The 2014 Industry Pulse

Nowhere to go but up? Execs weigh in on the year ahead.
December 29, 2013
FEATURE ARTICLE | Markets & Trends

Despite apprehension regarding the fragile economy, window and door industry executives anticipate increased sales in the coming year, backed by moderate economic growth, according to the 2014 Industry Pulse, Window & Door’s exclusive annual survey.

More than 50 percent of dealers and manufacturers surveyed said they expect to see moderate economic growth in the coming year, defined as gains of 2 percent to 2.9 percent. (See Figs. 1 and 2.) The majority also predicted window and door sales would increase slightly in 2014. (See Figs. 3 and 4.)

*Source for all charts, 2014 Industry Pulse Survey. Slow growth defined as less than 2%; moderate growth, 2 to 2.9%; strong, 3 to 3.9%; and robust, 4% or more.

Although “no one is ready to say the market is back, the fundamentals are right for growth in the repair/replacement market and our dealers are optimistic,” reports Joe Guarino, president of Sunrise Windows. “We are expecting very significant growth in 2014. There is pent-up demand. People have windows that need to be replaced because there is an aging housing stock. The only potential thing that could significantly harm us would be policies or actions in Washington that harm the economy.”

 

Keenan Burns, COO and executive vice president of A.W. Hastings & Co., the distributor for Marvin Windows & Doors in the New England area and eastern New York, has a similar view. “We saw growth of 10 percent to 15 percent in both new construction and in the repair and replacement market in 2013, and we continue to see opportunities for growth ranging from 10 percent to 15 percent in 2014.

“But I still feel that we are operating in a fragile market,” Burns says. “There are a lot of external influences today—from Washington to employment and consumer confidence—and it wouldn’t take much to soften it. As an industry, we have to be careful not to assume that there is no chance of the economy being derailed.”

That potential economic instability might be behind the wide variance of growth rates dealers and manufacturers predict for 2014. While the majority of companies in the Pulse survey said they would see slight increases in the year ahead, some predicted double-digit growth.

For example, Scott Barr, steward of Southwest Exteriors in San Antonio, which sells Therma-Tru entry doors, Renewal by Anderson patio doors and windows, and siding from James Hardie Corp., is anticipating significant growth in 2014. “We are getting a higher-than-average job size than in the past,” he says. “We’re projecting 30 percent growth for 2014 on top of 20 percent growth in 2013. With property values stabilizing and interest rates down, people are willing to invest more in their homes.”

At Deceuninck North America, expectations are also for larger gains. “I expect growth in 2014 will be in line with 2013 [when] we had double-digit growth of close to 20 percent,” says Filip Geeraert, president and CEO.

“We have a lot of new business on the books [for 2014],” adds Steve Dillon, marketing director of Veka Inc. “We expect steady, solid growth over the next two years. Demand in the U.S. is picking up and there is more of a call for higher-end products.”

Expectations for growth in 2014―be they slight or significant―are a welcome change from the past few years. In fact, the 2014 Industry Pulse marks the first time since 2007 that dealers and manufacturers have predicted moderate economic growth heading into a new year. In 2012, nearly 60 percent of window and door industry executives said growth wouldn’t surpass the 2 percent mark. In 2013, that number fell to a little more than 40 percent. This year, just 21 percent of dealers and 19 percent of manufacturers said economic growth in the window and door industry would be slow, or less than 2 percent.

Although economists agree that the housing market―and consequently, the window and door market―has a long way to go before it reaches normal levels, forecasts for the year ahead are encouraging. Hanley Wood Chief Economist Jonathan Smoke predicted at the 2013 Window & Door Dealers Alliance forum that total housing starts would surpass 1 million in 2014, and return to their historic levels of 1.5 million starts to 1.6 million starts in 2015 or 2016.

“Housing will drive economic growth going forward and create a vehicle for the entire economy to improve,” said Smoke, pointing out that construction spending would be up 50 percent in 2014 for the second straight year, and that existing home sales would be above historical levels. What’s more, the number of window replacements in 2014 “will be larger than the 1.63 million in 2013,” he predicted.

In its 2014 Dodge Construction Outlook report, McGraw Hill Construction predicted single-family housing would grow 26 percent in dollars this year, corresponding to a 24 percent increase in units.

And Reed Construction Data forecasts housing starts will grow 28 percent to 1.22 million units in 2014, and an additional 29 percent to 1.57 million units in 2015.

Personnel Changes

In anticipation of increased demand spurred by growing new construction starts, many dealers and manufacturers expect to boost staffing levels in the coming year. Forty-eight percent of dealers surveyed in this year’s Pulse said they would hire additional staff in 2014, with 64 percent of manufacturers saying they’d do the same. (See Figs. 5 and 6.)

 

Small and mid-size dealers,―those with sales of less than $100 million,―are more likely to hire new personnel than larger dealers, according to the survey, with 46 percent of dealers under the $100 million sales mark saying they would add to their staff in 2014 compared to 13 percent of dealers with annual sales of more than $100 million.

Among manufacturers, it appears the majority will look to make additional hires in 2014 across the board. Forty-five percent of manufacturers with sales of less than $20 million said they would increase employment levels this year; as did 43 percent of manufacturers with sales of between $20 million and $100 million; and 37 percent of manufacturers with sales of more than $100 million.

Industry Trends and Outside Influences

 
  
 
 *Respondents were asked to check all that apply. Data reflects answers of both window and door dealers and manufacturers.

Against a fragile economic backdrop, window and door dealers and manufacturers say changes in material prices will have the most negative effect on their businesses in 2014 compared to 2013. (See Fig. 7.) According to Ken Simonson, chief economist for the Associated General Contractors of America, material costs in the overall construction market will rise 3 percent to 8 percent over the 2014-2017 time period. Foreign imports, changes in building codes and demand for lower-cost products also pose concerns for the window and door industry in 2014, according to the survey.

On the bright side, dealers and manufacturers predict the remodeling and replacement outlook will have the most positive effect on their businesses in 2014 compared to 2013. (See Fig. 8.) Economic expert Kermit Baker, chief economist for the American Institute of Architects, supports this prediction, pointing out that the remodeling market was expected to reach $316 billion in 2013, just 4 percent below its 2007 peak of $328 billion. Although the Joint Center for Housing Studies of Harvard University predicts this strong growth will slow down by the middle of 2014, “even with this projected tapering, remodeling activity should remain at healthy levels,” says Eric Belsky, managing director of the Joint Center.

Demand for energy efficient products and the development of new and improved products were also at the top of industry companies’ lists when it came to positive industry trends in the window and door market this year.

As for societal factors affecting the industry in 2014, labor issues are of most concern to dealer and manufacturer executives, specifically the availability of qualified labor. (See Fig. 9.) According to AGC’s Simonson, unemployment rates in the overall construction industry were higher than the workforce at large during the Great Recession, forcing many construction workers to leave the industry for jobs in other sectors, go back to school or retire. Pointing to the AGC’s August 2013 AGC Worker Shortage Survey, Simonson says the hardest positions to fill, in order, are: project managers, estimators, laborers and carpenters. Over the 2014-17 time period, Simonson predicts the construction industry as a whole will potentially see widespread labor shortages due to retirements, competition from other sectors and fewer veterans in the workforce.

Positively affecting the industry in 2014? Green/global climate change concerns, executives say, followed by government programs and incentives. (See Fig. 10).

Overall, the 2014 Industry Pulse reflects positive developments in the window and door industry as we move farther away from the Great Recession. Yet, concerns regarding the overall economy still remain. As Burns points out, “It feels good, smells good and looks good, but we still have a ways to go. We need to provide the end user what they need but be aware of anything happening underneath and be prepared to respond.”