Tile Industry 2013: Primed for Recovery
 
November 29th, 2012

By Jeffrey Steele

Like many industries, tile has been through a lot the past five years. Just about anything that could go wrong did, from a mortgage meltdown to a horrific lending environment, from high jobless rates to depressed consumer confidence, from a decline in remodeling work to even bigger plunges in new home starts.

But those tile manufacturers, distributors and dealers that survived the tough times are now well positioned to benefit from the improving economic climate heralded by many observers. For many, it cannot come soon enough.

According to Ceramic Tile and Stone Consultants Inc.‘s Donato Pompo, citing findings from Catalina Research, the primary source for ceramic tile industry data, ceramic tile is leading the floor covering sales recovery, as tile manufacturers leverage the rebound in existing home sales and housing starts.

In the third quarter of 2012, U..S. ceramic tile sales are estimated to have grown by nine percent in dollars and 9.2 percent in square feet. This increase reflects an 11 percent increase in U.S. housing demand during 2012, led by a 28 percent increase in housing starts in the third quarter. Concomitantly, private non-residential construction spending rose by about 19 percent.

Sales of ceramic tile have outpaced overall floor covering sales, due to manufacturers improving designs in wood-type planks, glass tile and stone looks.

Ceramic tile is also more price competitive. In the third quarter of 2012, overall average floor covering selling prices increased by an estimated 2.9 percent, while average ceramic tile manufacturer selling prices were level with the previous year. The result is that ceramic tile accounted for 13.1 percent of total U.S. floor coverings manufacturer dollar sales and 12.9 percent of total square foot sales, up from 11.4 percent and 10.6 percent respectively in 2009.

“Ceramic tile is expected to continue to gain share in the U.S. floor coverings market in 2013, since builder purchases and commercial sales are leading the recovery,” Catalina Research states. “Ceramic tile manufacturers and marketers will benefit from these trends, since this sector is more reliant on the builder and commercial markets than other floor coverings industry leaders.”

(Note: Ceramic Tile and Stone Consultants, Inc. is releasing the new updated Catalina Report on Ceramic Tile in December. It is available from the organization’s website at www.CTaSC.com.)


Hopeful harbingers

If one judges the coming year on the basis of the increases in new home construction, things could start really looking up for the tile industry.

It’s clear that new construction posted strong numbers for the entirety of 2012, says Kermit Baker, director of the Remodeling Futures Program at the Joint Center for Housing Studies at Harvard University in Cambridge, Mass.

What’s more, it appears that 2013 will be a strong year for housing on a percentage basis. Baker says 1 million housing starts could be registered in 2013. Still, based on such factors as household formation, the potential is for 1.6 or 1.7 million new housing stars a year. “So even with the strength of the housing in 2013, we’re still a few years away,” he says, suggesting it may be 2015 or 2016 before housing comes all the way back.

As for remodeling, Baker predicts that based on the “good but not great” 2012 mid-single-digit growth, 2013 could see high-single-digit or low-double-digit growth in remodeling. Commercial growth, which generally lags residential growth, will not be as robust, he believes. “We’ve seen some softness in the commercial market over the fall,” he says. “We foresee some growth in commercial, but not matching residential. It will stay in the mid single digits.”

Tile should benefit from growth in all these areas, but Baker cautions that it is often viewed as an upper-end product. “Now, with the crash we saw in house prices, we’re going to see a little less on the upper end of the market,” he adds. “Most new homes built will pay a bit more attention to affordability.

“Design-build contractors are reporting they are not seeing the big projects they saw a few years ago. Consumers are not doing the real major kitchen and bath remodels they did some years back. They’re looking at [kitchen and bath remodeling] on a product-by-product basis, not a gut remodel basis.”

Overall, Baker says tile distributors should be guardedly optimistic.

“They should see a better year in 2013,” he predicts. “But they need to track consumer needs a little better than they have in the past.”

Challenges and opportunities

For distributors, manufacturers and installers, the challenge in the year ahead is to manage their likely growth, even if it is slow growth, Pompo says.

“Not having enough qualified employees can be worse than having too many, particularly if the quality of services, products or work suffers,” he adds.

Problems can not only cost money, but productive time and reputations, he adds. The challenge is when to start hiring, and making sure time, money and effort is expended in training employees to be more effective. The fastest way to increase sales, production and profit is through training employees so they will be more competent, productive and motivated, he asserts. Today’s customers buy from providers they feel are the most knowledgeable, provide the most pertinent information, and demonstrate the greatest reliability.

“The opportunity today is the many online training resources such as CTDA Online that can provide instant 24-7 access to training to educate and help make salespeople more effective at their jobs, and to educate tile installers [in] the industry standards that will help them avoid costly failures,” he says.

Pompo stresses that a good, informative website is a necessity these days. Websites that are well designed and contain considerable information can generate significant numbers of leads and sales. Today’s buyers are going to the Internet first to pre-qualify companies they want to visit, purchase from or call for a quote. ”If the website isn’t informative or doesn’t show a wide variety of products, and if it isn’t easy to use, they will be gone in a flash,” he says.

“Remember that the website is a representation of your company, and you will be judged accordingly. The Internet is a great tool for generating business, so the opportunity and challenge is for distributors, manufacturers and installers to utilize the Internet and make it the primary tool to generate business.”

A technology crossroads

Also predicting growth for the tile industry is Mitch Dancik, chairman of the board of Cary, N.C.-based Dancik International, a 27-year-old, 44-employee software firm specializing in ceramic tile, flooring and natural stone products.

Dancik feels pent-up demand and money sitting on sidelines should profit ceramic manufacturers, distributors and dealers. Accustomed to lackluster recent years, they could see significant growth. “In general, through exposure to my clients, I believe an upward trend is going to start,” he says.

But in order to ensure the rising tide lifts their own boats, tile companies must grasp they are at a technology crossroads. “For the last five years, people have been delaying any technology investments,” Dancik says. “They have not been replacing their computer systems, and just been doing little things to augment their systems. There is going to be a real demographic change in their customers, so whether you’re selling to consumers, to contractors, dealers or distributors, all of those players are going through a technological change, and their expectations of their suppliers are going to be different.”

For years, software companies like Dancik’s have been hearing ceramic and stone distributors tell them, “You don’t know how technologically behind my customers are.” That, Dancik says, provided an excuse for them to go on sending paper invoices and operating in the traditional ways.

But as the years progress, contractors and dealers are being replaced by their daughters and sons, and very soon, a contractor will walk up to a distributor and expect more technology than the distributor can offer, Dancik asserts.

They will expect, for instance, to be able to place their orders from their mobile devices. They will expect to be able to track their orders from their devices, and also expect that all services short of fetching donuts will be handled over their iPhones as opposed to over the traditional counter.

“It’s not that the contractor is becoming a computer genius, it’s that the contractor is more interested in technology,” he says. “That contractor will be getting used to using an iPhone and iPad to access everything, and therefore will be expecting to access a distributor’s business that way too.

“To put it differently, a contractor will expect every buying experience to be like Amazon.com.”

Dancik acknowledges he is seeing distributors using iPads and other tablets, instead of bulkier laptops, and finding them being used in showroom and outside sales. “However, we’re not seeing that all the applications being used have been optimized for those tablets,” he adds. “At Dancik, we are involved heavily in optimizing all of our software for tablets and mobile devices.”

Many distributors, but not enough, have websites that display their marketing material. Some distributors already allow order entry and order tracking from their websites. And some distributors have started to allow mobile devices to access that information. “But the future is when all types of devices can access all of this information in a consistent manner,” Dancik says.

All tile distributors and manufacturers should be aware that there is a standard emerging for mobile access to information, and this standard is being developed by the Floor Covering B2B Organizations (www.fcb2b.org). In 2012, a universal stock check, or inventory, application was developed and demonstrated by J.J. Haynes & Company, Jaeckle Wholesale, Shaw Industries, Dancik International and Qfloors. What does that mean for tile distributors?

“What it means is that contractors and retailers will be able to access inventory and pricing information from all of their suppliers, using the same methods,” Dancik says. “In other words, they don’t have to download a separate app for every company. Future applications already scheduled for development include universal order application.”

The bottom line regarding the tech crossroads at which the industry has arrived is that there is both good news and sobering news for tile companies.

“The good news is the tile industry will make leaps forward in technology,” Dancik says. “But the sobering news is this is just to get us competitive with industries already using this technology.”

View from front lines

Tile manufacturers and distributors range from very optimistic to slightly upbeat bout the near future. At Lexington, Ky.’s Florida Tile, a manufacturer and distributor of mid- to high-end porcelain tile, director of quality assurance and technical service Dan Marvin reports the company has put two excellent years of growth in the books since 2010, averaging about 20 percent growth a year.

“We attribute that to a pickup in home building, and to enthusiasm for our products following a product revamp,” he reports. “In 2010, we introduced wood-look tiles that have really taken off in the market. [In 2013], it looks like home building is coming back, through not back to its best levels. A lot depends on the fiscal cliff and a number of economic factors that are still uncertain. We’ve been going through a budgeting process, and anticipate substantial growth.”

Not so optimistic, but not pessimistic, is Robert Henry Sr., chief executive officer of Robert F. Henry Tile Company of Montgomery, Ala. The 70-year-old company handles everything from inexpensive tile for rental buildings to highly decorative, $25-a-square-foot tile, and serves remodelers, home builders, commercial builders, tile installers and retail buyers.

Henry himself has been in the business for more than 60 years.

Residential construction has not been going gangbusters in his area, but substantial military, school and medical construction has taken place. “We work hard to develop that kind of business, starting with the architects,” Henry says. “The remodeling area has helped us a lot. Those projects involve upgrading the house, and people want higher quality, distinctive materials. Instead of plastic laminate backsplash, they want glass and decorative tile to make things more distinctive. In a number of cases, people waited to see what would happen, and nothing wonderful happened. So they said, ‘Let’s fix up our house.’”

Henry worries about what he believes will be rising costs of operating businesses, noting, “the medical care requirements for employees, those are real headwinds, and I believe they’ll discourage some new investment in buildings.”

Still, hope springs eternal, especially for one who’s seen many ups and downs since the early 1950s. Henry speaks for many when he says things seem to have stabilized. “With the sudden and swift decline in business, we had to lower our breakeven point, but we kept our marketing program and salespeople,” he says. “We feel things are slightly better, and we’re guardedly optimistic.” ###

SOURCES:

Kermit Baker, director of the Remodeling Futures Program
Joint Center for Housing Studies, Harvard University, Cambridge, MA
617-495-8879

Mitch Dancik, chairman of the board
Dancik International, Cary, N.C.
919-379-3753

Robert Henry Sr., chief executive officer
Robert F. Henry Tile Co., Montgomery, AL
334-269-2518, ext. 357

Dan Marvin, director of quality assurance and technical service
Florida Tile, Lexington, KY
502-839-2044

Donato Pompo,
Ceramic Tile and Stone Consultants, Inc., Jamul, CA
619-669-2967

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