Being a Manufacturer/Installer Has Its Advantages
Mike Gilkey of Cincinnati's Gilkey Windows discusses his firm's focus on high quality products and service, as well as the impact of big boxes, consolidation, and other industry trends.
Mike Gilkey started Gilkey Window Co. in 1978, selling and installing wood windows, as well as custom vinyl replacement windows. In 1986, the company began manufacturing its own vinyl windows, which it also sold and installed. In 1992, a sister company, Northern Lites, was added to produce aluminum-clad wood windows.
Gilkey Window has grown to become one of the most highly-regarded regional manufacturers and installers in the country, serving the Cincinnati, Dayton, Louisville, Lexington, and Chicago markets. The owner attributes the success of the firm to its commitment to serving customer needs and its focus on higher-end products.
At Window & Door, we thought it would be interesting to sit down with Mike Gilkey. With the idea of installed sales becoming increasingly popular, we wanted to get his insights into the challenges and opportunities in this area of the window and door business. In these times of consolidation and big boxes, we also thought it would be interesting to get his perspective as a hands-on owner of a relatively small company on the changes taking place in the window market.
Window & Door: What got you started in the window manufacturing business?
Mike Gilkey: In 1985, there was a company called Wolverine. They came out with a window called the Bradford, which was a totally welded window. And one thing I had noticed with the vinyl windows I was installing that were screwed together was that they were separating a little bit. So I liked the welded idea. And so I tooled up for this welded window, which nobody else had in this area. It went over really well. People really liked it. We had a lot of sales with it. I also thought it would be a nice way to go, to have my own factory. Actually, another reason I set up the factory was that I wanted to move up on Andersen's buying ladder. If I became an OEM, I could buy more direct from Andersen. So I figured, and I checked it out, if I started making windows, that would qualify me to move up. They said yes. So I looked at my monthly investment in my vinyl window factory if I didn't make a single window and I looked at how much money I would save if I didn't have a middle man. I was able to pay for my factory, even if I didn't make a single window. I was really happy with Andersen. And I sold a lot of their windows. But I knew we'd make windows. That was the major driving force. I also thought the welded idea was good because I was selling a lot of vinyl windows where people didn't want to make the larger investment in Andersen wood windows. Or they didn't want to paint or stain. So we still sold a lot of vinyl windows. We were about 50-50. Anyway, I figured it was a no-lose situation. And that's how we went until about 1992, when I set up my own wood window company, called Northern Lites Windows. I got that located right across the street. So we're still selling a lot of wood. There's a portion of the market that wants that.
W&D: Are the lines marketed together?
MG: I did separate the two companies because in marketing a lot of my competitors would say, "Why would you want to buy a wood window from a vinyl window manufacturer?". So we had an image problem. I said, okay, and we set up a separate company and a separate factory. They specialize in wood and Gilkey specializes in the vinyl. The Gilkey salesmen will go into the home and ask (the homeowners) whether they're interested in wood or vinyl and take it from there. Plus, we have some separate salesmen with Northern Lites. They're basically selling wood, although they might handle some vinyl. And with the wood, we have a huge, huge advantage. At Northern Lites, we stain and polyurethane the whole thing right in the factory. So when we bring the windows out to the homeowners, it's like a fine piece of furniture. We wrap the windows in furniture blankets. We install them. We have a team that goes out later and touches them up. Fills the nail holes. All at a reasonable cost-and much better than people can do it themselves. We have good carpentry crews. The crews can install either wood or vinyl. Only a few can't do both. So we do a nice job for the people. There's less confusion going on. A plate of glass gets broken or a screen or a set of grids. We just make it right up in our shop. When I was dealing with the large companies, it was very cumbersome. The communication is tough. When you're all one company, you can communicate better and get things done more quickly. You make decisions faster. I think that a fabricator going direct to the homeowner has some big advantages.
"I think the fabricator going direct has some big advantages," states Mike
Gilkey, founder and president of Gilkey Window.
W&D: Do homeowners like the fact that you're factory direct? Is that a strong selling point?
MG: They really like to come into the showroom and look through the window and see the factory in here, rather than buying from somebody who just opened up a storefront somewhere on Main Street. Here, I own the building. So a warranty from me means a lot more than one from somebody who has less money invested in his business. They have more security. The factory's here. They know we can't pack up and move. So they feel more secure. It's a sales advantage. It's also a service advantage. If you have to send away to some other factory for your glass to get fixed, then, by the time you get it, and they've shipped it to the wrong branch three or four times, then you forget who you got the glass for. By the time you get the glass, the people are going ballistic. So it's nice. I order glass and I can get it made by the end of the day. You know with these big manufacturers, it couldn't happen. You'd have to wait at least a few days. Right now, we have all the parts. So it's a nice way to run things. Maybe we can't make a window as efficiently or as fast as some of the companies, but overall, it's definitely better to have the factory right here.
W&D: Has the fact that you are both a manufacturer and an installer insulated you somewhat from competition?
MG: Yes, it has quite a bit. I have control of my sales force. Normally, an average salesman in our industry would gravitate toward the lower-priced products. Since we're going direct to the homeowner, we can build the window we want. I can build the window the way we want to build it. I don't have to worry about a dealer buying my window. I can go direct to the homeowner, who is going to use the window, who is going to be living with it. I can go direct to the homeowner and make my case. He's going to decide what he wants based on quality, probably more so than a dealer, who is just going to act as a middle man. Other companies have to be more conservative on quality than I have to. I can really go out there with the best product. I'm not trying to appeal to the entire market. I'm doing market segmentation and I'm just appealing to the people who want quality. It's tough to be everything to everybody. So we focused on the high-end market, what we think is an educated buyer.
W&D: What do you find more difficult to manage, the factory side or installation? Which is a greater challenge?
MG: I'm better at installation, because I've been doing it a lot longer. We started up the window company in '78. I come from a construction background. My father owned a concrete foundation company, so I was doing that back when I was 15, pouring concrete. I've been around construction, I've done installation. When you talk about CNC corner cleaners, these welders, that's another matter. I have to rely on my plant manager because I'm not computer literate. I cannot program those machines. We have the Urban corner cleaners, the Actual welders, that kind of stuff. But I've got a good plant manager. He's my brother-in law. He understands all that equipment, or at least he understands it a lot better than me. Now, we're getting a little bit fancier equipment. The factory is doing well. It's really speeding up. I'm trying to do everything we can not to add a second shift until I have no other choice. In the meantime, I try to keep my branch managers from expanding too quickly.
W&D: Is managing growth difficult when you're a manufacturing and installation firm?
MG: Sometimes we have to keep our advertising down, so we don't overrun our installation department. That's one thing we're limited by. You've got salesmen and installers. If you sell too much, you end up with humongous lead times. Normally by May 1, we have a 10-week lead time. You compare that with Simonton's lead time of one week, and we have to slow the engine down because we can't install it. It's tough to get all six pistons firing all in harmony. You get too many sales or not enough sales. Your salesmen make a lot of money, so they take off the winter time. No one's selling anything, so then you could run out of work. But we're doing fine. I had two shifts once and running two shifts is not a whole lot of fun. We've been there and done that. I was even running 24 hours a day once. Now, I'm trying to make enough money so I can live off one shift. I can't stifle the growth, though. My managers all want to work and grow. Everybody wants to grow. If you shut off growth, then they get bored. Everyone wants to progress and make more money. Reach his potential and be everything he can be, according to the army. So we'll probably have a second shift next year.
W&D: Can you add a shift and still supply only your own sales and installation people?
MG: Yes. I used to buy a lot of windows from other suppliers, because I couldn't make them fast enough. Last year, I designed my own window, and we had the dies cut by Royal, and we're selling our own window that I designed to suit Mike Gilkey. It perfectly suits me and what I want. And the salesmen are out offering it along with our other window-we have the P.H. Tech Boreal window. They're both great windows. The new windows have a few nicer points. A heavier balance. I got a welded sill, which is a sloped sill, instead of a pocket sill. I got my locks hidden so it's aesthetically more pleasing. I got it designed so it manufactures more quickly. There's not a lot of snap-on parts. I don't want my people to get Carpal Tunnel. My installers like it because we made it more installer-friendly. I know what the installers want. I know what the homeowners want. I get to hear the installers complain or whatever every day. I get to hear the homeowners everyday. That helps me design a window better than some engineer who is not getting complaints up in some office. I have a more sensitive feel to what's happening out here. If an installer comes up with something, he can catch me. I'm wandering around the factory. They can grab me. I have a really good idea what's happening out there, so that's a nice advantage.
W&D: How do you see some of the trends in the industry affecting you? For example, what has been the impact of the big boxes?
MG: Home Depot has done phenomenally. Lowe's seems like it's done pretty well. I don't know about the other ones. They'll probably sell a lot of windows. They'll educate people on price. I don't know about anything beyond price. It depends on the people working there. I don't think the owners of Home Depot are going to know a lot about windows. I think they'll be going for price and that's the market they're going to shoot for, so I don't know if it's going to affect me a lot. The Home Depot and Lowe's are putting Andersen and Pella windows in their stores. They're putting in some very high-end wood windows. The vinyl windows are not high end. Their pricing is a bit confusing. They'll sell this thing at rock bottom and then they charge you top buck for everything else. I went over to Home Depot and asked a lot of questions, and when you tallied it all up, they weren't much lower than we were. They charge for screens. Screens are separate, everything's separate. The flip side is I wouldn't mind being in a Home Depot, in a Lowe's, setting up a little shop. I wouldn't mind renting some space from them. Put my stuff in the store and say, "Hey, if you want it done right, here's my price." The nice thing about these stores is that they have market penetration. They have stores all over the place. For me, it costs some money to add a store. I don't know, I'm thinking, "maybe we can cooperate with these guys." I don't know if that's possible or not. It's convenient. They have homeowners going in there. I know they do have something, authorized contractors, with some larger companies.
Asked how a smaller manufacturer can compete in today's environment,
Mike Gilkey states, "I don't have to answer tostockholders. I just have to worry
about my customers and keeping them happy. So, it's easier for us to sell
high quality and not try to cut corners."
W&D: Do people come into your showroom after going to Home Depot and checking out window prices?
MG: Oh yeah, yes they do. They are educating people on price. It's easy to get a vague idea of costs at Home Depot. These people, I'm sure, are going to move a lot of product. We need to learn how they price, then I can educate my salespeople. It's a new approach to go in at a low price and then charge for everything. "You want caulking, okay that's extra." We're like an all-inclusive resort. You pay one price and get everything, and they're more of a pay-as-you-go type thing. And we'll learn how to compete against them. It might be smart just to put stores in next door to them.
W&D: Are you confident you can compete?
MG: I think I can. We can compete with them. Now I think some of the smaller guys may have a rough time. If their volume isn't great enough to buy at the right price from their distributor, if they're not making their own stuff, it could affect those guys. I think we'll be okay. I think it's interesting. I don't know if there's some way we can make money on them. I like their locations. Market penetration. I have a nice showroom for Cincinnati, but it's just one. People like showrooms. In America, you've got a free market. You've got competition. They have to do the best they can do. We have to do the best we can do. It will be interesting. I might host seminars. Try to attract do-it-yourselfers. I like that idea. A cash-and-carry business. I'm not hung up on installation.
W&D: What about consolidation within the window industry? Have you seen any impact from that?
MG: I get a lot of letters, a lot of phone calls. But I'm not interested in selling. As far as the larger manufacturers, the roll-ups, all I can say is that we don't have trouble competing with them. I wouldn't sell Gilkey to a big company. My idea, if I was going to sell my company, would be an ESOP. My mentality is that I want to do the best job that I can. And I think if my employees owned a piece of a company, they would do a better job. It kind of focuses you on doing an excellent job, rather than trying to do economies of scale with a big company. I was affected by my dad. He got me brainwashed. He said if you can't do a good job, don't do it. I don't know how good a job those guys will do. When you get involved in the nitty gritty, the sweat, I don't know how well the big consolidators will do it. We're in contact with the customers. They're very finicky about their homes. So I think if anything would help us progress, it would be an ESOP, that would keep us focused. We've found a nice market. You educate the people, and you show them that they're paying their fuel bills with after tax dollars and explain how they'll benefit and how the higher quality is cheaper in the long run. And you get a person sophisticated enough to understand that you'll do real well. We were one of the first Energy Star manufacturers. I think our NFRC numbers are among the best of any vinyl window on the market. We're using Heat Mirror and Heat Mirror has a lot of flexibility over other types of glass. We can go quad glaze and really shoot the numbers way up there. One of the things that really helped me, one of the things that helps Gilkey Windows sell quality is that I give a 20 percent fuel savings guarantee with my windows. I gave it when I came out with low-E glass. We were one of the first companies to come out with a custom, soft-coat low-E in Cincinnati. We were using this as a sales feature, but we also liked to check and make sure that we were, in fact, saving people money. So they would send us their bills; not a whole lot of people, but some. And I double-checked them and we were saving everybody between 20 and 40 percent on their fuel bills. Then I switched to pyrolytic. I switched in about 1993. I switched over because it was cheaper and easier to fabricate. Then in 1994, I got a ton of people contacting me on my fuel savings guarantee, claiming that they did not save 20 percent. So I checked and found out. With pyrolytic glass in Cincinnati, their air conditioning bill would go up. So I was saving people $100 on their heating bill, but I was losing them $150 on their air conditioning. The guarantee is, "I'll pay the difference up to $300." And some of these homes, you know, were pretty big and their air conditioning bills went up and I was writing checks out left and right for $300. I finally learned what all these Lawrence Berkeley Lab numbers mean. Visible transmittance, solar heat gain, etc., I really studied it. My competitors and dealers that sell in the home, they have no idea. So I decided to go with the (Cardinal) Lo-E2. And we're selling it, and we found that we were saving people 20 percent on their fuel bill again. Thank God.
W&D: Solar control is key in your market?
MG: We set up with Heat Mirror. They had SC 75 Solar Control Heat Mirror. I said that is perfect. It has lower relative heat gain than anything on the market, without going to a bronze or something like that. We did a few jobs in 1995 and ramped up in 1996. We found out that we can go over 20 percent. I'll issue a 25 percent guarantee if a customer goes with Heat Mirror. I could go to a 30 percent guarantee, but I don't have to.
W&D: With your emphasis on energy efficiency and fuel savings, what do you think of Energy Star?
MG: We were one of the charter members. All of the first proposals made a lot of sense. We were on some committees and we were going to NFRC meetings in Tucson and other places. But somewhere along the line, the Energy Star program went into a black box, and re-emerged as a watered down, worthless rating. That's my opinion. You can quote me on that. The politicians got hold of it. The Clinton Administration watered it down for somebody's benefit. The glass they'll approve for Cincinnati, I know, will raise fuel costs. It's not going to cut down on the number of kilowatts of energy that will have to be produced. So now, everybody qualifies. If you use pyrolytic glass, you'll qualify for Energy Star, even though you will raise the fuel bills of people here. The U.S. should have done the same thing Australia did. They have a five star rating system, so you were rated. In the U.S., it was switched to a pass-fail system. So they really dumbed it down.
W&D: As a company that installs windows, what do you think of the new installation and certification program under development within AAMA?
MG: A number of years ago, I had my installers certified by the National Accreditation and Management Institute. I think it's important to have installers who know what they're doing. I really believe in that.
W&D: Do you think it will be helpful to have a nationally-recognized program?
MG: Yes, but I hope it doesn't get watered down like Energy Star. If they do it, I'd have my guys do it. With installation, there's no big powerful company to water it down. It wouldn't serve anybody. So I think it could be very good. We've hired installers from other companies and found that they're not very good. They don't know how to trim right, how to seal right. If they did that, we would do it, but that costs money and a lot of these installation companies don't have the money to be certified. Plus, installers are like cowboys. A lot of companies use subcontractors. I think a large part of our industry...it gets a lot looser at that level. If you're buying windows from a factory, you get an invoice printed. Sometimes with these contractors, it's not as formal. There's not a bill. If the customer pays in cash, the contractor's paid in cash, and the government doesn't know anything about it. A customer can buy a window from a Home Depot and pay a contractor. Probably a lot of installs are done with cash on the side. With me, there's no funny business. You pay me, I pay my guys. The government knows.
W&D: You're still confident there's room for growth for a company like Gilkey?
MG: You know it's tough to break into a market like Chicago. We opened up with one store. We opened a store on the South Side. I learned a lesson. You shouldn't go into a market unless you're ready to cover it. I should have gone in with four stores. So we immediately opened a store on the North Side, but it still isn't enough. We wasted a lot of advertising money, because we couldn't make enough windows for four stores. You want everything to be solid. You want all your guys trained. You want good people. It's tough to grow fast. If you're installing, you have to get it down until you get that last screw in. You're really into the specifics. You really have to grow slow, if you're going to grow wisely. There are some companies that have grown very fast. Time will tell. There are some people who think a window is a window, like motor oil is motor oil. But we try to convince them that things are different. That's kind of the sales pitch we do. Cost versus price, along with the fact that I'm the owner. I don't have to answer to stockholders. I just have to worry about my customers and keeping them happy. So, it's easier for us to sell high quality and not try to cut corners. That all gets in our sales presentation.