With the current economic situation and the trade challenges around the world, DOMOTEX asia/CHINAFLOOR launches a series of interviews with key people in the flooring industry to highlight the current news, trends and updates. Bruce Zwicker – former CEO of one of the leading floor distributing companies in the USA with over 20 years of executive experience in manufacturing, distribution and retail – answers questions about the future of the industry in general and the US-China trade relations in particular.
What are you expecting for the global economy in regards to the flooring industry for the next 5 years?
Due to the current environment of many difficult geopolitical forces and trade negotiations underway, it is difficult to predict what will happen in just the next six months. However, economic trends underway are predictable. In the next two years, globally, we will experience a slowing of growth followed by renewed growth with a muted recovery, again. Through the five years, the average CAGR for flooring demand might be 3-4% but we will experience negative growth for a period of time. Europe and China have already slowed. The U.S. has slowed since late 2018. It appears that the negative growth will not be a fall from a cliff with deep decreases but instead an erosion-like decline of mid-single to high single digits. This is much different than the 2008-2009 recessions which caused a 40% cliff fall in the U.S., triggered by the global financial crisis and starting the U.S. “Great Recession”. There is risk of a similar drop this time but not a high probability.
Do you see the Asian market growing in relation to that?
The Asian flooring industry will grow at a higher than average growth rate compared to the global growth rate. Asia’s above average growth will be the result of strong local Asian demand, driven by increasing standards of living, but even more the result of increasing exports to the U.S. and Europe from new investments in flooring production capacity ex-China. Fundamentally the forces of lower labor cost, faster innovation, and more nimble investment will continue to make Asian produced flooring highly competitive for export. In the past decade China’s growth rate was the highest due to these flooring export advantages. Due to the shift in US trade policies, China’s advantages have either been stopped altogether or been reduced. Therefore, it is Southeast Asia which will get the benefit of the next recovery much the same China did during the recovery over the previous decade. However, while Southeast Asia’s benefit will be strong versus the U.S. and Europe, they will not be a pronounced as China’s in terms of low cost and higher cost of investment. Meanwhile, China will find ways to continue to be a strong exporter despite the trade barriers, being a worthy competitor to Southeast Asia. So, both will grow faster in relation to the U.S. and Europe.
Where do you see U.S. flooring companies focusing their efforts in 2020 and beyond?
U.S flooring companies will invest more in their U.S. production, but they will have doubts which will somewhat mute and delay those investments. The doubts stem from the volatility of the current U.S. political environment and the lack of clear long- term policy in trade matters. Although most experts predict any future U.S. political power will not revert to “open trade” with China, U.S. businesses are still dealing with many unknowns. But the major issue causing investment doubt is LVT. LVT is the only flooring product growing in the U.S. All other product categories in the U.S. are either stagnant or in decline. In Europe, LVT has also been a major force. The rise of LVT in Europe has not been as fast but its impact is similar. This impact will probably accelerate in Europe. Europe, like the U.S., will be careful about making investments, especially in a near term future environment which will be recession at worse and very slow growth at best. Also, for both the U.S. and Europe, the flooring industry has learned it can out-source products and avoid investments while also benefitting from innovation and the flexibility of quickly sourcing whatever product is “hot” in the market. So, why not avoid investment risk and utilize the abundance of China and Southeast Asia export capabilities?
How do you see the future of hard flooring and what products are becoming more popular lately?
Hard surface in the U.S. will continue to grow faster than soft surface. I believe this trend is consistent around the world. Within the hard surface product arena, tile is the most widely used flooring product. Wood flooring product demand, like carpet, tends to be a bigger part of demand in some world areas bit not across the world. LVT tends to be a consistently faster than average growing product type within hard surface. Laminate is as well but LVT has taken share from laminate. Traditional vinyl flooring products have also lost share to LVT. However, LVT is a complicated product category as evidenced by the fact experts cannot agree on terminology and definitions under the broad heading of LVT. There is the original flexible type and sub-types of what is called multi-layer flooring (MLF) types of LVT, commonly referred to as WPC and SPC.
Which flooring innovations of the recent years do you find the most important?
There are ten trends in flooring in U.S. the past decade, as shown below, but LVT has been the single most impactful. LVT is a revolutionary event, not just a trend.
1. Tiles versus rolls
2. Hard Surface growth
3. Certifications and regulatory environment tougher
4. Style proliferation
5. Installation choices and ease
6. Industry more global, more trade and cross continent investment
7. China exports and innovation increase
8. Demand shift towards “value”, lower ASP
9. Improved visual technology – Product categories blur
10. LVT disruption
How did the US flooring industry change in the last few years?
As I stated above, it is the LVT disruption, the optimized visual technologies, the China exports increase over the past few years (although showing a slow down lately) and the fact that there is more trade and cross continent investment. I would sum up the biggest changes as LVT, product categories blurring, and increased globalization.
How has the tariff situation impacted the flooring business? How and when do you think it will be resolved?
The trade barrier issue in flooring is concentrated in U.S. and China trade specifically, China export to the U.S. The tariff on all flooring increased to 25%, the anti-dumping duties on engineered wood flooring increased, and new duties are being placed in tile. The tariff did not decrease trade but did start a shift to U.S. importers looking to ex-China sourcing from Southeast Asia. Most experts believe the tariff may be reduced but not go away. Let’s face it, the U.S. treasury benefits from the increased revenue and the political environment would not react well to removal of tariffs, unless there was a huge pro-U.S. deal with China. And, that will not happen. The duties will not go away for at least five years. Unlike tariffs, duties are semi-permanent. Tariffs can be removed in an instant with a Tweet.
Are there any other countries or areas in the Asian region that are becoming attractive for North American distributors/wholesalers?
Yes, there are several Asian region countries which the U.S, is interested in a know very little about. These countries include Thailand, Cambodia, Malaysia, Singapore, and Vietnam in particular but there are others as well. Many Chinese flooring companies are making investments and forming partnerships in these countries.
What are the top things an American buyer looks at when signing business deals?
U.S. buyers are looking first for a product which will sell a look and functional performance features which stand out to end users. Second, the price and quality must be acceptable compared to alternatives available to the buyer. Third, the buyer wants to be able to trust the supplier in terms of relationship but most importantly delivery reliability. Lastly, the buyer wants to do business with someone who knows how to do business the U.S.-way and therefore is easy to work with and grow together.
What were your impressions of your visit of DOMOTEX Asia/CHINAFLOOR 2019? What do you think is the strength of the show and why would you recommend somebody to visit it?
The Domotex show in Shanghai is another Domotex global flooring industry show which features China and increasingly Asia. The participants are global in nature and number. The industry is global and this is reflected in the Shanghai show. So, this is the place to go to see what the world has to offer, what the trends are, hear from many countries about what’s happening in their part of the world, meet new people key to the industry and greet old friends. There is no place like it. It is a well-organized and efficient way to stay in touch and on top.
Bruce Zwicker was CEO of J. J. Haines, the largest U.S. flooring industry distributor for fourteen years. He is now an International Flooring Consultant with clients in North America, China, and Europe. Bruce advises CEO’s, MD’s, Owners, and Boards in growth strategy, acquisitions, exit strategy, succession planning, executive teams, and CEO coaching. Bruce is currently a Director of Virginia Tile Company, one of the largest companies in its field. He has held director positions on the Boards of the National Association of Wholesalers, the American Paint & Coatings Board, the Floor Covering Industry Foundation Board, and J. J. Haines. He attends most major global flooring events and often presents at conferences such as the World Flooring Forum.
