ON THEIR TOES

BY CECILE CORRAL | CONTRIBUTING EDITOR

Never a dull moment.

It’s a common idiom that aptly sums up the current—and seemingly ongoing—state of the area rug business. Macro issues have always impacted the industry, but in recent years the interference has been more frequent and unforeseen, forcing players into damage-control mode.

Pre-covid, the hot topic was tariffs on Chinese imports.

Then the pandemic happened, and what ensued was a perfect storm of concurrent headwinds—inventory deficits, delayed deliveries, clogged ports, labor shortages, raw material and shipping cost hikes, you name it.

Crisis management defined 2020; then 2021 made way for sales stabilization, even growth for many. But in 2022, inventory related over-corrections cleared the way for a new crop of challenges across the supply chain.

“As merchants and retailers, we have become accustomed to bobbing and weaving around the many challenges that hit us from all angles,” observed Paula Paquette, vice president, Nourison. “Sometimes it’s hard to understand how this industry does it, how we manage through it all. What has helped are the strong partnerships between suppliers, like us, and retailers and the efforts we take to communicate better to do things differently. As an industry, we’ve learned to adapt and we make it work, because at the end of the day, the customer still wants to shop.”

So far this year several new variables have started to pile up. For one, there is conflicting data about the U.S. consumer.

As Macy’s Inc. CEO and chairman Jeff Gennette noted during the company’s fourth quarter earnings call in March, shoppers are in better shape today financially than they were in 2019—at least “on the surface.”

Employment and wages are up, and savings are higher relative to historic levels. But also on the incline is pricing for services and goods. Plus, inflation has surpassed wage growth, and revolving credit is rising, he warned.

“We believe that discretionary spend will be under pressure across income tiers, and we expect the allocation of disposable income to continue shifting toward services and essential goods,” Gennette said.

On the bright side, he sees encouraging new trends emerging.

“With the continued expansion of a hybrid work model, there are more in- person meetings and flexibility for personal travel,” he said. “We believe the desire to be with loved ones, go on vacation and attend events have not diminished. And we expect gift-giving and occasion-based demand to continue.”

Similarly at Kohl’s, the home decor category underperformed the company average in the fourth quarter, and now the chain is looking to ramp up the assortment with more product offerings from a wider scope of suppliers— including U.S. manufacturers, noted CEO Tom Kingsbury during the retailer’s earrings call in March.

“We see clear, tangible opportunities in categories in which we are underpenetrated,” he said. “Home and gifting are two areas that our customers expect more from us. I believe Kohl’s can increase its penetration in areas like home décor and become a destination for gifting.”

To capitalize on this opportunity, Kohl’s is exploring new ways to source portions of its assortment, “recognizing that we can find great values, increase our speed and broaden our offerings by going into the domestic marketplace regularly,” he said.

That’s good news for American mills like Maples Rugs. To offset recent sales struggles in its bath rug segment, the family-owned-and-operated company is concentrating on its strengths: Area and accent rugs.

“At Maples we are focused on promoting and growing our tufted and printed accent/area rug business,” John Maples, president, told RUG INSIDER “Our rug printing operation has the greatest capacity and capability in the industry, plus we’re introducing new and dramatically softer yarns [this spring season]. Also, we will continue to promote the advantages we have as a domestic source, such as quicker turnaround, shorter lead times, and flexibility in inventory planning for our customers.”

Labor-related cost increases continue to affect U.S. rug production. Major players with a diversified network like Oriental Weavers (OW)—which runs operations both domestically and overseas in Egypt where its parent company is based—have an advantage.

“USA-made product has to be very innovative and different and be able to retail for [at least] $299 to $399 for it to make sense financially to produce it here, with labor and inflation still up significantly,” said OW president Jonathan Witt. “We’re uniquely equipped to be able to handle these types of orders because of our infrastructure. But when it comes to making opening price-point products, it’s virtually impossible for any domestic manufacturer. Instead, we work with our overseas operations to meet that need.”

Throwing a monkey wrench into the import equation was the series of earthquakes in early February across Turkey.

The Eurasian nation is the world’s largest producer of woven area rugs. While the main regions where production is most common were not at the epicenter of the quake, the industry is still reeling from a shrink in available labor, structural damage to facilities, power/energy interruptions, port delays and other effects from the devastating event.

Loloi Rugs does “considerable business” in Turkey, and the company said its partners recently started to resume production.

“Our initial thoughts focused exclusively on the safety and health of all of our friends and families there,” noted Austin Craley, vice president, sales. Loloi and its employees donated over six figures of funds to the Red Cross and other humanitarian groups to assist in the recovery efforts, he added.

Town & Country Living and its Home Dynamix rug division “expect delays” in getting production at its Turkey partner mills back to normal levels.

“It’s been a very difficult time for us there,” said Judi Alvarez, vice president of licensing and marketing. “Fortunately, we also make some rugs in China, so it helps that we are diversified in our sourcing. But we’re still waiting to see what happens with Turkey.”

Many of the employees who work at Natco Home’s partner mills in Turkey are making their way back to the manufacturing plants, and the hope is to get operations back up and running at pre-quake rates soon.

To offset some of the gaps at retail left by the absence of Turkish products, Natco Home is domestically producing alternative rug styles from its Mainebased facility where it manufactures woven rugs.

“We have people contacting us to see if we can fulfill orders in the meantime,” said Mark Ferullo, executive vice president. “We’re doing what we can here to help keep our customers up and running.”

Despite labor cost hikes, domestic manufacturers are keeping competitive by way of advancements in innovations.

“We are making better quality products because shoppers need value, they need a reason to buy,” Ferullo added. “Performance attributes are more important than ever—washability, durability, high-traffic friendly, on-trend colors and high-definition designs. Affordable rugs are a fast-fashion business, and we’re responding with innovative products that we make here.”

Value is even important among middle- to high-income bracket consumers. Kaleen is answeriing their call by putting greater emphasis on its top-shelf broadloom programs that can be customized into area rug sizes for customers’ specific needs.

“Our outlook for 2023 and beyond is that the high-end side of the business will be strong and will continue to grow,” said Monty Rathi, chief operating officer.

To that end, Kaleen is adding seven collections of high-end area rugs and bespoke broadloom styles this season to its Luxe brand. These products are made of 100-percent pure wool and are hand knotted by the company’s own in-house team of artisan weavers.