Manufacturers of construction and home-related products have been hit at least as hard by the housing recession as their builder customers.
Unfortunately, they expect those business challenges to continue. While most will tell you they haven’t given up on the housing market, they also don’t expect any sustained improvement for a year, if not farther out. “We are not seeing any signs of recovery, and are preparing for the same for the foreseeable future,” says Carlos Guilherme, vice president of sales and marketing for iLevel by Weyerhaeuser, echoing other suppliers' sentiments.
That doesn’t mean, though, that manufacturers are just standing still with their fingers crossed. Some have picked up market share during a recession that has also afforded suppliers the opportunity to “offer new things,” says Marvin Windows’ spokesman John Kirchner, in the form of new products and innovations. The housing downturn has motivated suppliers as well to explore what roles they can play in the replacement, multifamily, commercial, and international markets.
The general consensus among the 10 suppliers contacted for this article is that the American housing market has at least bottomed out, and that some parts of the country have started to recover. “But it’s a bumpy bottom,” observes Tom Halford, Whirlpool’s general manager of contract sales and marketing. In June, Whirlpool permanently closed its plant in Evansville, Ind., which employed 1,000 people, and Halford concedes that the housing market and general economy could still sink lower. However, he is also buoyed by the fact that some residential projects are being financed.
Others also note some economic bright spots. “We’re seeing slight improvements in various markets,” says John Bailey, senior vice president of sales and marketing for ClimateMaster, which makes geothermal heat pump systems. “But this recovery will be a long-term process and depends on consumers’ confidence,” which has been shaken, he says, by “the loss of millions of jobs.”
“With the economy as bad as it is, and the job market as poor as it is, it’s difficult for people to make decisions, which is why demand is so low,” says Tom Riscili, president of Fypon, which supplies molded millwork, trim and columns. “The housing market will recover, but it’s going to be a very slow comeback.”
David Kohler, president of kitchen and bath fixture manufacturer Kohler Company, feels the same way. “We should all expect business to remain very competitive for the next two years," he says.
A supply chain in disarray
Given their outlooks, some suppliers are wondering just how tethered their businesses should be to new-home construction, and many are considering where else they can garner revenue and profits.
Some are finding signs of life beyond America’s borders. Despite losing $74 million in the quarter ended June 30, USG Corp. reported that its divisions in Canada and Mexico enjoyed increased operating profits. Kirchner says that while Marvin “is always going to be dependent on the U.S. market,” it’s also meeting other countries’ certification standards so that it can grow internationally.
Few building product executives have voiced their frustrations with the housing recession as loudly as Barkley Simpson, chairman of Simpson Manufacturing, who in June told a group of analysts that his company’s growth objective would be to “become less dependent on U.S. housing; we have to do that.”
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In the first quarter of 2010, 27% of Simpson’s sales came from outside of the United States, a record for the company. And as it continues to expand through acquisitions (Simpson has bought 18 companies since 1995), “we are really looking hard in China, which is the wave of the future.” Simpson opened its first plant in China last year and is looking to establish a joint venture there with Chinese partners.
Despite the recession, though, many major suppliers have seen their American market share grow during the housing downturn. Simpson’s slice of the U.S. structural connector market has increased to 70%, from 65% in 2006, according to the company's chairman.
Whirlpool has also gained share, says Halford, partly due to builder consolidation. The recession has so disrupted the industry’s supply chain, too, that builders and contractors “are listening as they never have before,” says Halford, to suggestions about changing supply sources, “even as their disciplined processes for making vendor assignments are tougher than they ever were.”
Halford believes that what builders and contractors want from suppliers today is “total value,” which obviously includes price but also incorporates such factors such as brand reputation, performance, and product quality. For example, as suppliers and wholesalers have fallen by the wayside, Fypon has made a big deal about maintaining the largest stock levels for polyurethane parts in the industry. “And we’re open to expanding inventory to accommodate our service proposition,” says Riscili.
But price lurks in the background during any discussions that suppliers have with builders and homeowners. “It’s always about the theory of relativity,” quips Ray Rosewall, president and CEO of DaVinci Roofscapes, “and the value and resale of the house.” Suppliers don’t expect price to become less of a determining sales factor any time soon, either, and it’s a central marketing component for some. ClimateMaster, for one, emphasizes that its systems are, in Bailey’s words, “a cash-flow-positive purchase for most new-home buyers, if they finance the purchase of our equipment in the initial mortgage. In addition, the 30% tax credit for geothermal and the green movement all play in our favor.”
Their efforts to keep prices low have affected manufacturers’ operations, too. More than one-third of iLevel’s employees have been involved in what Guilherme calls “lean events” that instruct them how to reduce costs. Fypon’s Riscili talks about his company’s ongoing search for “process development,” and “finding new ways to make our products.”
New products, new customers
The recession has heightened the urgency among suppliers to roll out new products to both keep existing customers and entice new ones.
During the last 18 months, Kohler has introduced 2,000 SKUs, according to its president. “We reinvest 90% of the company’s earnings into this business every year, and that has been the driving force for our ability to remain more than [just] competitive, but innovative," David Kohler says.
“Innovation is critical to survival,” agrees Adam Zambanini, director of marketing for deck-maker Trex, whose Transcend line is 95% made from recycled materials, is scratch-resistant, and carries a 25-year fade and stain warranty.
(He says Trex hasn’t been as hard-hit by the recession because it generates only about 10% of its total business from new-home construction; the rest comes from replacement and remodeling which “are now in an upswing,” says Zambanini, citing as evidence the Joint Center for Housing Studies’ latest remodeling index and projections for future growth in that sector.)
In many cases, new products are presented to customers as adding value without adding price. During this recession, iLevel has brought out several new products—including its NextPhase Site Solutions, and its Pro Series and Framer Series lumber—that take aim at reducing job site waste and making construction more efficient. DaVinci’s newer products include a 100% recyclable roof tile that carries a 50-year warranty and is one-third the weight of natural slate; and its Bellaforte line, with a 175-mile-per-hour wind rating, which uses 25% less material than triple-laminate architectural tile “so we can price it less expensively,” says Rosewall. Finally, DaVinci has introduced a multi-width slate product called Valore, for which the company has developed the technology to do color blending at the factory at no additional cost to the installer.
Other suppliers are looking beyond new residential construction for business growth. Marvin’s Integrity line includes an all-fiberglass product that Kirchner says “has given us access to new markets” such as affordable housing projects with HUD and commercial work. Fypon is now “very active” on the multifamily and commercial fronts, says Riscili, who notes that gaining greater penetration in the latter will require his company to get closer to architects. DaVinci is also cozying up to specifiers and architects “to get involved in their designs early,” says Rosewall.
Lucky firms have also seen new markets emerge unexpectedly for their products. Rosewall, for example, says DaVinci is currently benefiting from “a robust replacement market,” especially in areas that have experienced severe climactic changes. And during the past six months, Rosewall says his company has been getting more business from libraries and schools. “I don’t know why," he says. "Maybe it’s the stimulus.”
John Caulfield is senior editor for BUILDER magazine.