"Remodeling is now over 70 percent of the business," says Dick Titus, executive vice president of the Kitchen Cabinet Manufacturers Assn.

What's hot for 2004?   Angela O'Neill, director of marketing for Wellborn Cabinet Inc., of Ashland, AL, says she sees a trend in two-toned, painted cabinets. "It's maybe a combination of midnight black, with white or cream paint," O'Neill says. She says the trend began a couple of years ago, and is more prevalent today. Wellborn's black painted accent finish, Midnight, shown above, has a low sheen to create a matte look. The finish is offered on two maple door styles, and Wellborn says it pairs well with almost any color scheme. Also hot are lots of detail, through accessories and mouldings, from legs to turnings, O'Neill says.

In 2003, cabinetmakers who took part in KCMA's Trend of Business Survey posted $6.1 billion in sales, up 13.1 percent from 2002. The monthly sales growth rate for December 2003 increased by 22 percent from December 2002.

According to the most recent U.S. Department of Commerce figures available, about $12 billion worth of wooden kitchen cabinets and countertops were shipped in 2002.

Titus says low interest rates, new home demand, and a strong kitchen and bath remodeling market fueled growth over the past several years.

Job Growth More of a Factor Than Interest Rates
The National Association of Home Builders says it expects housing starts will fall about 4.8 percent in 2004, and sales of existing homes will decrease 5.3 percent. They would be the first declines since 2000.

The National Association of Realtors said continued strength in the housing market this year will depend more on improvements in the labor market than on interest rates.

"Fixed-rate loans are currently around 5.7 percent, but we project a gradual rise to 6.5 percent in the fourth quarter," said David Lereah, NAR's chief economist. "As interest rates move up, the strength of the housing market will depend largely on job growth, which we expect to accelerate and drive demand for homes as the year progresses."

In January, the nation's unemployment rate fell to 5.6 percent, the lowest level in more than two years. Companies added 112,000 new U.S. jobs, denoting the fifth straight month of payroll gains and the largest in three years, according to the Associated Press. Economists, however, had expected 38,000 more jobs would have been added. Since President Bush took office, some 2.8 million manufacturing jobs have been lost.

Still, analysts say the economy is expanding. Real gross domestic product - the output of goods and services produced by labor and property in the United States - rose 4.1 percent during the fourth quarter of 2003, up from earlier estimates of 4 percent growth, according to the Bureau of Economic Analysis.

In the third quarter, real GDP increased 8.2 percent.

Popularity of Kitchen Remodeling
The National Association of the Remodeling Industry says more than 1 million homes will undergo major renovations or remodeling this year.

According to the NAHB, the most common remodeling jobs in 2002 were kitchen renovations. A survey of remodelors found 63 percent of their jobs were kitchen makeovers, followed by bathroom remodeling, 61 percent, and room additions, 58 percent. About $6.6 million were spent on kitchen remodeling.

"Remodeling has come on strong with our dealer base," says Angela O'Neill, director of marketing for Wellborn Cabinet Inc. of Ashland, AL. Wellborn distributes through about 700 dealers. In 2003, it bought Cabinetry by Karman, a $20 million company in Salt Lake City.

Though O'Neill says 2003 sales were also strong in new construction, she adds, "The indications we read are that remodeling will come on stronger."

Wellborn posted about $110 million in sales in 2003. O'Neill anticipates a 10 percent to 15 percent sales increase this year.

American Woodmark Grows with Home Improvement Stores

American Woodmark Corp. of Winchester, VA, says 65 percent of its 2003 fiscal year sales were in the remodeling market, compared to 35 percent in new homes.

The company, which operates 13 manufacturing facilities and 10 service centers across the country, is coming off a strong year, and anticipates further growth in 2004. It lays claim to being the third largest kitchen cabinet manufacturer in North America.

American Woodmark had a net sales increase of 13 percent to $563.5 million in fiscal year 2003. "This marks the first year in our history with over half a billion dollars in net sales," says James J. Gosa, president and CEO.

American Woodmark says it foresees another 15 percent to 20 percent rise in fourth quarter sales, for the period ending April 30, 2004. Solid growth is expected in the new construction and remodeling sectors.
In January 2004, the company broke ground on a 250,000-square-foot plant. Gosa says there are plans to double the plant's size in the next few years.

However, American Woodmark has a definite advantage over many competitors in the cabinet industry. Its cabinets are sold in 1,515 Home Depots and 952 Lowe's across the country. A year ago, The Home Depot Inc. had 1,370 stores in the States. Lowe's had 854 in 44 states.

When the home improvement giants grow, so do American Woodmark's sales opportunities. The company also puts its cabinets in stores like Builders Square.

Masco Grows, Armstrong Declines
Masco Corp. of Taylor, MI, also had a great year. Net sales in its cabinet about sector increased 9 percent, from $2.8 billion in 2002 to $3.1 billion in 2003.

Fourth quarter net sales increased 13 percent, from $722 million in 2002 to $814 million in 2003.

Meanwhile, Armstrong's cabinet sector showed decreased net sales in 2003. Sales fell to $204.8 million, from $226.9 million the year before. Armstrong said that was due primarily to reductions in volume, and there was an operating loss of about $11.1 million.

Guarding Against Imports
While Titus says economically, the cabinet industry has fared much better than other manufacturing sectors, imports are a concern.

Wellborn's O'Neill says cabinet imports do not affect her company. American Woodmark reports the same. Yet, Titus says some KCMA companies do import components from China and integrate them into manufacturing.

"One of the overriding concerns is noting what has happened with furniture with manufacturing moving offshore," Titus says. "Cabinet manufacturers had taken steps to increase productivity before China became a cause (for concern among furnituremakers)."

Over the years, most major cabinetmakers have invested in new technology and machinery, Titus says. Cabinetmakers have ensured they are making themselves competitively.

O'Neill says her company has heard dealers are bringing in imports, but they are "very entry-level" cabinets, without options. Such cabinets are not Wellborn's niche, so the imports do not affect the company.

"Anytime you think of imports, you think of what happened with the furniture industry," O'Neill says. "We want to make sure we have a variety of products."

Titus says the KCMA is drawing policy makers' attention to the state of U.S. manufacturing. "We're encouraging our members to make their representatives aware of their concerns," he says.

The KCMA recently joined the Coalition for the Future of Manufacturing. Launched by the National Association of Manufacturers , the coalition seeks public and governmental support to help U.S. manufacturers be more globally competitive.

Kitchen and bath remodeling expenditures are expected to improve somewhat over the forecast period, the Freedonia study says. Adding to that number is the trend toward larger kitchens and more bathrooms, Freedonia adds.

However, the study says declines in new single-unit housing completions will limit gains through 2007. Despite this expected decline, inflation-adjusted residential kitchen and bath renovation expenditures are projected to improve.

Advances in countertop demand will be stimulated by growth in the remodeling segment, which accounted for 71 percent of sales in volume in 2002.

Based on study results, laminate countertops will continue to account for the largest share of countertop shipments - about 35 percent of demand in value and nearly 60 percent of demand in volume. Demand for laminate countertops benefits from factors such as the economy, ease of installation and maintenance, and a wide variety of color and pattern options.

As laminate countertops maintain the lion's share of the market, natural and engineered stone countertops will experience a strong increase in value and volume through 2007.

Freedonia says demand for stone countertops will be fueled by consumers' interests in the luxury and style many natural stones bring. Engineered stone also brings a natural look, but with consistent color and pattern throughout the material.

Freedonia's 270-page study, "Kitchen & Bath Countertops," is available for $3,900. For details, contact Corinne Gangloff at (440) 684-9600 or visit www.freedoniagroup.com.