The 2013 Industry Pulse
The window and door industry is regaining confidence, according to the 2013 Industry Pulse, Window & Door’s exclusive annual survey of industry executives. After heading into 2012 in a more cautious mood, North American window and door manufacturers and dealers are once again expressing some positive expectations for the economy as a whole, and window and door demand in general.
The Industry Pulse numbers hit a low point heading into 2009, with 2010 and 2011 results each reflecting improving expectations for the year ahead. Last year, industry executives pulled back on their optimism, with many apparently still feeling the hangover from lost sales driven by government incentives. The positive feelings expressed in this year's survey still don't approach pre-recession highs, but the results suggest more executives see renewed momentum ahead. Fewer companies are setting their sights on business "staying the same" in 2013 than did in 2012, and more are looking for slight, or even significant, increases in sales in the coming year.
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 2012, 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 the use of various electronic tools for communications and conducting business (see sidebar).
The more than 380 respondents were classified into five categories, including dealers/distributors with sales of less than $100 million (21.5 percent) and those with sales of more than $100 million (12.3 percent), as well as window and door manufacturers with sales of less than $20 million (17.5 percent), sales between $20 million and $100 million (23.5 percent) and sales of more than $100 million (25.1 percent).
The most noteworthy result of this year's survey is the return to optimism. Following a disappointing 2011, more window and door executives predicted slow economic growth heading into 2012, and the percentage of respondents predicting moderate or strong growth was down. Looking ahead to 2013, that trend reverses itself with less than half of respondents predicting economic growth of less than 2 percent for 2013 (Fig. 1). While the level of economic optimism has certainly not returned to pre-recession highs, there is a notable increase in the number of manufacturers and dealers looking for moderate and/or strong growth in 2013 compared to 2012.
Window and door executives are not only optimistic about the economy, they are more confident about industry growth potential in 2013. Significantly fewer respondents see the window and door business trailing the economy in 2013 (Fig. 2), and the number of executives predicting overall window and door sales growth will match or outpace economic growth is larger.
In 2006, when housing soared and remodeling and replacement enjoyed steady gains, more than 40 percent of respondents predicted the industry would outpace the economy. Those numbers dropped substantially with the recession, but were buoyed somewhat in 2010 and 2011 by stimulus tax credits. Falling off again in 2012, the rebounding numbers for 2013 suggest more executives are finally seeing real recovery in the housing and remodeling/replacement markets this year.
Increased confidence among window and door executives about the coming year might be most evident in their predictions for their own companies. Last year, only 62 percent of respondents predicted increased sales for their businesses. This year, more than 70 percent of respondents predict their companies’ sales will increase slightly or significantly in 2013 compared to 2012 (Fig. 3). Meanwhile, the percentage of companies looking for sales to "stay the same" for the coming year slipped from 29 percent last year to about 20 percent heading into 2013, while the percentages predicting declines remained fairly small.
Confidence levels overall are on the upswing, but there is some variance depending on the size of company. Nearly 60 percent of respondents at distributor/dealers with annual sales of more than $100 million are predicting slight increases in sales, with an additional 17 percent expecting significant increases. Among dealers with annual sales of less than $100 million, just under half predict slight increases and 13 percent foresee significant increases. More smaller dealers predict sales will stay the same or even decline in the coming year too.
Among manufacturers, attitudes are generally positive. Those with annual sales between $20 million and $100 million are the most bullish, with 57 percent projecting slight increases in sales and 22 percent predicting significant increases. Fewer manufacturers with annual sales of more than $100 million foresee significant increases, but nearly 70 percent project slight increases in window and door sales for 2013. The greatest variations appear in the small manufacturer category: those with annual sales of less than $20 million. About half predict slight increases in sales for 2013 and 15 percent significant increases, but the number of respondents predicting sales will stay the same or decline is higher than at their larger counterparts.
Reflecting the pull-back in expectations for sales gains last year, more manufacturers and dealers appeared to take a wait-and-see attitude in their capital spending plans for 2012 as well. For 2013, more companies are prepared to spend more. The percentage of respondents predicting an increase in capital spending rose from 30 percent to almost 40 percent (Fig. 4). While nearly a quarter of last year's respondents indicated their capital spending would decrease for 2012, looking ahead to 2013, that percentage decreased to about 18 percent.
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 a small rebound in the number of manufacturers indicating they plan to invest in "expanding production capacity." In particular, more than 20 percent of mid-sized manufacturers--those with annual sales between $20 million and $100 million--say increasing production capacity will be the number one capital spending goal in 2013.
In addition, this year's study shows that "expanding information system capabilities" remains a high priority for window and door companies. A sidebar focusing on the use of electronic communication and business tools also reflects companies' increased efforts in this arena.
Renewed confidence for the year ahead is evident in respondents' predictions for 2013 employment levels at their companies. More than 37 percent of respondents expect employment levels to increase in the year ahead, compared to 28 percent last year. On the flip side, only 6 percent expect decreases, compared to almost 9 percent heading into 2012 (Fig. 5).
Small and mid-sized manufacturers are likely to do the most hiring in the coming year. Nearly 42 percent of those with sales of less than $20 million and more than 47 percent of those manufacturers with sales between $20 million and $100 million predict increased employment levels in 2013. Meanwhile, 35 percent of distributor/dealers with sales of more than $100 million foresee higher employment levels at their companies this year, compared to 27 percent at distributor/dealers with sales of less than $100 million.
Among those respondents adding employees, more than 80 percent of manufacturers say they will be adding production jobs and nearly half say they will add sales and marketing personnel. Among dealers and distributors adding jobs, 60 percent say they will hire people in sales and marketiing, and more than a third say they will add people for installation and field service in the coming year.
The Industry Pulse asks respondents to rate the impact of various developments within the business and residential markets on their companies in the coming year, compared to the previous year. Most noteworthy in this year's findings are positive expectations for the new construction market. For the first time since 2006, industry executives see new residential construction increasing window and door sales in the year ahead (Fig. 6).
Respondents say demand for energy efficiency and value-added products and services, coupled with the remodeling/replacement outlook and the introduction of new products, are the most consistent positive factors in our industry. In addition to improved expectations for the new construction market, this year's survey suggests industry executives also expect the remodeling and replacement market to have a more positive impact in 2013. On the negative side, changes in materials pricing and demand for lower cost products are bigger causes for concern in the coming year.
The study also asks manufacturers and dealers to assess the impact of various societal and macroeconomic factors (Fig. 7). Taxes and the availability of qualified labor are among respondents' concerns looking ahead. Labor costs and non-wage compensation costs are also seen as negatives, although this year's survey results don't suggest the Affordable Care Act will set off alarms in 2013.
Among the positive economic and societal trends for 2013 are the interest rate environment and the impact of green and climate change concerns on the industry. While the end of tax incentives for the purchase of energy efficient doors and windows negatively impacted 2012 expectations, executives have a more positive outlook for 2013, perhaps reflecting hopes that new programs will emerge. Respondents also see regulatory compliance as less of a negative in the coming year, potentially suggesting more industry executives are getting their arms around such developments as the lead paint rules.
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.