Rug business flat for some, rising for others

By Cinde W. Ingram -- Home Accents Today, 1/1/2007

Economic challenges ranging from a soft housing market and fluctuating interest rates to declining consumer confidence are taking their toll on the area rug business, which some importers and manufacturers say leveled off in 2006. Other rug-makers report increased sales and expect more growth this year.

"The overall growth of the rug industry has been flat, however Nourison has been fortunate to enjoy a modest annual gain and we expect to continue with this trend in our area rug business," said Alex Peykar, a founding principal of Nourison. "Our continuous increase in annual sales, even through difficult times, is the result of continuous planning and investing rather than cutting back whenever some analyst forecasts which direction the market may be heading."

"We haven't seen huge increases, but we've held steady," said Wendy Reiss, KAS Rugs, key account manager. She noted the slower housing market affected sales of home decor in general, but was hopeful that trend will not continue into 2007.

Sales were up for Capel Rugs partly because of more aggressive pricing and promotion, said Allen Robertson, Capel vice president of sales. "The home area is in a state of transition, as we all know from what's going on from the furniture manufacturing side. So for the accents and area rugs, we're having to really push hard to get dealers' attention."

The declining housing market has not hurt Capel's sales, Robertson said. "Hopefully it isn't going to hit us, but if it does it's going to be delayed. When people buy a new house, unfortunately the first thing they do is not to buy a new rug. The one thing we can count on with a wide assortment and a wide distribution system, is when it slows down in one area, we can move quickly into the other areas to pick up some growth there."

Cyrus Yaraghi, principal of Safavieh, said its sales went "way up" in 2006. As a result, Safavieh doubled its sales force and expects sales to grow at least 50% more this year, partly because of its partnership with Martha Stewart. Safavieh will launch 33 collections by Martha Stewart this month at the Atlanta market although five of those collections sold out after a premarket with big chain store retailers, he said.

Safavieh signed many new accounts in 2006, Yaraghi said. While its Martha Stewart partnership is a driving factor, "the other reason is our dealers know we are bringing a lot of new, fresh merchandise and designs to the market," he said. "Everybody wants something new. They don't want to get the same old rugs they bought last year or the year before. Fortunately we have a very good design team."

Yaraghi cautioned other rug vendors against self-fulfilling negativism. "If people say there is no market, no business, that is what will happen," he said. "For those who go and get the new colors, designs and concepts, I think there are always customers in the market."

Mickal Adler, co-owner of Peel & Company, described business as good in its handmade medium- to high-end rug niche. "Our sales are up in all categories over last year," Adler said. "It is better than it was the year before and last year was better than the year before that. From our perspective as a growing company, we expect not only for our category to remain strong but we believe we're going to do better every year."

Looking ahead, Robertson noted furniture store expansions and said he thinks "business is getting ready to boom. We've made the decision to partner with our retailers. We've got some dealers around the country putting in large Capel galleries, where they are putting in 3,000–4,000-sq.-ft. departments and carrying our entire assortment — and it's paying great dividends. We're doing merchandising and financial support, all the things you would do for a good partner. It's getting both of us a larger market share and it's getting our product available in the market."

Peykar also spoke of the value of partners. "The greatest opportunity for any company can be realized when it operates as a completely vertically integrated company," Peykar said. "When designers, manufacturing partners and distributors are all managed together, a company is best able to truly partner with its customers, in our case retailers. Through this type of service, we are able to give our customers exactly what they are looking for at various price points, and we can offer the best return on their investment and sales per square foot of any retailer's in-store real estate."

Challenges facing the rug market include increased competition for sales, for skilled weavers and in developing fresh looks and concepts.

"There are a lot of good players out in the marketplace right now and we're all trying to do the same thing," Reiss said. "Whereas you used to have handmade manufacturers and machine-made manufacturers, we're all doing all of it now, which gives the buyer unlimited choices. We all have to constantly, continuously be the best as far as color, design and price so I think that will always continue be a challenge for us — to stay updated and fresh and the best in service."

Offering new concepts brings the biggest challenge, Yaraghi said. "People don't want to see the same concept they have been seeing for years and years," he said.

"The greatest challenge for the rug industry is to understand that while we are a traditional business, we cannot thrive with a 'traditional' business model," Peykar said. "Sensitivity to what the consumer is looking for plays an incredibly important role. While individual answers may vary, all are looking for the latest in 'fashion' and the highest 'perceived value.' All want the most beautiful rug and the best quality at the lowest possible price."

Peykar added he has seen movement away from the downward trend of average rug pricing despite increasing numbers of customers. "We see a strong desire from retail owners who would like to see a reversal of the trend toward lower prices toward raising the average ticket price," he said. He noted trends toward textures and combinations of flat weaves and cut pile. "Our Nourison 3000 is our newest ultra luxury collection. It bucks the trend toward lowering price points and features pure high-quality silk designs on fields of 100% New Zealand wool. We're able to produce heirloom quality rugs that would cost $8,000 to $12,000 at a price point of about $1,500 for a 6×9, and with better color retention."

Reiss said she has seen no such reversal in the trend toward lower pricing, but would like to. "I think we'd all love to see color, design and all of that as the driving factor versus the cheapest rug you can possibly make," she said. "Nobody wants to sacrifice quality for that."

Peel & Company constantly pushes design, Adler said. "In terms of design, we feel like we're a market leader and so we'll be a little ahead of that curve and first into those areas we hope the buyers will be looking. In rug weaving, you're constantly buying for the demand that's going to be hitting you four or five months ahead of where you are today. The things we really use as an indicator are our own sales. If we're doing a good job, our orders will be strong and we can rely on that. That's really the best information you can get. Our sales currently are good, we are currently up and we expect that to continue."

Alex Peykar

Wendy Reiss

Allen Robertson

Cyrus Yaraghi