Window and Door Companies Will Work Hard for Growth in 2013
The slow, but steady, easing of the economic vise that has gripped the country for more than six years is likely to create some opportunities for window and door companies this year—but only for those who are prepared to act and willing to work hard for growth, industry executives say.
“I think it’s going to be a rollercoaster year,” says Lee Shaw, vice president of sales for ProVia, the Sugarcreek, Ohio, window and door manufacturer. “There’s a lot of opportunity out there, but we’re definitely going to have to work hard for everything we get. We’ve heard that double-digit growth is in the forecast for the first two quarters, but I think for our industry it will be hard work.”
With the pent-up demand from the last several years, the floodgates will continue to crack open and offer opportunity for those who can demonstrate significant value to various customers. “Consumers are increasingly discriminating in their purchases across all product categories,” says Mark Savan, president of Ohio-based Therma-Tru Corp. and Simonton Windows. “For windows and doors to effectively compete for consumer discretionary spending, we must provide great value.”
Much of this value will come in the form of performance and communicating the energy efficiency message, which continues to evolve in the marketplace. “The bottom line is that making investments in better performing technologies, equipment and people as the market recovers is always a winning strategy,” says Mike Hovan, senior vice president of sales and marketing for Quanex Building Products, Houston. “Those who invest early in 2013 in preparation for Energy Star v.6 will likely maintain their go-to-market strategy as leaders in the industry.”
Looking ahead, there are some unknowns, including differing opinions as to the degree markets will grow this year and the effect the fiscal cliff that overshadowed the end of 2012 will have. How companies position themselves to respond might determine their results this year.
“I think the biggest challenge will be perspective,” says ProVia’s Shaw. “In different parts of the country, one guy can say, ‘This is the best year I’ve had,’ and you walk across the street and [another business] will say it’s not so good. I think everybody has a different perspective on what’s going on out there, and in reality, if we just put our boots on the ground and go to work, I think everything will be fine. There’s no magic pill. It’s going to be work. We’ve got to go out and make things happen.”
After a few years of conservative forecasting, the National Association of Home Builders is starting to show a bit more optimism in its outlook. NAHB economists called for about 681,000 housing starts in 2012, but the year actually ended up logging more than 750,000 total housing starts, including single-family homes and multi-family units. This year, the builders expect to see more than 900,000 housing starts, on the way to more than 1.1 million in 2014. To put this in perspective, the projections for 2013 could bring the market in line with housing starts in 2008.
“We expect new construction to be the premier growth driver in 2013 with a growth rate in the high teens (percentage wise) year-over-year,” says Keith Kometer, vice president of product segments and marketing for Masonite, headquartered in Tampa, Fla.
“I think we’re going to see an uptick in new construction,” agrees ProVia’s Shaw. “Already it feels like new home building is starting to climb a bit.”
The degree to which the new construction market grows this year is a subject of debate, however. “All in all, our market base expects that new housing growth probably won’t quite hit the 25 percent-plus growth mark that some economists and industry experts are predicting, but we do anticipate steady growth,” says Andy Russo, director, residential market segment, for Guardian Industries, Flat Glass, North America., Auburn Hills, Mich. “We expect to see growth in the mid- to higher-priced home segments, which should translate to an increase in the window-to-floor ratio that has seen shrinkage over the past several years of mainly multi-family and entry-level home growth.”
On the remodeling and replacement side of the market, economists are adjusting forecasts in the opposite direction. At press time, the IHS Global Insight/Home Improvement Research Institute anticipated that 2012 would wrap up ahead of its original projections—ending the year with nearly $274 billion in home improvement expenditures rather than the $227 billion it expected as the year began. However, it also moderated its projections for 2013 and beyond. Last year, economists for the organization expected home improvement spending to top $286 billion in 2013; they have since scaled back projections to $284.8 billion.
“Our base sees the repair and remodel markets as having a relatively flat growth curve since there is no tax credit or high energy cost driver on the horizon that would stimulate a faster rate of growth,” Guardian’s Russo says. “There will likely be a small spike of activity in the Northeast as the [Hurricane] Sandy reconstruction efforts take shape.”
Experts at Harvard University’s Joint Center for Housing Studies are optimistic that the remodeling segment will grow at a double-digit rate in the first half of 2013.
“Strong growth in sales of existing homes and housing starts, coupled with historically low financing costs, have typically been associated with an upturn in home remodeling activity some months later,” reports Kermit Baker, director of the Remodeling Futures Program at the Joint Center. “While the housing market has faced some unique challenges in recent years, this combination is expected to produce a favorable outlook for home improvement spending over the coming months.”
“Customers are beginning to invest in improvements in their homes,” agrees Greg Irving, vice president of sales and marketing for Soft-Lite, Streetsboro, Ohio.
“While consumers are less focused on the resale value of projects, they are more interested in actually improving their home,” notes Savan of Therma-Tru and Simonton. “The ability to provide lasting consumer value for a reasonable price will be a key driver of the [remodeling and replacement] business.”
Room to Grow
While economists predict growth for this year and beyond, there are some external factors that could impact the degree to which acceleration takes place. In addition to the ripple effects of the fiscal cliff and Congressional pursuit of financial discipline, other remnants of the economic downturn could overshadow traction in 2013. “While certainly the largest, the fiscal cliff is not the only headwind the housing industry faces [as we head into] 2013,” notes Masonite’s Kometer. “Mortgage availability, changes to lending regulations, foreclosures, inflationary pressures and labor shortages will all challenge market growth. However, for the first time in five years, the discussion of industry growth has turned. The question is not ‘Will next year be a recovery?’ but how much of one.”
Filip Geeraert, president and CEO of Deceuninck North America, Monroe, Ohio, points out that keeping a long-term outlook could be an important consideration for the industry in the coming year. “[Another] challenge is probably only valid a couple of years from now, but our industry should begin planning for it now,” he says. “During the last six years, many fabricators did not make it. If demand doubles in the next four to five years, it’s uncertain if there is sufficient capacity in the market to meet this rising demand.”
With new construction finally on the mend, Geeraert also notes that the shift in recent years for manufacturers and dealers to turn to the retrofit lifeline might reverse in the next few years. “All forecasts predict the housing market will exceed 1.6 million [new housing starts] within the next four to five years,” he says. “This means doubling the current number. A lot of fabricators have moved more toward renovation versus new housing starts, which was virtually non-existent for the past five years. I expect that those fabricators will focus again on new construction while maintaining the replacement business.”
Other pent-up demand might come from the areas that suffered the worst in the housing crash. “We anticipate seeing growth in the geographic regions where the housing markets were hit the hardest with the advent of the downturn,” says Masonite's Kometer. “We foresee the greatest traction in markets such as Texas, Florida, California, Arizona and Nevada.”
“We have high hopes for the West Coast and certain western states [this] year,” adds ProVia’s Shaw.
Among many industry executives looking to the future, the primary focus—hands down—is energy efficiency. With tighter Energy Star requirements taking effect just about a year from now and an increased consumer-level awareness of fenestration performance, reaching higher and higher thresholds of energy efficiency will be the name of the game for window and door companies looking to stand apart from the competition.
“Window manufacturers will be evaluating their current window lines and making performance improvements in preparation for the 2014 Energy Star requirements,” says Soft-Lite’s Irving. “Many window lines will require triple insulated glass to meet the new Northern Zone U-value minimum.”
And more than ever before, consumers will actually know what window performance numbers mean. “I think that increased awareness of the energy efficiency of windows and doors is the greatest legacy of the energy tax credit,” Savan says. “Energy Star has excellent consumer awareness and can be a driving force for our industry.”
Still, Savan notes that overzealous requirements could put some products’ price points out of reach for average consumers looking to make upgrades. “While increasing energy standards is a good means for pushing product design forward, we need to be careful that Energy Star products remain a compelling consumer investment,” he points out. “The increased energy efficiency needs to be worth the incremental cost of the product.”
Hovan of Quanex predicts that manufacturers that have already made preparations for energy performance enhancements are likely to be in the best shape to serve growing demand. “As the economy recovers, we will see market leaders emerge who have already made efforts to improve their window designs by partnering with component suppliers to choose the right materials to boost performance,” he says.
Triple-pane glass, he adds, might not be the only solution worth considering. “[Manufacturers] must look at the full package, which should include vinyl, cellular vinyl, vinyl composite or other composite materials, as well as high performance insulating glass components such as glass, warm-edge spacers, sealants and insulating gasses, in order to meet the current and coming demand for more highly energy efficient fenestration products.”
“The industry is now abuzz with discussions on how to cost effectively meet the newly established 2014 Energy Star requirements with the use of triple-glazing, fourth-surface coatings, improved IG/spacer technology and higher performance low-E coatings,” says Guardian’s Russo. “Window companies may choose to just meet code and avoid the new Energy Star requirements, but this may pose problems down the road as we are already seeing trends in IECC code proposals to further tighten performance requirements beyond what even Energy Star has laid out for 2014.”
Energy efficiency, traditionally driven in the replacement and retrofit market thanks to high heating costs and tax credits, is bleeding deeper into the new construction market as well, many point out. “It is likely that the performance requirements will also cascade further into new construction, since builders have been using whole house energy performance initiatives as a way to distinguish themselves in this highly competitive market,” Russo notes. “This trend is bound to continue as we begin to see increased sales in the mid- and higher-priced ends of the construction market.”
Of course, energy efficiency might be the primary topic of conversation at the moment for most manufacturers, but aesthetics continue to play a dominant role in product selection for consumers. “From a design standpoint, we continue to see more traditional designs in Shaker styles and simpler, less complexity in overall design,” Kometer reports. “A continued ‘less is more’ statement with crisp, uncomplicated configurations and clean details that do not overpower or stand out.”
Buyers are also looking for high-end aesthetics at reasonable price points, Kometer adds. “Products that replicate the look of super-premium, [and] traditional products are picking up. Even in high-end homes, consumers are looking for innovation to provide value.”
A Corner Turned
The pressing challenges of the past few years seem to be easing somewhat as 2013 gains momentum. Financing challenges—both for homeowners looking to complete home improvement projects and for companies looking to expand—are slightly less concerning to industry executives, and consumer confidence seems to have left the dark days of the post-recession years. “It appears that credit is easing and that homeowners are inching away from their ‘wait and see’ mentality,” says Todd Metz, sales manager for Timeline Vinyl Products, Merrill, Wis. “This is slowly creating business potential.”
For many companies, including Timeline and its sister company, Lincoln Windows, turning the corner simply means that its continued investment and commitment to the market is finally paying off. “Lincoln and Timeline will continue to invest in our dealer base, the Energy Star program, manufacturing facilities and equipment, marketing efforts, trade shows, an architectural presence and the product lines,” Metz says. “That is the same recipe we have used since 1947.”
“We spoke with a number of our customers at GlassBuild [America], and there is definitely a general feeling of optimism,” Hovan says.
“In 2012, Deceuninck North America outperformed the market with double-digit growth, and we expect this trend to continue in 2013,” Geeraert says, noting that some of this confidence comes directly from the company’s investments throughout the downturn. “Our continued focus on our vision of ‘building a sustainable home,’ … is based on the company’s three pillars of innovation, design and sustainability. Additionally, new products that were launched since 2011 are continuing to gain momentum, such as the coastal impact window system, Innergy Rigid Thermal Reinforcements [and] the tilt-and-turn window system.”
Companies such as ProVia plan to invest in capacity to meet projected demand. “We plan to hire more people in 2013 to support our growing door and window business,” Shaw says. “Since we’re in the process of adding new manufacturing space and a distribution center, that will help create jobs.”
Others have invested in technology and other process enhancements to prepare for upticks in demand. “Masonite has utilized a strong. lean, Sigma culture to be very efficient with our resources during this significant housing downturn,” Kometer reports. “It is our priority to continue to deliver the same high level of quality product at industry leading service levels regardless of demand level. At the same time, we have invested strategically in new technology to bring this service and quality to new levels.”