The 2012 Industry Pulse

Survey reveals dealers, distributors and manufacturers are extremely cautious about business outlook
John G. Swanson
January 1, 2012
SPECIAL FEATURES | Segments, Channels, Markets & Trends

The window and door industry is looking at the coming year with extreme caution, according to the 2012 Industry Pulse, Window & Door’s exclusive annual survey of industry executives. North American window and door manufacturers and dealers remain guarded in their expectations for the economy as a whole and window and door demand in general. 

This year's study indicates less optimism among industry executives for sales growth at their companies in 2012 than there was going into 2011.  No longer buoyed by hopes for sales driven government incentives, more companies are apparently setting their sights on business "staying the same" for 2012.

The Industry Pulse 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. Conducted in November 2011, the online survey of Window & Door subscribers consisted of a series of questions related to expectations for the economy, industry sales overall and individual company forecasts and plans. This year, the survey also featured a series of questions on use of various electronic tools for communications and conducting business (see sidebar).

The nearly 250 respondents were classified into five categories, including dealers/distributors with sales less than $100 million (41.7 percent) and those with sales of more than $100 million (4 percent), as well as window and door manufacturers with sales less than $20 million (17 percent), sales between $20 million and $100 million (23.5 percent) and sales of more than $100 million (13.7 percent).

 
  
 

Expectations
Going into the past two years, window and door executives were getting more optimistic about the economy. The percentage of respondents predicting slow growth was on the way down and the percentage predicting moderate growth was on the way up. That trend reverses itself heading into 2012. With the weak economy lingering longer than many expected, more than half of the respondents once again predict growth of less than 2 percent for 2012 (Fig. 1). While the level of pessimism has not risen to back to the gloom and doom seen heading into 2009, there is a notable decrease in the number of manufacturers and dealers looking for moderate and/or strong growth in 2012 compared to 2011.

It is worth noting that dealers and distributors are slightly more optimistic than manufacturers looking at the coming year. More than 60 percent of manufacturers are expecting slow growth for 2012, compared to just over 50 percent for dealers. Meanwhile, 44 percent of dealers are predicting moderate growth for 2012, compared to less than 30 percent of manufacturers.

This year's study once again makes clear that the boom years–when industry sales growth outpaced overall economic growth–are gone for now. More than half of the respondents now see the window and door business faring about as well as the economy in 2012 (Fig. 2). In comparison to 2006, when housing soared and remodeling and replacement was enjoying steady gains, the drop in the number of respondents predicting the industry would outpace the economy has been substantial. It is notably down going into 2012 too, however. Nearly 15 percent of respondents thought the industry would perform better than the economy in 2011. Perhaps a reflection of the end of tax credits for energy efficient products, less than 7 percent of manufacturers and dealers see that happening in 2012.

The clearest indications of caution looking ahead to 2012 are seen in executives’ predictions for their own companies. Last year, more than 70 percent of respondents predicted their companies’ sales would increase slightly or significantly in 2011 compared to 2010. For 2012, only 62 percent of respondents are predicting increased sales for their businesses (Fig.3). The percentage of companies looking for sales to "stay the same" for the coming year has jumped to 29 percent for this year, compared to 16 percent heading into 2011. 

If there is optimism to be found in the numbers, it is a continued decrease in the number of respondents predicting decreased sales for 2012. Perhaps more manufacturers and dealers believe that at least the worst is over.

 
  
 

Interestingly, while dealers are slightly more optimistic about the economy in general, manufacturers are slightly more optimistic than dealers about their company sales for the year ahead. About 65 percent predicted slight or significant sales gains for this year, compared to about 60 percent of dealers and distributors. Among manufacturer respondents, there was also greater optimism among those working for smaller and medium-sized companies. None of the manufacturers with more than $100 million in sales predicted significant increases in sales at their companies, compared to 11 percent for manufacturers with sales between $20 million and $100 million and 14 percent for those at companies with annual sales under $20 million.

The Industry Pulse definitely reflects a new reality within the window and door industry. Heading into 2006, about half of the manufacturers and dealers predicted slight increases in sales.  More than a third were forecasting significant increases. Although expectations have come back from a low point heading into 2009, they remain well below the heights of the housing boom.

Capital Spending
Just as there's been a pull-back in expectations for sales gains, manufacturers and dealers seem to be taking more of a wait-and-see attitude in their capital spending plans for 2012. The percentage of respondents indicating their capital spending will stay the same saw a notable increase this year from 35 percent to 45 percent (Fig. 4).  The percentage of respondents predicting an increase in capital spending has dropped from 38 percent to about 30 percent.

The study does suggest that bigger companies may be more willing to make investments than smaller companies in the coming year.  Half of the large distributor/dealer respondents predict increased capital spending for 2012, compared to just under a third of those dealers with less than $100 million in sales. At the manufacturing level, 40 percent of the companies with more than $100 million in sales expect an increase in capital spending, compared to about 20 percent among smaller and medium-sized manufacturers. Interestingly, that's a reversal from last year, when significantly more manufacturers with sales of less than $100 million were talking about increased investments than large manufacturers—those with sales of more than $100 million.

The survey also asks dealers and manufacturers what their main goals are for capital spending in the coming years (Table 1). Once again, increasing efficiency of existing operations remains the number one goal. Of note this year is an uptick in the number of manufacturers and dealers indicating they plan to invest in "expanding information system capabilities." The responses suggest more companies are looking at ways to save money in their operations or enhance their sales and marketing efforts, a subject explored in the sidebar focusing on use of electronic communication and business tools.

Another signal of a more cautious industry is a pull back in the number of companies talking about expanding capacity. That figure had seen some growth from its lows, but the percentage of respondents indicating they would add capacity is down once again for 2012, a sign that many continue to see overcapacity in the market.

Finally, there was a sizable increase in the number of respondents indicating "other" as the main goal of their capital spending,  Among those respondents elaborating on their answer, new product development was a common theme among manufacturers. Numerous dealers and distributors indicated they were making investments in website enhancements and upgrades.

Employment Levels
The past two years, more respondents have predicted increased employment levels at their companies and fewer said there would be decreases. The closings and shutdowns of the past several years, however, have continued right through to the end of 2011. That fact, and the general caution shown in this year's Industry Pulse, can be seen in employment projections in 2012 (Fig. 5).  The number of respondents predicting more hiring at their companies in the year ahead has dropped notably from 38 percent last year to 28 percent, while the percentage predicting decreases at their companies is up from 6 percent to 9 percent.

Among those respondents adding employees, about 70 percent say it will include sales and marketing personnel at their companies. Among manufacturers adding jobs, most say at least some of them will be in production. Among dealers and distributors, nearly half who are adding people will add installation and field personnel.

Industry Impacts
The Industry Pulse asks respondents to rate the impact of various developments within the business and residential markets on their companies for the coming year compared with the previous year. Overall, demand for energy efficiency, demand for value-added products, demand for value-added services, the remodeling/replacement look, and new or improved products 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. 

 Respondents were asked “On a scale of -3 to 3, with –3 being a significant negative, 0 being neutral and 3 being a significant positive, please rate the following industry trends in terms of their impact on your business in 2012 compared with 2010. This graph summarizes the results.

Another reflection of pessimism within the industry, this year’s study finds respondents less enthusiastic on nearly all fronts. While last year, respondents saw demand for value-added products and new or improved products as increasingly positive, manufacturers and dealers rated everyone of the these business trends as less of a positive or more of a negative for 2012.  The change in number of doors and windows per home has scored positively consistently, but is now rated overall as a negative for the first time in 2012. Most likely that's due to a combination of more small homes in the new construction market and a lack of available credit for homeowners in the replacement market that's leading to more sales of only a few windows or a door rather than the whole house job.

The study also asks manufacturers and dealers to assess the impact of various societal and macroeconomic factors (Fig. 7). Not everything is worsening here. Manufacturers and dealers for example, see changes in taxes positively affecting their businesses in 2012.  They also see the litigation climate as less of a negative.

 Respondents were asked “On a scale of -3 to 3, with –3 being a significant negative, 0 being neutral and 3 being a significant positive, please rate the following industry trends in terms of their impact on your business in 2012 compared with 2010. This graph summarizes the results.

Not everything is positve on this front, however. Clearly indicating the end of tax incentives for the purchase of energy efficient doors and windows, the impact of government programs has flipped from positive to a negative in the expected impact for 2012.  Regulatory compliance and labor costs are seen as being significantly more negative for business in the coming year. Respondents are even losing their enthusiasm that interests in being green will be a positive for business. 

More Details
Window & Door developed the Industry Pulse as an annual report to provide insight into industry trends and year-to-year comparisons. More detailed tables presenting this year's data, as well as charts and tables presenting data from previous years is available for download.