Floor Coverings
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Industry Overview
The floor coverings industry in the US includes about 700 manufacturers; 4,000 wholesalers; and 15,000 retailers; with combined annual end-user sales of $25 billion. Major manufacturers include Shaw Industries, Mohawk Industries, Beaulieu Group, and Armstrong World Industries. Large retail franchise chains include Flooring America and Carpet One. The industry is highly concentrated at the manufacturing end, where the four largest companies hold close to 75 percent of the market, and highly fragmented at the retail end, where the top 50 companies hold just 10 percent.
Competitive Landscape
Demand for floor coverings depends on residential and commercial real estate construction and home sales, which can be cyclical. With many costs fixed, profitability of individual companies depends on their volume of business. There are large economies of scale in manufacturing and distribution. Annual revenue per employee at large carpet mills is close to $300,000. A typical wholesale location has annual revenue of $50 million, a typical retail location about $4 million.
Products, Operations & Technology
The industry produces and sells carpets and rugs, hardwood flooring, “resilient” plastic sheeting, and ceramic tiles. The majority (65 percent) of sales consists of carpeting and rugs. Tufted nylon carpeting accounts for about 50 percent of industry sales; rugs and other carpets, 15 percent; plastic sheeting and tiles, 23 percent; and wood flooring, 12 percent. Most carpeting is made on large tufting machines that use rows of needles to sew loops of nylon thread into a latex “backing.” The loops are cut to produce tufts and additional backing is glued on to the bottom to hold the tufts in place; polypropylene and polyester thread are also used. Rugs and woven carpeting are made on looms using wool, cotton, silk, or synthetic thread. Most carpeting is made as 100-foot rolls (“roll goods”) of various widths - mainly 12 or 15 feet (“broadloom”) - but modular carpet tiles are also made. Annual US production is about 2 billion square yards.
“Resilient” flooring is made as large sheets of plastic, either as a solid layer (vinyl) or as a sandwich with a design layer under the clear top layer (laminate); the finished product can be sheets or individual tiles. Ceramic tiles are baked clay, often with a glaze. Hardwood flooring may be solid wood or an engineered product with a layer of hardwood glued over a plywood core; the finished product can be in lengths or tiles. The manufacturing process for most of these products is simple and automated, leading to large economies of scale for high-volume producers and encouraging consolidation. A carpet manufacturer may produce hundreds of variations of the same product based on color, texture, pattern, and thread. Shaw produces more than 1,500 carpet styles.
Nylon thread, the major raw material for carpet manufacture, and the plastics used for vinyl and other synthetic flooring are made from crude oil and are therefore subject to cost changes that can be more than 10 percent in a six-month period. Major suppliers of nylon filament or resins are Koch Industries, Solutia, and Honeywell. Some large carpet manufacturers produce their own filament and thread.
Manufacturers, wholesalers, and retailers use computerized inventory systems due to the large number of products. The technology of tufting machinery continues to evolve, although the basic concept is old. Modern tufting machines can produce carpets and rugs with complex patterns, combinations of loops and tufts, varying pile depth, and up to six colors. Computer systems are used for carpet and rug design and machinery control.