Tuesday, September 28, 2010

Floor covering consumers turn cautious


How was your flooring business this summer? Was it disappointing? Did customer counts come in lower than anticipated? Did buyers express even more preference for “value” products? Where did the optimism go for a 2010 recovery?

I was optimistic earlier in the year when I posted "Catalina says U.S. Flooring Industry Set For Spring Thaw-Who Will Benefit?". In that April post I indicated that there would be a recovery in the second quarter and the recovery would accelerate over the entire year. Recent data shows that there was a 4.3% increase in U.S. manufacturer square foot floor coverings sales in the second quarter over the previous year. This was the first increase in U.S. demand in almost four years as retailers restocked in anticipation of rising consumer floor coverings purchases.

However, as a warm spring turned into a hot summer, a series of events turned your customers cautious. The following events turned a spring thaw into a summer stuck in the mud:

• The Flash Crash in May, when the U.S. stock market plunged 600 points, unnerved investor confidence in the stock market and contributed to a renewed decline in household wealth.

• The Greek Meltdown made consumers finally consider the adverse effects of the soaring debt levels of federal, state, and local governments.

• The Gulf oil spill reopened the discussion about the lack of a U.S. energy policy, and how quickly prices could rise due to a supply disruption.

• Consumers began to digest how health care, financial service, and tax legislation will impact their own household budgets, while U.S. employment levels continued to decline.

These events caused consumer sentiment to decline in early September to its lowest point in over a year, according to the Thomson Reuters/University of Michigan survey. As sentiment declined your consumers spending habits and outlook changed. They....

• Cut their debt levels and increased their savings rate as households worked to increase funds to pay for rising health care costs and offset the shortfall in company and government retirement plans.

• Reduced their purchases of new and existing homes. Existing home sales declined by 26.9% in July, after consumers increased their purchases for existing homes at a double-digit rate in the first half of 2010. Builders also sharply reduced their starts of new homes in recent months.

• Slowed their purchases of building materials and home furnishings. In fact, the sales decline at specialty floor coverings stores accelerated in July.

These consumer actions are estimated to cause U.S. manufacturer square foot floor coverings sales to slow to an estimated 1.6% gain in the third quarter of 2010. Sales could grow at a similar rate in the fourth quarter of this year. This sluggish recovery is expected to continue until consumers regain confidence in their ability to get a job, improve their ability to pay for medical care and save for retirement, and trust in their government to meet its obligations without bankrupting the country.

This may take some time. Let us know how the above events changed the attitude of your customers, and how they have changed their spending patterns over the past few months.


Stuart Hirschhorn is a member of the Floor Covering Institute and Director of Research of Catalina Research, Inc. which provides in-depth market research on the floor covering industry.

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