The U.S. Floorcovering Industry - 2006
Helms, Marilyn M., Baxter, Joseph T., Journal of the International Academy for Case Studies
The primary subject matter of this case is a study of the U.S. carpet and floor covering industry. Secondary issues include consolidation of mature industries, global pressures, mergers and acquisitions, and rising raw material and fuel costs. The case permits in-depth discussion of the various externalities facing this changing industry including internationalization and consolidation pressures as well as shifting customer preferences away from carpet and toward hard surface flooring. It is designed for senior-level classes in strategic planning and business policy. It is expected to require two to three hours of outside preparation by students.
Dalton, Georgia is the carpet capital of the world and is home to the area's leading floor covering and carpet producers. The old world industry attracted the interest of Warren Buffet prompting him to purchase Shaw Industries, Inc. in 2001. Shaw and their key competitor, Mohawk Industries, Inc. has a rich history of growth through acquisitions. The industry giants have consolidated much of the formerly fragmented flooring industry they helped establish. Each is a full-line flooring producer manufacturing carpet, rugs, ceramic tile, laminate flooring, wood flooring vinyl, and other surfaces for commercial and residential customers and both continue to battle for the number one position in the U.S. The industry has experienced recent fiscal growth from the U.S. housing market boom and higher product sales prices exceeding analysts' expectations. However, rising fuel prices, competition from low-price Asian imports and actions by competitors continue to challenge the industry. Small suppliers exiting the industry have caused raw material prices to rise. Changes also include a shifting product mix driven by consumer preferences toward laminate, wood and ceramic tile flooring and away from carpet and vinyl products. The rug segment is growing along with hard surface flooring. Even with wood or laminate floors, consumers decorate with area and scatter rugs. The industry is changing and the leaders must consider additional ways to grow. Interviews with industry analysts, trade associations, and consultants provide additional insights.
Carpet industry executives throughout Dalton, Georgia home of the world's leading floor covering and carpet producers reviewed industry challenges as they prepared their strategic plans for 2006 and beyond. The leading firms had a rich history of growth through acquisitions, consolidating much of the formerly fragmented flooring industry they helped establish. While the entire industry experienced recent fiscal growth from the U.S. housing market boom, this market had slowed in 2006. Also, while higher product sales prices exceed analysts' expectations, the rising fuel prices, competition from low-price Asian imports and actions by competitors continued to challenge the industry. Raw materials were also more expensive since several small suppliers left the industry. Executives pondered consumer's future floorcovering preferences. Recently customers seemed to choose laminate, wood and ceramic tile flooring along with area rugs instead of carpet or vinyl products. Clearly, the industry was changing and the executives wondered what future strategies should be.
Rising Costs - Fuel, Raw Material, and Employee Health Care
Increasing oil and energy prices, raw materials and other supply shortages, a record number of lower-priced Asian imports, escalating health insurance costs for employees, and the falling U.S. dollar relative to other currencies, particularly the Euro, has carpet and floorcovering executives worried. While industry consolidation and vertical expansion had boosted profitability levels, rising fuel prices made 2006 and beyond more uncertain. The ability to obtain raw materials on a just-in-time basis is critical. The principal raw materials include nylon, polyester and polypropylene resins, fibers, and carpet backings, which are used exclusively in the carpet and rug business - talc, clay, nepheline syenite and various glazes, including grit (ground glass), zircon and stains, which are used in ceramic tile business. …