Embracing the Reality of 2012

With more realistic expectations for the coming year, window and door companies focus on opportunities that exist
Christina Lewellen
January 1, 2012
FEATURE ARTICLE | Markets & Trends
If 2011 was the year for window and door companies to adjust to the new norm of the marketplace, 2012 will be the year of truly accepting market conditions—no more waiting for a recovery—and focusing on areas in which businesses can thrive, industry executives say.
“We are hopeful that the recovery will come sooner than later,” says Todd Woods, director of marketing and market development for Window World. “We also know that we cannot dwell on what will or won’t happen with the economy, which we have no control over.”
“Given the current state of existing housing inventory, the backlog of foreclosures, and general sentiment in the market, it is hard to envision much recovery in 2012,” says Scott Thomsen, president, Guardian Global Glass Group, Guardian Industries.
“There may be some pockets of improvement; however, the financial drivers of the housing industry are still providing some serious headwinds,” says Keith Kometer, vice president of product segments and marketing for Masonite. “We’re anticipating very little improvement in 2012 from a macro standpoint.”
"Because the underlying economic issues are not resolved—high unemployment, banks not lending and lack of consumer confidence—this will not be the year where we'll see a turnaround," says Michael Hovan, senior vice president of sales and marketing for Quanex Engineered Products Group, Quanex Building Products.
Window and door companies aren’t waiting for the market to improve and save their businesses. Rather, agile companies are seeking out pockets of potential opportunity.
 “We are prepared for a recovery in housing starts whenever it happens,” notes Dave Randich, president, Therma-Tru Corp. “To meet the growing needs of the marketplace, Therma-Tru will continue its ongoing consumer-driven innovation and introduce new products in 2012.”
“Companies typically migrate to competitive differentiation in difficult market conditions in order to gain leads, gain market share and generate cash,” says Thomsen. “Therefore, we will see more product innovation in the next two to three years than we have seen in the past two to three years.”
 
“At Simonton, we believe there are opportunities to grow business in 2012,” says the company’s Gary Pember, vice president of marketing. “For example, certain geographic areas of the country that are experiencing strong population growth provide one such opportunity.”
Like the stages of grief, moving to the acceptance phase frees companies to think outside the box and make choices—albeit conservative ones compared to the boom years—to continue to survive and thrive in the future.
“We expect 2012 to be the new normal sales year for the industry,” says Greg Irving, vice president of sales and marketing for Soft-Lite.
“The economy, and certainly the new construction [segment], won’t go back to the way they were in the mid-2000s, but we predict that there will be an improvement,” says Robert Schindler, senior vice president of marketing for Associated Materials. “However, we, along with a lot of people, have been awaiting that improvement for several years, so there is no certainty.”
Market Forecasts
In the new construction realm, housing starts in 2011 didn’t exactly pan out as experts had anticipated, coming in at less than 600,000 housing starts for the year, just a shadow of the 2 million level of the boom years. The National Association of Home Builders’ revised forecast indicates that 2011 will likely wrap up with around 590,000 total housing starts for the year. In 2012, NAHB expects to see new construction to continue its modest upward climb to around 681,000 units for the year—this number includes both single-family and multifamily starts (Table 1). The association’s outlook for 2013 pushes housing starts up around 930,000 units—a number moving in the right direction, certainly, but a reflection of the sluggish recovery given that a year ago, NAHB anticipated that new starts would spike past the 1 million mark in 2012.

In the remodeling realm, experts see more significant strengthening—though forecasts have also been adjusted to reflect a less-than-stellar 2011.

Researchers at Harvard’s Joint Center for Housing Studies anticipate that the broader challenges in the economy and the housing market will “continue to hamper home improvement spending well into next year,” resulting in modest declines in annual homeowner improvement spending through several quarters of 2012.
“Homeowners are continuing to undertake smaller jobs, but are still nervous about larger discretionary projects,” says Kermit Baker, director of the center's Remodeling Futures program.
 
A bit more optimism for this market can be seen in the IHS Global Insight/Home Improvement Research Institute forecast (Table 2). Though it too has revised its 2012 forecast downward since its mid-2011 predictions, anticipating around $277 billion in spending on home improvement products in 2012, its economists do anticipate solid growth in the longer-term outlook. “We have … scaled back growth expectations for 2012 (to 1.9 percent from 2.9 percent) and 2013 (to 2.2 percent from 3.1 percent) because we have factored in a more drawn-out, laborious recovery,” researchers report. “Our forecast for improvement in 2012 had been dependent on stronger employment growth to revive household formation, absorbing excess supply.”
Still, the HIRI experts continue to hold more optimism in the long-range picture. “As employment growth accelerates and housing markets improve in 2014, we will see stronger growth of home improvement product sales,” researchers note. “We expect growth averaging 5.8 percent in 2014-2015, with a slight deceleration in 2016.”
Big Ifs
Like the economists, window and door industry executives are hopeful that 2012 will come with some strengthening in the home improvement segment, but there are so many “ifs” that could significantly impact the year’s bottom line.
 

Leaders Share More Insights on 2012

 Industry executives shared a range of thoughts and predictions for the coming year. Questions and more in-depth answers regarding expectations for the coming year are available from the following people:
 Jason Funk, Western Window Systems
Filip Geeraert, Deceuninck North America
Michael Hovan, Quanex Building Products
Greg Irving, Soft-Lite LLC
Keith Kometer, Masonite
Keith Juhola, ODL Inc.
Todd Metz, Timeline Vinyl Products/Lincoln Windows
Brian Miller, ProVia
Gary Pember, Simonton Windows
Dave Randich, Therma-Tru Doors
Robert Schindler, Associated Materials
Scott Thomsen, Guardian Industries
Blaine Verdoorn, Andersen Corp.
Todd Woods, Window World  
“Our industry, residential exterior building products, is directly tied to consumer confidence,” points out Associated Materials’ Schindler. “A recovery will require a lowering of the unemployment rate, followed by stability in the job market.”
Global markets could also put a damp towel on a U.S. recovery, notes Filip Geeraert, Deceuninck. “We don’t know how the U.S. will react to the potential recession in Europe,” he says.
Challenging financing restrictions and increases in raw material prices could also throw 2012 off track, he adds. “It really is a crystal ball and it changes every day,” Geeraert says. “Whatever we think today may be different in a couple of months.”
While most industry executives are in agreement that there will be little growth in new construction, some companies are looking to potential opportunity in the retrofit market. “I think we’ll see some nice upticks in the R&R market in 2012,” says Brian Miller, president, Provia.
“Remodeling has grown month-on-month for the last 23 months,” says Keith Juhola, director of sales, USA distribution, ODL Inc. “While it’s tough to put a nice easy pin on what that means for our business, it’s difficult to ignore. There are a lot of consumers doing remodeling out there who are not looking to buy or sell a new home.”
With more renters in the marketplace due to the wave of foreclosures, some companies are reaching into the multifamily segment for opportunities as well. “Our strategic initiatives focus on these things—get our arms around remodeling and multifamily, and defend what we have in single-family,” Juhola adds.
Gaining Energy
The pursuit of energy efficiency has traveled many paths in the last few years, giving window and door companies options for their focus in the coming year. “As it applies to windows and doors, I think the industry has had many starts and stops during the last couple of years, which is confusing to homeowners,” says Window World’s Woods. “From the tax credit .30/.30 to R-5, to Energy Star changes, manufacturers are trying to respond to whatever the latest thing is.”
For consumers, selecting energy-efficient window and door products is often related to their return on investment. “The consumer appreciates that the payback time is reasonable,” says ODL’s Juhola.
Still, much demand for energy efficient products, Juhola adds, will likely be driven this year by municipal requirements. “Any time we’ve seen a spike in sales [of energy efficient products], it’s because a county has said, ‘You will not build without meeting these requirements,” he says.
Codes are also likely to push other product requirements, including coastal-rated windows and doors, points out Deceuninck’s Geeraert. “Now you’re seeing some states where more codes are being formulated or proposed to be more stringent,” he notes. “Those manufacturers who are well positioned to provide high-performance window systems will have some opportunity in 2012 and beyond.”
For the companies closely following the pending changes to Energy Star requirements, which could take effect in 2013-2014, beginning to shift to stricter performance levels will also impact the course of business this year. “With the pending energy regulation changes, all members of the window and door supply chain will need to invest in technology, people, assets and marketing to launch products that meet the codes,” says Guardian’s Thomsen.
“I think beyond simply dealing with the sluggish market, if manufacturers want their products to be Energy Star qualified and they haven’t started working toward 2013 requirements, they are going to be hustling,” says Provia’s Miller. “I think that’s going to be one of the largest obstacles in many manufacturers’ lives in 2012.”
Still, energy considerations aren't the only pursuit in product development, notes Todd Metz, sales manager for Timeline Vinyl Products Inc. "It all depends on what orientation a project has," he says. "If it's driven by an architect, energy efficiency may be paramount. But if you run into a historical requirement, energy efficiency might have to give."
FLOW OF FINANCING
Lenders being more reluctant to part with their cash will continue to create challenges throughout the window and door supply chain this year, executives say. Not only are homeowners finding it more difficult to tap into their home equity—that is, if any exists—but industry companies looking to expand and upgrade assets are often unable to secure the financing to do so.
“The two biggest demographic groups are Baby Boomers and GenXers and both groups of these folks just can’t get access to easy cash,” says ODL’s Juhola. “What I have seen is that the folks who are able to take advantage of the lower rates, it frees up some cash and they do use that money for remodeling.”
"While nobody wants to return to the loose conditions that led to the housing bubble, it is important that credit-worthy borrowers have adequate access to credit," says Blaine Verdoorn of Andersen Corp.
The National Association of Home Builders is making availability of financing one its top priorities for the year as it interacts with government reps and elected officials. Window and door executives believe NAHB’s efforts are important. “The two largest dealer requirements center around improved financing and lead generation,” says Soft-Lite’s Irving. “[NAHB is] on the mark.”
“The attention that’s being given to financing is necessary,” agrees Provia’s Miller. “The money is there. The rates are there. It’s just a matter of loosening it up.”
The financing issues are particularly important to resolve as window and door companies look to expand product lines and drive performance numbers toward tougher energy standards. “Commercial lending and credit availability have a significant impact on the window and door business—throughout the value chain from consumer lending to a company’s working capital,” Guardian’s Thomsen says. “In our opinion, it’s the number one issue that needs to be resolved in order to improve the health of the industry.”
The Upshot
While many of the challenges to the industry are universal, the solutions to overcoming these challenges are likely to be unique and vary by region, segment of the market, and the type of customer a company is targeting. Some companies may find growth in segments they haven’t traditionally served—multifamily, for instance—and others may focus on targeting customers, such as those working in the high-end or retrofit markets, to gain traction with their products.
“While the free-wheeling construction boom of four to five years ago will most likely never return, we are finding that people are still very much building and remodeling homes and commercial projects,” says Scott Gates, marketing director for Western Window Systems. “We have found that if you are successfully able to position your company and your products to connect with the customers that are still working, you can be successful.”
Having a high focus on service is also likely to bode well for companies in the industry—whether they’re suppliers serving manufacturers or dealers serving homeowners or contractors. “Consumers are very thirsty for companies that actually take care of the details,” says Provia’s Miller. “It’s been several years now that we’ve seen people putting off large purchases. Now that they’re going to do it, they don’t want to wait another month to put in that door. People are thinking, ‘As bad as things are, why aren’t these companies waiting by the phone to take my call?’”
Still, succeeding in a challenging market takes a considerable amount of focus and drive, Gates adds—something many companies in the industry will have to dig deep to find after the prolonged squeeze the economy has put on the industry. “This requires a great amount of research, a talented sales force, marketing and branding focus, excellent quality and execution, etc.,” he says. “However, we believe that companies that can prioritize and excel in these core values will see 2012 as a positive year for company growth and economic recovery.”

 

Contact Christina Lewellen, senior editor, at clewellen@glass.org.