By Matt Warnock and Wade Vonasek

Current market conditions are pushing cabinet companies to evolve in order to survive the economic downturn, the struggling housing market and continued pressure from imports.

According to the Kitchen Cabinet Manufacturers Assn.’s latest Trend of Business Survey, year-to-date cabinet sales show a decrease of 7.4% compared to last year, with stock sales and custom sales down 17.6% and 7.3% respectively. However, semi-custom sales show an increase of 4.4%. Photo courtesy of American Woodmark.

Just like the rest of the woodworking industry, the cabinet industry is faced with finding ways to survive in the face of the poor housing market, a weakening U.S. economy and the devalued dollar.

“In conversations with members, some are concerned with sales being down compared to the last few years,” says Jim McDermott, executive director of the Cabinet Makers Assn. “This appears to be a natural part of the business cycle, and it is a great time to streamline operations and practice lean. Adapting to the ups and downs in the marketplace is a challenge for anyone.”

Despite the less-than-ideal market conditions, the smart cabinet company can do more than just survive in this downturn.

“With the generally soft market for kitchen cabinets, KCMA members are pursuing a variety of options to compensate,” remarks Dick Titus, executive vice president of the Kitchen Cabinet Manufacturers Assn.

With the new housing market still down, the remodeling market is a prime target for cabinet companies nationwide.

“Close to 75 percent of cabinet sales go to remodeling and repair,” says Titus.

“Wellborn Cabinet has chosen to focus on the remodeling segment,” says Brittany Graben, marketing publications specialist for Wellborn Cabinet Inc. “We have found remodeling to be the most stable market at this time.”

“It seems that the remodeling market will be growing,” says Adam Rose, owner of Creative Woodworking and president of the Cabinet Makers Assn. “Instead of building new homes, consumers will remodel their existing homes.”

“Kitchen remodels remain a mainstay of the business,” adds McDermott.

Another area in which cabinetmakers are seeing some growth is in multi-family housing developments.

Cindy Draper, marketing manager of Canyon Creek Cabinet Co., says the company is seeing growth in “high-end multi-family housing developments.”

“Our multi-family business is doing the best right now,” agrees E.F. “Sonny” Zetmeir, president of Grandview Products.

“With new housing at an historic low, remodeling and multi-family have been the major source for cabinet sales,” agrees Titus. No matter the market segment that is being targeted, many agree that it is important to maintain marketing efforts.

 Getting the Word Out

Many agree that when the industry is at its slowest, that is when companies should be marketing the most.

“We are in the middle of a comprehensive marketing campaign, including direct mailers, direct calling, walk-ins and buying customer lists,” says Sean Benetin, president of Millwork & More LLC and vice president of the Cabinet Makers Assn. “Every spare moment and dime is spent on bringing in more prospects.”

“Now is the time to refocus efforts on marketing to the right customer for your business,” adds Rose.

When the market improves and people have more money to channel toward home improvement, the companies that advertised during the downturn will be foremost in people’s minds. Increased marketing can also serve to expand a company’s market to new areas from which to draw in new business.

“The total amount of qualified leads is down compared to past years, so we must expand our target area to close the same quantity as we used to,” Benetin adds.

Increased marketing efforts is one way that cabinet companies might overcome the challenges in today’s market.

VIPs Weigh In

Wood & Wood Products surveyed the Woodworking VIPs, an online community of readers that act as advisors to the magazine, to gauge their thoughts on, and their experiences with the current state of the cabinet industry.

Of those surveyed, 49.9% anticipated higher remodeling sales in 2009 than in 2007, with 36 percent expecting about the same level and 17% expecting lower sales.

In regards to green, 38.4% of those surveyed said their company had more green requests in the last 12 months than in the previous 12 months, with 45% reporting about the same number of requests and 18.8% reporting lower requests.

To find out more about becoming a Woodworking VIP, visit www.woodworkingVIP.com

How do you project your company's 2008 cabinet sales will compare to 2007?
How did your company's cabinet sales for 2007 compare to 2006?

Challenging Times

There are both challenges and opportunities facing the cabinet industry in the coming year. Factors such as imports and exports, the declining value of the U.S. dollar, the continued downturn in the housing market and the state of the economy in general are all affecting the way cabinet companies are and will be doing business in the near future.

“The biggest challenge is surviving the down economy,” says Titus. “Behind that, huge challenges to compete successfully in a global economy; affordable medical insurance; compliance with environmental, health and safety regulations; finding certified sustainably-managed hardwood suppliers; and pending actions on climate change that could drive electricity and other energy prices to astronomical heights are major challenges that will confront cabinet manufacturers in 2008. Fuel costs already are a major challenge.”

“The costs of complying with OSHA, imports and rising healthcare costs are things we feel will be challenges for 2008,” says Graben.

Even with all the current trials facing the industry, it is not all doom and gloom, according to Bryan Earl, vice president of corporate and marketing communications for American Woodmark Corp. “The biggest challenge in a difficult market is to maintain the proper perspective, despite the onslaught of media articles chronicling the current downturn,” he says. “The long-term outlook for the industry remains extremely favorable, based upon continued U.S. population growth, and coupled with a housing stock that is becoming more affordable. Those of us who are old enough to have seen a few of these economic cycles realize that housing is a cyclical industry and corrections are inevitable when things get as overheated as they did earlier in this decade.”

The effect of imports are still being felt in the industry in some ways as well. The decreased value of the U.S. dollar might see some positive effects on exports, but it can also create problems in other areas.

“Although its [imports] current effect has been minimal due to the custom nature of our product, we can see it becoming more of a competitive factor in the future,” says Draper. “Of course it has affected our costs for exported materials, but the decrease in the dollar has made our products look more attractive to markets into which we export our finished goods.”

“They [imports] have certainly put pressure on a certain segment of the market,” says McDermott. “One thing imports from China and elsewhere will never be able to overcome is the level of personal interaction and attention to detail consumers of fine cabinetry have come to expect.”

According to Benetin, the effect of imports is being felt indirectly. “Imports have forced other companies that typically did not bid and work in my segment of the market to shift their marketing to my niche,” he says. “This has caused more difficulties in closing sales due to low bidders who do not understand the price complexity of the ultra high-end market.”

“The imports have not hurt us much,” says Zetmeir. “The decline of the dollar has put us into some export business.”

“I believe the decreased value of the dollar does hurt, as much of our machinery and hardware comes from Europe,” says Rose. “It has raised the prices we have to pay for these items.”

On a Positive Note

With these challenges also come new opportunities. Gaining a larger market share is just one of an assortment of priorities for a number of businesses.

“The biggest opportunity of 2008 for members of the CMA is to increase their market share in a down economy,” says McDermott. “We do that by continuing our commitment to being the best prepared and educated custom cabinet manufacturers in the marketplace.”

“2008 provides the opportunity to garner a larger market share in our area,” says Benetin. “While other shops are feeling the squeeze and low-balling work, we are out there expanding market share.”

“Although sales are down, we feel opportunity lies within our service and delivery for our company to stay constant,” says Graben. “For example, we still ship in 13 days, and we have very high accuracy.”

Top U.S. Cabinet Import Sources (2007)
(in $ millions)
Canada 389.54
China 315.41
Italy 76.96
Germany 32.72
Mexico 16.12
United Kingdom 8.78
Slovakia 8.52
Brazil 2.83
Poland 2.02
Malaysia 1.75
World Total 869.27
Source: U.S. Department of Commerce
Despite a substantial drop from last year, Canada remains in the lead of countries from which the United States imports the most cabinets, while imports from China grew by more than $100 million. Total imports for 2007 were down $16.91 million from 2006.

Slowly Growing Green

Green products continue to steadily make their way into the cabinet industry. Though there are still some obstacles, many cabinet companies see green products becoming much more common in the industry.

“We have seen increasing interest in green products,” says Earl. “Our customers are increasingly looking for products that are eco-friendly.”

“Over the last couple of years we’ve introduced sustainable wood products, such as bamboo and beech, and are looking at developing products to meet the needs of the growing consumer demand for green products,” says Draper.

“We have received some very substantial purchase orders because of our participation in the KCMA Environmental Stewardship Program,” says Zetmeir. “Virtually all of our customers have a strong interest in green.”

“Green is definitely a buzz word these days,” says McDermott. “Consumers are aware of the concept, but certification requirements for our members remain a mine field of bureaucracy. How it will develop remains to be seen, but it is one trend we are certainly watching.”

“It is becoming more and more common,” adds Rose. “Once the green materials are more competitive pricewise with traditional materials, we will use more products. I believe these decisions are almost always price-driven.”

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