Carpet’s double-digit decline in 2023 vs. 2022 comes as no surprise to industry followers who point to a confluence of factors—inflation/high interest rates, weak housing turnover, consumer reluctance to spend and the residual economic effects of the pandemic—with conspiring to undermine the soft surface segment.
Yes, there were some peaks of sunshine in 2023. Carpet priced in the $18.99 to $21.99 per square yard range and higher continued to outpace the market in general, giving luxury brands a boost. And carpet’s market share slide vs. hard surface has leveled off to a more manageable degree.
That aside, the 2023 numbers are a reminder that carpet continues to struggle two years after a historic, COVID-19-inspired performance that saw sales and volume up over 20%. In retrospect, that spike seems like ages ago.
When all the figures were tabulated for 2023, FCNews research found that total carpet sales declined 9.5% in dollars to $7.46 billion from $8.24 billion in 2022. Residential carpet sales, meanwhile, fell 13% in 2023 while commercial sales were down 3.9%. Area rug sales (not including customized rugs fabricated from broadloom) decreased an estimated 13% to $2.32 billion, according to industry estimates.
Regarding volume, carpet (combined with rugs) was down 10.3% year-over-year to 7.86 billion units, with residential volume down 10.6% and commercial volume falling 9%.
Despite the precipitous drop, carpet remains the largest flooring category by volume, accounting for 44.3% of the overall 17.727-billion-square-foot flooring market in 2023.
However, as flooring executives are all too familiar, soft surface’s market share vs. hard surface continues to erode, down 0.7% in 2023 vs. 2022. To put things into greater perspective, 10 years ago (2013 statistical year), carpet made up 63.4% of the market in terms of volume. Fifteen years ago (2008 numbers), carpet commanded 67.7% of the market in volume—a difference of 23 percentage points from today’s numbers.
With a few yearly exceptions, carpet has been on a downward slope for more than two decades. Consider that total carpet volume (residential and commercial) stood at 18.37 billion units in 2005, its high-water mark occurring just prior to the Great Recession. Today’s volume, 7.86 billion, represents a decline of more than 57%.
Of course, as flooring executives point out, by the time of the Great Recession (2007-09) carpet had already begun the transition from a whole-house, wall-to-wall product to a room-by-room selection. Mill executives estimate that residential carpet makes up about 31% to 33% of the home today, 59% of the bedrooms and 37% of the living rooms.
However, there is a strong belief among market leaders that carpet’s share loss vs. hard surfaces is reaching its equilibrium and won’t erode much further. “The soft surface category still has a bright future because it still owns the bedroom,” said Jamie Welborn, senior vice president of residential carpet product development at Mohawk. “I don’t believe it will ever be back to its heyday of the early 2000s but I do believe the technology advancements have helped make carpet more appealing.”
Others see encouraging signs that carpet is “reclaiming” certain rooms. “Bedrooms, offices, stairs and secondary spaces are where carpet is mostly being installed, and this isn’t expected to slow down in the future,” said Bob Hardaway, vice president of carpet product for Shaw Industries.
Influential factors
The success of carpet is often predicated by how the housing market is faring. By that measurement, it’s no wonder carpet was down.
Home sales in 2023 dropped to the lowest level in nearly three decades, after elevated mortgage rates and a lack of homes for sale shut out buyers. Existing single-family home sales in 2023 were at 4.09 million units, down 19% vs. the previous year, according to the National Association of Realtors. Conversely, new home sales in 2023 rose for the first time in three years (+4.2% in 2023 to 668,000 vs. 2022, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau); however, new home sales have not recovered from the Great Recession and are down 47.9% from the record-high of 1.28 million units sold in 2005, Census reported.
Mortgage rates, meanwhile, stood at an annual average of 6.81% (30-year fixed) at the end of 2023, the highest annual rate since 2001.
Mill executives cited these metrics as significant contributors to carpet’s performance as many consumers have less disposable income to work with. “In 2023, the carpet category faced a couple of significant challenges: Consumers continued to make choices other than residential replacement,” Hardaway said. “Rising mortgage rates and HELOC (home equity line of credit) rates were prohibitive for consumers, meaning they were less likely to use discretionary income on home purchases or upgrades.”
Inflation as measured by the Consumer Price Index (CPI) improved in 2023 vs. 2022. Compared to December 2022, CPI inflation fell by 3.1 percentage points—from 6.5% in December 2022 to 3.4% in December 2023. Core inflation, which excludes food and energy prices, came in at 3.9% in 2023, down 1.8 points from its 12-month December 2022 rate of 5.7%.
Despite the easing, inflation remains too high for the Federal Reserve, which failed to lower interest rates in 2023 and has yet to do so in 2024. As it currently stands, interest rates remain at a 23-year-high.
“High inflation resulting in high interest rates put many consumers on hold throughout 2023,” said T.M. Nuckols, president of the residential division, The Dixie Group.
While elevated interest rates hurt single-family and existing-home sales, multifamily took the brunt of it, according to James Lesslie, chief operating officer for Engineered Floors. “High interest rates have definitely slowed the multifamily replacement business as customers are not moving and owners are cleaning/repairing carpets versus replacing them in an effort to conserve cash,” he said.
Observers agree that if the overriding factors of inflation and interest rates continue to be high, consumers will be hesitant to move forward with renovation projects.
It should be noted that inflation is not holding everyone back. In fact, consumer spending on foreign trips and live entertainment rose by nearly 30% in 2023. These travel-related expenses were largely eschewed during the pandemic when there was a surge in spending on home improvement projects including flooring. “There were many who had more funds than normally available due to the emergency COVID-19 government funding programs,” said Quentin Quathamer, director of residential carpet for Mannington. “This surge led to a saturation in the market. Many consumers have already completed their flooring projects, reducing future demand into 2023 and beyond.”
Indeed, many say the carpet category was “over-indexing” during the COVID-19 period, a reference to consumers spending much greater on home improvement projects during the shelter-in-place phase of the pandemic than would be expected in normal times. Consumers overindulged and the flooring market is still digesting.
The inflationary pressures that followed the pandemic also tamped down consumer enthusiasm, yet another contributing factor. “Eroding consumer confidence resulted in consumers postponing or scaling back on home improvement projects, including investing in new soft surface flooring,” said Jason Surratt, president of Tarkett Home.
Quathamer added that due to economic uncertainties and job market fluctuations, consumers became more cautious about making large purchases. The result? “Many consumers delayed or canceled planned home improvement projects, including new carpet installations.”
Mills see reason for optimism
Just as carpet saw a resurgence during the pandemic, the post-pandemic era may also benefit soft surfaces in the longer term. That’s according to executives who suggest that if remote or hybrid work continues at the present rate, homeowners will be more apt to put carpet in, say, a home office to help with sound absorption and comfort.
Drew Hash, CEO of Southwind, said hard surface “simply cannot replicate the inherent benefits of soft surface regarding affordability, comfort, warmth and more.”
Chet Graham, president of Marquis Industries, paints a similar picture. “Carpet appears to be gaining some more area in new homes and remodels. The cost to replace carpet is still the best value in the flooring industry. Consumers are also aware that, unlike hard surfaces, all quality carpeting is domestically produced.”
Pricing trends
Amid weaker demand, the average wholesale price fell about 3% to $1.13 per square foot ($10.17 square yard), according to industry estimates. This was driven by manufacturers using price to try and steal market share in the lower price points.
Manufacturers pointed to more robust activity in the mid-range price points between $12 and $14 per square yard in addition to the higher-end segments in the upper $20s and higher. The sweet spot of activity seems to be in the $18.99 to $21.99 square yard range, where carpet offers a strong balance of quality, durability and affordability that appeals to homeowners wanting a flooring upgrade.
Shaw’s Hardaway said he would like to see the carpet industry price its goods by square feet (like hard surface) instead of square yards. “By doing so, this will allow consumers to better compare pricing against existing flooring options priced by the square foot. This will improve the
consumer experience and simplify pricing and selling carpet. For example, by communicating the offerings at $1.69/square foot or $1.99/square foot rather than yard, $15/square yards and $17/ square yards, consumers can compare pricing and better understand carpet’s value.”
Commercial
After double-digit dollar gains in 2022, commercial reversed course and closed out 2023 down 3.9% in sales, the sixth year in the last seven that commercial sales ended in the red. Volume, meanwhile, was down 9%. FCNews estimates the commercial market at $3.19 billion for 2023, with specified contract at $2.41 billion and Main Street at $780 million.
[Note: For years, a large percentage of mills considered level-loop polypropylene a Main Street product, mostly installed in rental space/tenant improvement and low-end apartments and basements. Today, much of this business has been lost to low-end polyester cut piles. These cut pile sales are reported as residential, not Main Street. As well, some mills break out Main Street from their specified business, for example, identifying smaller K-8 to K-12 schools as Main Street.]
Commercial’s COVID-19-enhanced decline has been stark since 2019. In the ensuing four years, commercial sales are down 18.75%. Remove COVID-19 from the formula and commercial carpet had been essentially flat between 2013 ($3.70 billion) and 2019 ($3.717 billion).
Main Street, while off a few percentage points in 2023, has been a reliable contributor to commercial’s success, albeit with most of the revenue coming from the hard surface side.
Regarding product, carpet tile continues to be the dominant player in commercial applications on the soft surface side; however, it’s share—roughly about 65% vs. broadloom’s
35%—did not grow as much in 2023 as in previous years. Experts cite the strength of the hospitality sector, a broadloom stronghold, with minimizing carpet tile’s momentum.
Area rugs
It was a down year for area rugs, for a few reasons. There was consolidation, with retailers like Bed Bath & Beyond—a large seller of area rugs—closing hundreds of its brick-and-mortar stores. And among specialty flooring dealers there continues to be a shift away from in-store area rug inventory to online sales. As Mohawk’s Welborn noted, “You do not see many dealers selling pre-made rugs off of racks in their stores just because of the space limitations and the significant number of different rugs they have to carry to be successful. Typically, the retailers use their internal stock or order a cut piece of broadloom from the manufacturer to make their rugs.”
The trend should allow for more custom rugs to be sold through the flooring channel. Indeed, there are a significant number of flooring dealers who do very well in the custom rug space because of their in-house fabrication expertise. Myers Flooring, with locations in Dalton, Nashville and Atlanta, is a great example of a dealer that is dominating in custom rugs. These programs allow homeowners to get the exact size rug they need in the style they want, and dealers don’t have to devote large areas to showcase it.
Mills are aggressively going after this business as well. “We have seen a significant increase in our rug sales through specialty retailers,” TDG’s Nuckols said. “Most of the increase has been in cut/bound or cut/serged rugs where the consumer selects a beautiful broadloom carpet style and has it turned into a rug that perfectly fits their living space.”
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