The 2009 Industry Pulse

Annual Window & Door survey reflects deteriorating expectations
John G. Swanson
January 15, 2009
SPECIAL FEATURES | Segments

What were once gloomy forecasts became hard realities for the window and door industry in 2008. Some companies closed plants or distribution locations, while others simply closed their doors. The 2009 Industry Pulse, Window & Door’s exclusive annual survey of North American window and door manufacturers and dealers, suggests most industry executives foresee another tough year ahead.
Sponsored by Truth Hardware, the study is designed to provide an annual gauge of industry expectations and plans for the coming year, as well as assess the attitudes of industry executives regarding a variety of current trends. Prepared by Market Resource Associates Inc., a Minneapolis-based market research firm, the fourth edition of the study is based on the responses gathered from about 500 Window & Door subscribers.

Conducted in November 2008, the online survey consisted of a series of questions related to expectations for the economy, industry sales overall and individual company forecasts and plans. Respondents were classified into five categories, including dealers/distributors with sales less than $100 million (38.4 percent) and those with sales of more than $100 million (4.8 percent), as well as window and door manufacturers with sales less than $20 million (21.8 percent), sales between $20 million and $100 million (10.9 percent) and sales of more than $100 million (24 percent).

Expectations
Their overall predictions for 2009, not surprisingly, are less optimistic than those offered in previous editions of the Industry Pulse. While the housing and remodeling markets have been weakening over the four years the study has been conducted, this year’s results make clear industry executives see that weakness has filtered throughout the entire economy. Two thirds of dealer/distributors and about three-quarters of the manufacturers responding expect economic growth in the coming year to be slow. Less than 25 percent of respondents expect moderate or strong economic growth for the coming year, down from 45 percent in the 2008 study, 61 percent in the 2007 study and 75 percent in the 2006 edition (Fig. 1).

While many in the industry expected the window and door business to outpace the overall economy in previous years of the study, there appears to be little hope that will be the case in 2009. As was the case last year, the majority of manufacturers expect window and door sales to trail the overall economy (Fig.2). If there’s any bit of optimism in this year’s survey, it is the fact that fewer dealer/distributor respondents expect window and door sales to trail the overall economy than last year, with more predicting overall industry sales keeping pace with the economy in general.

As is the case with economic expectations, there has been a steady downward trend in the number of companies expecting sales growth in their own organizations. In the 2006 edition of the study, more than 85 percent of respondents predicted their company’s sales would increase slightly or significantly in the coming year. That figure eroded to 67 percent in 2007 and 56 percent in 2008. For the first time in the four years of the Industry Pulse, less than half of all respondents expect window and door sales at their own companies to grow in the coming. In fact, a third predict a slight or significant decline (Fig. 3).

Some variations, as far as levels of optimism, are evident in the responses from different size companies. Among both manufacturers and dealers, those from companies with sales of less than $100 million were more likely to predict sales growth. Among manufacturers, for example, 46 percent of those with companies with sales less than $100 million were forecasting slight or significant increases in sales. Only 30 percent of those from companies with sales of more than $100 offered the same prediction. Nearly all the respondents predicting their companies would see “significantly increased” sales in 2009 were from the less than $100 million bracket.

The Industry Pulse also looks at responses by region to determine if there were significant deviations in outlook in different parts of the country. While clear patterns are difficult to discern in different regions around the United States, the survey once again shows more optimism among Canadian window and door companies. About 15 percent of U.S. respondents expect economic growth to be moderate or strong in the coming year, while more than a third of the manufacturers and dealer/distributors located in Canada offered similar predictions. Canadian expectations are becoming more subdued, however. Last year, more than half of the Canadian respondents predicted moderate to strong economic growth.

Capital Spending
Last year’s Industry Pulse indicated companies were already preparing to tighten their belts and this year’s results suggest that the tightening continues. Approximately 15 percent of both dealers and manufacturers predict their company’s capital spending will increase slightly in 2009, with another 27 percent predicting their company’s capital spending will stay the same. The number of respondents predicting declines in capital spending has increased substantially, however: 49.5 percent in the 2009 edition compared with 32 percent in the 2008 study (Fig 4).

Once again, the not-so-big manufacturers continue to express more willingness to invest in the current economic climate. Twenty-three percent of respondents from manufacturers with sales of less than $100 million indicated they would increase capital spending in the coming year versus 10 percent of those from companies with sales of more than $100 million. There was little difference in the capital spending numbers between larger and not-so-large dealers.

The survey also asks dealers and manufacturers what their main goals are for capital spending in the coming years (Fig. 5). Modernizing and increasing efficiency has been named the top goal for the coming year named by manufacturers all four years of the study and the highest ranked by dealers and distributors for the past three. While expanding market presence with new locations had scored higher among dealers previously, a growing percentage of dealers (21.5 percent) have expressed uncertainty in their goals, answering “don’t know.” Among those dealers mentioning “other” areas of investment, a number indicated they would be expanding their marketing efforts in the coming year.

With window and door demand down, it may not come as too big a surprise to learn that among manufacturers, there has been a steady decrease in the percentage reporting that expanding production capacity is the main goal. This year, only 14 percent name that as the main goal compared to 30 percent four years ago. This year saw an uptick in the percentage of manufacturers indicating that “enhancing information systems capabilities” would be the priority, from 7.9 to 13.9 percent. New products and product development were notable among “other” mentions for increased spending. 

Employment Levels
While many locations have closed over the past year or two, producing numerous layoffs, this year’s survey suggests employment levels in the industry may not have hit bottom yet. Overall, more than 20 percent of respondents expected employment levels at their companies to decrease over the next year. That number is up from only 11.8 percent the previous year.  Still, 57 percent of respondents predict the number of employees at their companies will stay about the same and 18 percent expect they may be hiring more new employees next year.

There were some notable variations in hiring expectations among manufacturers and dealers of various sizes. Close to a third of the respondents from manufacturers with sales of more than $100 million expect the workforce to shrink at their company in the coming year, and only 7.6 percent expect new hiring. More than a quarter of the respondents from manufacturers with sales under $20 million, however, predict their companies will increase employment levels, while only 20 percent expect further declines.

Dealer and distributor respondents are slightly more optimistic about employment levels overall, with fewer predicting declines and nearly 20 percent predicting increases. Expectations are fairly similar at both smaller and larger operations too. 

Industry Impacts
The Industry Pulse asks respondents to rate the impact of various developments within the business and the economy on their companies for the coming year compared with the previous year. Overall, demand for energy efficiency, demand for value-added products and demand for value-added services have been seen as the most consistent positive factors in our industry (Fig. 6). In fact, demand for energy efficiency was one of the few trends to score significantly for the coming year, compared to last year. Some manufacturers and dealers apparently see greater opportunity in continued consolidation and increased demand for lower-cost products this year as well, but most trends are viewed more negatively this year than in the past.

Among the notable drops are “changes in windows/doors per home.” Apparently, more manufacturers are seeing the effect not only of the declining housing market in general, but the much-talked-about shift to smaller homes requiring fewer products. Given economic conditions, it may not be surprising that confidence in the replacement/remodeling market has steadily waned over the four years of the study. The study also suggests less faith in new product introductions for the coming year. Finally, there’s a notable decline in the positive feelings for changes in building codes.

The study also asked manufacturers and dealers to assess the impact of various factors within general economy, as well as the regulatory environment (Fig. 7). As in previous studies, respondents rated almost all the factors mentioned as impacting their businesses more negatively for the coming year. The major exception is “green/global climate change concerns,” added to survey for the first time for the 2008 Pulse. It was seen as a positive at the beginning of last year, and is viewed as even more of a plus for window and door businesses in the coming year. Manufacturers and dealers both see weak economic conditions improving both the hiring and interest rate environment this year also.

The survey results also suggest some nervousness about changes coming from Washington with a new President and new Congress. There were notable increases in the “negative” ratings received by both “regulatory compliance” issues and “taxes” for the coming year.

Product Lines and Activities
In addition to asking about expectations and plans, Window & Door’s Industry Pulse survey asks manufacturers and dealers to indicate what product lines they carry, what activities they are involved in, and what’s been added within the past two years. With window and door demand down overall, this year’s Pulse suggest more companies are diversifying. As in past years, installation continues to be reported as a recently added by approximately 10 percent of respondents, but it’s clear many companies are looking at new product categories.

Among manufacturers with sales between $20 million and $100 million, doors are receiving greater attention. About 10 percent report entry doors are new within the past two years and nearly 17 percent say they have added interior doors. Over 20 percent of the manufacturers with sales under $20 million report they have added fencing, decking and railing products in the past two years.

Dealers with sales under $100 million are also making some notable changes. Close to 10 percent report they have added manufacturing, fabricating or pre-hanging capabilities and more than 8 percent report entry doors as a new line in the past two years.

Overall, patio doors, entry doors and interior doors, as well as replacement windows are each carried by more than four out of five distributors and dealers. The decline in the new housing market knocked new construction windows out of that group for the first time this year, although nearly 80 percent still report carrying that product line. Slightly over half these companies also reported offering mouldings, trim and accessories, as well as skylights, with slight over a half offering skylights and just over a third involved in fencing decking and railing products.

The survey results reflect that manufacturer product lines are not quite as broad. Patio doors, new construction windows, and replacement windows were each carried by more than 80 percent of these respondents, with just over 60 percent offering entry doors.

Full Study
Window & Door developed the Industry Pulse as an annual report to provide insight into industry trends and year-to-year comparisons. The full 352-page study, sponsored by Truth Hardware and prepared by Market Resource Associates, now features four years of data, including detailed tables showing responses by company type. The $39.95 report is available for purchase at www.windowanddoor.com/store