreca, from the office of the president.
Croscill offers service replenishment out of its warehouse and direct shipments from China to a U.S. port, “to give [the retailer] more margins out of their original order — and the replenishment still comes out of our warehouse,” he said. “That is a way of competing with retailers' own direct importing. We give them design, product and brand, and we're doing it all for them.”
It is hard to say exactly how much direct importing activity by retailers is taking place, and how much of total sales it occupies. But the near lack of shift at distribution in 2005 offers some insight.
Based on Home Textiles Today's research for this report, the only channel that posted any growth — and a modest 1% at that — was discount department stores. That brings the market share of this channel, which includes Wal-Mart, Target, Kmart and ShopKo, to exactly half of total industry sales, or $1.850 billion.
Alternatively, department stores — which overall underwent a soft year in the home category and suffered through a series of consolidations — lost 1% of business, dropping its total share of the industry to 3% or $111 million.
The merchandise mix similarly saw minor shifts in 2005, research found. Quota surely had something to do with the 1% increase in bath towels to 52% or $1.924 billion of the total industry, suppliers agreed. And raw material prices likely impacted the 1% decline in bath accessories to 10% or $370 million.
Bath rugs, another segment tied quite closely to raw material prices, continues to represent the second largest component of the bath industry. It held fast to its share at 23% or $851 million.
Wade Maples, owner and president of Scottsboro, Ala.-based Maples Industries — the third largest bath rug manufacturer in 2005 with $110 million in sales — said price points in bath rugs “traded up” over the year as more opening price points “went away.”
He attributes escalating nylon prices to contributing to that trend, but also notes customers' preferences for better quality goods as a push in this direction.
“The new constructions are better and the general feeling is that customers are looking for higher quality,” Maples said. “It's about offering more variety of products. You can't just take the same style and make it heavier. You need to offer more looks, more texture, more patterns, more different types of rugs. And that is our direction.”
On that same page is Caesarea Creations, Landau said.
“Buyers turn to newness and uniqueness as justification for higher retail prices,” he said. “Buyers realize that it is not enough to build a heavier weight into the product. They need to offer to the consumer added-value products.”
Top bath rug company Sugar Valley, Ga.-based Mohawk Home, which in 2005 reported $190 million in category sales, has launched a revamped bath rug selection in April 2006 that comprises many more upscale natural fiber — mostly different grades of cotton — offerings imported from overseas.
Bath rugs are second only to area rugs in sales on Mohawk Home's product portfolio. While mass merchants and mid-tier department stores have long been a focus in the bath rug category for Mohawk, the higher-end market is an emphasis going forward in its quest to be a broader supplier.
Even as major bath rug players like Mohawk Home, Maples and Dalton, Ga.-based Shaw Industries — the fourth largest bath rug supplier last year with $54 million in sales — dominate category sales in the United States. Mumbai-based bath rug manufacturer Faze has strong expectations that the industry trend is toward exporters' wares.
The company in the past few years has muscled its way into the North American market so much so that today the United States represents its biggest market at 65% of total company sales.
“The trend is that imported bathmats [bath rugs] will continue to gain market share and domestic production will lose ground,” said Ajay Anand, ceo and president.
“Any product with any amount of detailing will be imported,” he continued. “Product based on cotton — Egyptian, Pima, organic bamboo, modal, micro-fiber and others — will be imported as the first phase; and synthetic fiber product has begun to follow but very slowly. The trend will be certain to have nylon, too, become an import, although at a slower pace. And a diverse range of items that are available overseas will set the fashion trends.”
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