The 2010 Industry Pulse
The worst may be over. That's what most North American window and door manufacturers and dealers appear to be thinking, according to 2010 Industry Pulse, Window & Door’s exclusive annual survey of industry executives. The results suggest more companies foresee some sales gains this year, but any optimism remains cautious at best, with widespread expectations for sluggish growth overall.
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 400 Window & Door subscribers.
Conducted in November 2009, 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 (36.1 percent) and those with sales of more than $100 million (6 percent), as well as window and door manufacturers with sales less than $20 million (32.8 percent), sales between $20 million and $100 million (9.7 percent) and sales of more than $100 million (15.4 percent).
While few foresee strong economic growth in the coming year, their overall predictions for the economy in 2010 are more optimistic than last year. Dealers and distributors have not changed their opinion too much. Two thirds of them expected slow growth in 2009 and more than 60 percent foresee the same for 2010 (Fig. 1). More window and door manufacturers see better times ahead. Last year, three-quarters of those respondents predicted slow or no ecominic growth. That figure dropped to less than half for 2010.
Over the past four years, the Industy Pulse saw a steady decline in the number of respondents expecting the window and door business to outpace the overall economy. Manufacturers and dealers diverge on this issue looking ahead to 2010 (Fig.2). More than half the manufacturers surveyed last year predicted window and door sales would trail the economy. This year, that number is down to 37.8 percent. With that, there is 10 percent plus growth in the numbers predicting industry sales will track the growth of the economy as a whole and those seeing the industry outpacing it. Dealers and distributors, on the other hand, don't see that tide turning. The percentage of these respondents predicting the industry will trail the economy as a whole has grown, while the percentage expecting window and door sales to outpace the economy continues its five-year decline.
While the survey results indicate there are still plenty of reservation about the economy and the market, it also suggests that industry executives see their own companies positioned for better times in 2010. Perhaps it's only because sales fell so low for so many, but manufacturers and dealers clearly see more potential for the year ahead. The percentage of dealers predicting sales declines has dropped from 23 percent last year to 13 percent (Fig. 3). The biggest increase comes among dealers predicing slight increases for the coming year, which grew from 38 percent for 2009 to 57 percent for 2010. Nearly 10 percent predict a significant increase in sales for 2010 and a third predict a slight or significant decline.
Window and door manufacturers are even more bullish about their sales outlook for the coming year. The percentage of those predicting declines dropped from 34 percent for 2009 to only 9 percent for 2010. The percentage predicting increased sales for the coming year increased from about 40 percent for 2009 to 70 percent for 2010.
While these numbers are improving, it's worthwhile to note they are not nearly as high as those of the boom years. The 2006 Industry Pulse, the first year of the study, found 85 percent of manufacturers predicting sales increases, compared to 70 percent this year. Among dealers and distributors, 83 percent predicted their companies' window and door sales would increase in 2006, compared to 66 percent expecting their sales to grow in 2010.
Over the past few years, the Industry Pulse has usually shown some variations as far as levels of optimism from different sized companies. Dealers with sales of less than $100 million are generally more optimistic than those with those with sales of more than $100 million. Fewer predicted sales declines and more foresee sales increasing significantly in 2010. The results were mixed among manufacturers. For example, no respondent from a manufacturer with sales of more than $100 million expects his or her company's sales to decline significantly in 2010, while a handful of smaller manufacturers still see that happening. Small manufacturers, however, expressed the most optimism. Nearly 17 percent of those manufacturers with sales less than $20 million predicted sales would increase significantly in 2010.
The Industry Pulse also looks at responses by region to determine if there are significant deviations in outlook in different parts of the country. The results appear to reflect the glut of homes and weak economy that lingers on in some markets. Among manufacturers, those predicting further sales declines came from the South, Midwest and West in the U.S., as well as Canada. The Northeast and West saw a higher percentage of manufacturers predicting sales would stay about the same.
Among dealers, similar patterns were evident. Most projections of sales declines came from the South, Midwest and West. Those regions also saw a higher percentage of respondents predicting their company's window and door sales would increase significantly, however, suggesting pockets of stronger activity. Nearly three-quarters of the dealer respondents from the Northeast. on the other hand, predicted slight increases in sales.
The past two Industry Pulse studies indicated more companies were tightening their belts as the economy and window and door market weakened. This year, we see the loosening of pursestrings, perhaps due to the increased industry optimism suggested by predictions for sales increases. Slightly more than half the dealer respondents last year predicted capital spending would be down at their companies in 2009 (Fig 4). This year, only 35 percent predict spending will be down in 2010. Manufacturers were less likely to cut back last year, with only 37 percent predicting capital spending would be down at their companies. This year, that figure is down to 19 percent.
Last year, about 18 percent of manufacturers said their capital spending would increase in 2009. This year, just over 35 percent predict spending will increase in 2010. As with expectations for company sales, forecasts for capital spending remain down from the peak years. In the 2006 Industry Pulse, 58 percent of manufacturers said they would increase spending.
This year's study reveals some interesting differences in willingness to spend, based on company size. Forty-six percent of the manufacturers with sales between $20 million and $100 million predicted capital spending would increase at their companies. That figure was only 33 percent for both the smaller and larger manufacturers. About 25 percent of the dealers with sales of less than $100 million predicted capital spending would be up at their companies, compared to about 12 percent of those with sales topping the $100 million mark.
The survey also asks dealers and manufacturers what their main goals are for capital spending in the coming years (Fig. 5). With the market declines of the past several years, it may not be too surprising that the number of respondents saying increased capacity would be their main goal declined steadily as well. It is noteworthy that this year's study shows a small turnaround of that trend among both dealers and manufacturers. The 2010 Industry Pulse found 19 percent of manufacturers saying increasing capacity would be the main goal of their capital spending for the coming year, up from 14 percent last year. The percentage of dealers saying expanded capacity was their main goal increased slightly as well.
Modernizing and increasing efficiency has been named the top goal for manufacturers all five years of the study and the highest ranked by dealers and distributors for the past four. While expanding market presence with new locations had scored higher among dealers previously, a growing percentage of dealers (24 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. Among manufacturers mentioning "other" areas, new product development was cited commonly.
The closings and shutdowns of the past two years may not be completely over, but this year's study suggests employment levels in the industry may have bottomed out. Only 7.5 percent of the overall respondents predicted staffing at their companies was likely to decrease in the coming year. That's down from about 20 percent last year. On the flip side, 29 percent of the respondents expected employment levels at their companies to increase in 2010, compared to 18 percent making that prediction for 2009. This year's total is still well off the peak, however. In the first Industry Pulse, nearly 60 percent of the respondents predicted the number of employees would rise at their companies in 2006.
This year's study suggests larger companies are more hesitant about hiring. Among dealers with sales of less than $100 million, 28 percent predicted the number of employees would increase at their companies, compared to 20 percent of the dealers with sales of more than $100 million. A similar disparity is evident among manufacturers. About a third of the window and door manufacturers with sales of less than $100 million predicted employment levels would increase at their companies, compared to only 16 percent of those from companies with sales of more than $100 million.
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). On the negative side, changes in materials pricing and foreign imports have rated as consistent negatives.
This year's results suggest the industry does see some changes out there in the landscape. The change in number of doors and windows per home has scored positively consistently, but manufacturers and dealers are rating that as less and less as a positive, suggesting many might be feeling the impact of shrinking home sizes. The industry also continues to see changes in building codes as less positive.
Respondents also appear to see improving markets. One of the biggest gainers as a positive for the industry was the remodeling/replacement market outlook. That optimism may reflect expectations for more spending in this market as the economy recovers, and the industry enjoys the benefits of tax credits for energy efficienty upgrades for the coming year. The new construction market outlook remains negative for the coming year, but manufacturers and dealers scored it much less negatively as they look ahead to 2010. The results suggest that many thing housing has bottomed out and could improve in the coming year.
The study 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 than the previous year. The major exception is “green/global climate change concerns,” added to survey for the first time for the 2008 Pulse. It has come down somewhat this year, but it is still seen as a positive.
With the tax credits for energy efficient products and talk of further government programs encompassing window and door products, "government programs/incentives" was added to the list of factors respondents were asked to rate this year. Overall, it would appear the industry does see such initiatives as a positive.
Also ranking as a slight positive are both the hiring and interest rate environments for the coming year. The survey results suggest continued nervousness about changes coming from Washington. The ratings received by both “regulatory compliance” issues and “taxes” for the coming year continued to trend negatively.
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. Overall, patio doors, entry doors and interior doors, as well as both replacement and new construction windows are each carried by more than four out of five distributors and dealers. Slightly more than half of these companies also reported offering interior doors and skylights, as well as mouldings, trim and accessories.
Manufacturer product lines are generally not as broad, and that is shown in the survey. More than three quarters of the manufacturers carry patio doors, new construction windows, and replacement windows, with just over 60 percent offering entry doors.
As window and door demand has dropped, the survey has revealed that companies continue to diversify. This year's results suggest that fencing/decking/railing and interior doors are being added at a fair number of companies, along with moulding, trim and other accessories. Of the 32 percent of dealers offering fencing/decking/railing products, 9 percent report they have been added in the past two years. About half the dealers report they carry interior doors, and 9 percent of those respondents say that's new for them. Moulding, trim and accessories scored similarly.
Entry doors have scored higher as "recently added" in past studies, but this year's results suggest more companies continue to get involved with these products as well, with about 5 percent of those involved saying they added entry doors in the past two years.
As in past years, installation continues to score among the highest as far as "recently added." Among the dealers and distributors offering installation, about 10 percent say that service was added in the past two years. Installation is fairly new at nearly 8 percent of the manufacturers involved. The study also suggests that more companies are adding showrooms, along with various products.
Window & Door developed the Industry Pulse as an annual report to provide insight into industry trends and year-to-year comparisons. The full 399-page study, sponsored by Truth Hardware and prepared by Market Resource Associates, now features five years of data, including detailed tables showing responses by company type. The $39.95 report is available for purchase at www.windowanddoor.com/store.