After the purchases of Dal-Tile, Unilin and most recently Columbia, Mohawk Industries is among the nation’s top two hard surface flooring suppliers. But despite unfavorable economic conditions, the company’s growth continues to outpace the industry. How? It begins with innovation and continues with a better product mix than in years past. Move on to product quality and customer service, and there’s the formula for success. FCNews’ editorial director and associate publisher Steven Feldman recently had the opportunity to sit down with Brian Carson, Mohawk’s president of Hard Surfaces, to discuss some of the company’s key initiatives and focus for 2008.

Q How do you see the market today and for the next 12 months?

A If we start with hardwood, that market is clearly down from where it was 12 months ago, obviously driven by builder. Of all the product categories, wood is most tied to new home construction. But retail has softened as well. I attribute that to the slowdown in existing home sales given that a lot of remodel work is driven by consumers who have moved.

New construction will continue to be soft for the next 12 months. I think we will see the remodel piece pick up six to eight months out as people begin to buy through the inventory of new and used homes.

With that said, we have been very pleased with our performance during this downturn. We are seeing base grade, less differentiated products becoming price competitive, but wood is still an aspriational product, so if you have a nice looking product that is merchandised properly, the consumer will still pay. Mohawk has spent a lot of energy in the last 24 months to become less reliant on base grade to sell a better mix, such as Santa Barbara and our new Zanzibar collection.

Q What about laminate?

A We have much of the same situation as hardwood. Base grade is very cost competitive, but for the second and third trade-up there is a lot of innovation that is very profitable business for the retailer. We have put an enormous amount of effort into restyling our laminate line; in fact, we have launched five different collections in the last 18 months. We started at the top of the line and worked our way down. Now we are revamping our value grade for stocking dealers.

Overall, we sense the market is down about 5%, but our business is growing. We are now 100% vertically integrated into company-owned manufacturing, which has improved our service and flexibility to our customers. We have improved our cost position and service, and our styling and quality are tops in the industry by virtue of having our own manufacturing.

Q And ceramic?

A The industry has declined maybe 10% to 15% driven by the new home construction slowdown in the Sun Belt regions, where ceramic is prevalent. Mohawk had a focused effort to concentrate on a higher-end collection, particularly at retail, and we have seen a substantial mix improvement in a declining market, which has helped our overall business considerably. I expect it will continue at current levels through 2008, but there are substantial opportunities in a slow growth residential market by providing great looks at a competitive price with unparalleled service.

Q How does Mohawk withstand a downturn?

A Our strategy is that there are two areas where we would not compromise: quality and service. We had a sharp focus on trying to elevate ourselves from being just a base grade business, and it fits well with Mohawk’s strengths of service and styling. We compete where we need to on base grade, but we have learned not to live with base grade. We are developing a much more balanced product line. If you look at our collections today, we have expanded our assortments with emphasis on premium styling and are a high-end supplier vs. the pallet-driven company of two years ago.

Q How do you see 2008? Is there any particular strategy?

A We are going to continue to focus on retail, because that will be stronger than new construction. We will invest heavily in new products and merchandising, even through the downturn. We see that in many hard surface categories there are aspirational products for which consumers will pay a premium, and we need to continue to provide those products, merchandising and advertising vehicles that bring them in the stores, and once in the store, we present our products in a way that differentiates from the competition. We are upgrading our direct ship programs for laminate, wood and ceramic. Our stocking dealers are being offered programs that provide tremendous values with short lead times.

Q What are the key initiatives Mohawk is introducing for 2008?

A On the wood side, we’ve seen the base grade oaks become very competitive. But there is a lot of room between those oaks and foreign exotics. So we are going to focus on the domestic exotics, walnuts,maples and hickorys. There is big opportunity there for us.

With laminate, the main initiative is to complete the transition and upgrade of our product line to internal manufacturing, and 2008 will be a period of exposing more retailers to that collection.

Q Speaking of laminate, how do you differentiate between Mohawk-branded laminate and Quick•Step laminate?

A They both have a comprehensive offering, base-grade to top of the line, but the styling and merchandising is specifically designed to complement each other at retail. While they both offer some similar species, the colorations and texturing will be different. Many retailers have a Quick•Step and Mohawk display in the same store, so they have to be differentiated lines. Whether we are talking styling, merchandising or advertising, we will go out of our way to give the consumer two different yet compelling choices. Our objective is to be bullet proof on the product itself but elegant and distinctive in the styling and execution.

Q How are the Mohawk and Dal-Tile/American Olean brands positioned at retail? What are the prime differentiators? What are the opportunities over the next 12 months? What is the biggest challenge?

A The products and merchandising are designed to maximize choice to the consumer among the three brands. The lines at retail are designed to complement each other. Our focus for next year is going to be to enhance the first trade up.

In 2007 the focus was on the second and third trade up. As for opportunities, we stock our ceramic regionally, and we have the unique ability with our sales force and trucks to service the small ceramic retailer—the ones other companies cannot reach profitably or not at all. We are more suited to sell and service the smaller retailer than a lot of other manufacturers.

As for challenges, the broad offering has caused us to fundamentally rethink our supply chain to optimize overall service and delivery costs. We have made a lot of progress in this area.

Q Bringing Columbia into the fold, what economies of scale will Mohawk realize both short and long term? What will be the differentiators in brand positioning at retail?

A Mohawk is vertically integrating certain sourced production where there is a cost and service advantage in doing so. This will give us increased economies of scale in both production and distribution of product. The Mohawk, Columbia and Century product lines will be designed to complement each other and enhance overall choice.

Q What are your predictions for category growth in 2008 (wood, laminate, ceramic) and by how much do you expect Mohawk to outpace the industry?

A Wood and ceramic will see modest growth in 2008 as improvements in retail and steady commercial segments offset continued softness in builder. Laminate will grow in 2008 as the product continues to gain share in the residential remodel and DIY segments. Mohawk hard surfaces should grow faster than the market in 2008 due to substantial investments in new products, merchandising systems, and regional product stocking and distribution capabilities.

Q Are there any key innovations coming on-line this year?

A Innovation has been a cornerstone of success in laminate and ceramic at Mohawk. We will extend this winning formula into hardwood during 2008. I won’t tip our hand at this point, but Mohawk has exciting innovations planned for the upcoming year.