Insights Industry Insights Current Recession Causing Contraction

       

Windows & Doors: Current Recession Causing Contraction

The windows and doors industry is heavily dependent on the economic climate and the housing, construction, steel and logging industries. There are numerous variables that effect the future of this industry, including the recession, the housing environment and consumer confidence. The overall window and door industry is large with approximately $25 billion in annual sales. Mass production wood windows and doors, which largely serve the residential market, is the largest industry segment, representing roughly $12 billion of total sales. New construction accounts for roughly half of industry sales. The majority of the remainder of the market serves the repair and maintenance sector.

SUPPLY

Bursting housing bubble and economic downturn causing industry contraction

In 2008, the U.S. manufacturing industry comprised an estimated 7,200 companies compared to 7,351 companies in 2003, a 2% contraction. The largest players in the industry hold a market share of approximately 5%. Consolidations, with large operators within the industry acquiring small operators, have occurred in order to gain efficiency from increasing the scale of their operations. Most recently, Serious Materials announced the purchase of the assets of Republic Windows and Doors. Previously, Serious Materials had acquired Kensington Windows, Inc. and ProVia Door, Inc. purchased Heartland Building Products, Infinite Building Products and Outdoor Technology. With the industry in a mature life cycle phase, current conditions are expected to reinforce the recent trend of consolidation. Competition over diminishing demand will erode margins. Many smaller players will be unable to absorb falls in revenue and profit, particularly as access to credit continues to remain tight. This will lead to struggling operators exiting the industry and being taken over.

Canadian imports growing twice as fast as U.S. exports

The U.S. is a net importer of windows and doors, with a trade deficit of over $1 billion. Recently, U.S. imports of windows and doors grew 9.6% per year, compared to 4.2% annually for exports. Canada is the principal source of U.S. window and door imports, accounting for over one-half of the total. This is due to several factors: a favorable trade environment through the North America Free Trade Agreement, close proximity to the U.S., abundant timber supplies and a well-developed Canadian window and door industry. Canada is also the largest destination for U.S. window and door exports, accounting for over one-half of total U.S. exports.

DEMAND

Demand for new housing continues to plummet

This industry is closely linked to the construction sector. Due to the recession, demand for new housing and window and door products continues to fall. The building and home improvement sector relies primarily upon economic growth, job growth, interest rates and consumer confidence to stimulate demand.

Climbing home inventories further driving a declining demand

The recovery pace, once the bottom is reached, will be slow due to residual unsold home inventories being an issue. By 2010, housing starts are expected to begin to recover. However, projected 2013 levels will still be well below those seen during the housing boom experienced earlier in the decade.

New legislation provides hope to this industry

The “American Recovery and Reinvestment Act of 2009” provides economic stimulus legislation aimed squarely at the housing sector. Amongst key legislation, a first time homebuyer tax credit of $8,000 would be available for any qualified first time purchases in 2009. This legislation also targets infrastructure, public construction projects, public housing improvements, federal building energy efficiency improvements and weatherization of modest-income homes that will boost demand for industry products, but is not expected to make headway for the industry until mid-2010.

In challenging times like these, knowing the value of assets and their disposition is a key to maximizing ROI through asset optimization and prospering by being thoughtful and proactive. AccuVal, along with its sister company LiquiTec, works closely with clients to prepare short- and long-term plans to sell non-strategic and surplus assets. Read more about AccuVal and LiquiTec's approach to asset management.