W&WP March 2000

W&WP's Top 25 Cabinetmakers and Top Concerns
News at the Top

Cabinet ,anufacturers still see a profitable future for the year 2000. But after three years of growing confidence, respondents to Wood & Wood Products' annual survey of the cabinet industry appear more cautious about what the year will bring.

Slightly more than 12 percent of the 34 respondents in the 13th annual survey said that they expected 2000 to be their best year ever. This was the lowest prediction rate since the 1995 W&WP survey. However, nearly 79 percent said they expected 2000 to be a very good year; the combined best year ever/very good total of 90.1 percent represented the highest percentage since 1997, when 91 percent of the survey responses fell into one of those two categories.

Despite concern over rising interest rates and reports of a possible four percent drop in new housing starts, cabinet manufacturers still see profitability in their future. The question is: Will the economy push through a perceived slowdown, or has the record growth of the cabinet industry finally reached its apex?

"We see from forecasting and from what we can pick up from related industries -- home builders, forest products, in addition to overall stats -- that perhaps we'll see a little bit of a leveling off," says Dick Titus, executive vice-president of the Kitchen Cabinet Manufacturers Assn. He also notes that despite previous predictions of decreased shipments, the market has defied the outlooks.

 

W&WP Cabinet Survey Highlights 1999 sales totalled more than $4.88 billion for the companies who participated in the 13th Annual Survey of the Cabinet Industry. Responding cabinetmaking companies averaged approximately $147.8 million in sales in 1999. This is an increase of $37.9 million over last year's average, representing a 34 percent increase. Of the Top 25 cabinetmakers, sales totaled $4.75 billion, an increase of nearly $900 million. The responding companies also had average sales of $190.3 million, an increase of $34.3 million, or 22 percent. Other highlights include: Face frame cabinet sales continue to dominate the industry, capturing 88.3 percent of the cabinetry market. The kitchen is where most cabinets are installed, according to W&WP's survey. More than 84 percent of the cabinets produced by those surveyed went in kitchens. 56 percent of all cabinets are now used in remodeling projects. The survey findings are also supported by reports from the KCMA, which says that cabinet sales will remain strong, though new housing starts are projected to be lower in 2000. In a tremendous reversal from last year's W&WP survey, more cabinets are now sold through wholesale outlets than anywhere else. 33.3 percent of all cabinets were sold wholesale, and 20.9 percent were sold in home improvement centers. 23.8 percent of the cabinetry produced by survey respondents were sold in kitchen and bath stores.

"The market continues to be strong," he says. "I think there is a concern about the Fed and where interest rates are going to go. But if the market defies predictions, people will just say 'I told you so.'"

Cabinet Outlook Mixed
Nationwide cabinet sales grew 12.2 percent in 1999, according to the KCMA's "Trend of Business Survey." The cabinet industry has recorded monthly gains since the winter of 1996. That trend continued into January of this year, which saw a 12.3 percent sales increase over January 1999.

However, the outlook for demand is not all good. The KCMA estimates a decrease in total demand for 1999 of 200,000 units, to 79.5 million units, with a 1 percent decrease, to 78.8 million units, projected for 2000. New construction will be the hardest hit. The KCMA predicts demand will drop from 21.7 million units in 1998 to 19.6 million in 2000.

Despite the projected decrease in new construction, other areas are poised to balance and potentially lift the market. Based on surveys and analysis performed by F.W. Dodge/McGraw Hill for the KCMA, remodeling demand is projected to increase 2 percent to 59.2 million units in 2000. The repair and remodeling industry now accounts for two-thirds of the total U.S. cabinet market.

"Overall, 75 percent of our product goes into remodeling-type projects and that market, with full employment and solid economics, will be strong," says Titus.

Remodeling Continues to Rise
The focus on remodeling offers manufacturers a doorway of opportunity for new profits. Preliminary indications from the National Association of the Remodeling Industry are that the remodeling industry, which reached upwards of $135 billion in 1999, could see $140 billion in sales in 2000. NARI predicts the remodeling industry will continue its growth for the next three to five years.

"A healthy economy, a population increase, an aging housing stock and more people owning their own homes are resulting in a boom for the remodeling industry," says NARI President Ken Skowronski, CR. "Household incomes are on the rise, resulting in more discretionary monies, and homeowners realize the value of investing in their residences."

According to NARI, Baby Boomers continue be the prime market for the remodeling industry. "With Baby Boomers entering their peak earning years, they are choosing to stay in their current homes and investing in home improvements. They have grown accustomed to their neighborhoods, like the schools their kids attend and would rather turn their current residences into their dream homes than pack up and move to other locations."

Distribution Channels Changing
Consumers want convenience when shopping for replacement kitchen cabinetry or bathroom vanities. They want to see a variety of displays by many manufacturers -- in one location -- and at different price points.

Cabinet manufacturers are taking note. The Top 25 Cabinetmaker survey shows an increase of nearly 20 percent in companies which sell through wholesale dealers, now the largest portion of the The Top 25's channel of distribution. More than $1.2 billion, or 32 percent, of all cabinets sold by the Top 25 were directed through wholesale distributors. Kitchen and bath stores held 23 percent, with $880 million in sales.

Not surprisingly, home improvement centers also expanded their influence on distribution. An estimated 21 percent of all Top 25 cabinet sales in 1999 were through home centers, accounting for $770.6 million in sales.

 

Cabinet companies such as KraftMaid are targeting the remodeling industry as a way to offset a soft new home market.

Business to home centers is expected to keep growing. In November 1999, Home Depot announced it would be licensing a line of Thomasville brand name cabinetry produced by American Woodmark Corp. The $2 billion Masco Corp. Cabinet Group continues to sell almost 80 percent of its cabinetry through wholesalers and home centers. And Oak Craft Inc., which targets 80 percent of its $16.3 million sales to new construction, now says it is looking to expand its product line and sales to home centers to offset a soft new home market.

"(We're looking at) diversifying our product line and marketing strategy to achieve a higher ratio of remodel and do-it-yourself customers. This would cushion the blow if interest rates continue to climb and soften the new home market," says Gregory Johnson, marketing director for Peoria, AZ- based OakCraft Inc.

Other Industry Trends
Another trend noted by the large manufacturers is the continued domination of cabinetry manufactured for the kitchen vs. the bath. A survey of the Top 25 U.S. cabinet manufacturers shows that 84 percent of the cabinetry they manufactured was installed in kitchens, vs. 12 percent which was for use in the bathroom. The remaining percentage went toward "other" areas.

Likewise, frame cabinetry continues to dominate, capturing 78 percent of the market for Top 25 companies, a decrease of 6 percent from last year's figures. Some of the decline can be attributed to the Top 25 acquisitions of RTA cabinetry manufacturers, such as MasterBrand Cabinets acquisition of NHB Industries.

Consolidations and buyouts continue to affect the cabinet industry. In addition to MasterBrand's acquisition are the recent purchases of Mills Pride by Masco Corp. and Legacy Cabinets and Sunshine Kitchens by Republic Industries Group.

"We are seeing a weeding out process," commented Titus in a recent interview with W&WP. "With the consolidations, big corporations are exerting pressure on the mid-size companies...(they) are really weeding out the competitors..."

Sam Gazdziak, Greg Landgraf and Chad Sypkens contributed to this report.

Here are a few highlights from the past year for some cabinetmakers.

Masco Corp., the Taylor, MI-based parent company of several leading kitchen and bath products manufacturers, acquired a trio of building product firms last year: The GMU Group, a Spanish-based supplier of kitchen cabinets and cabinet components; The Faucet Queens, a Chicago-based supplier of plumbing accessories and hardware products, and A&J Gummers, a British-based manufacturer of shower valve products.
Masco also sold its Fieldstone factory in Northwood, IA, and most of the cabinet door manufacturing machinery within the factory to Partridge River, Inc. Partridge River is a Minnesota-based dimension manufacturer which supplies the kitchen cabinet and furniture industry with hardwood and softwood dimension products.

In October 1999, MasterBrand Cabinets, the parent company of Aristokraft, Schrock and Decora cabinet companies, purchased NHB Group Ltd. of Peterborough, Ont., a manufacturer of ready-to-assemble kitchen and bath cabinetry.

American Woodmark Corp. was contracted to produce a line of Thomasville Cabinets from Furniture Brands to be sold in Home Depot stores in mid-2000.

Yorktowne Inc., division of Elkay Mfg., named Philip Olphin to the position of Vice President, Finance -- Chief Financial Officer.

Cardell Kitchen & Bath Cabinetry saw its plant expansion project 90% complete by the end of 1999 with expected completion in the spring of 2000. Plans are being made this year to improve material handling by installing totally motorized conveyors in all assembly areas.

After adding Sunshine Kitchens to its group earlier in the year, Republic National Cabinet Corp. also added Legacy Cabinets, a Talladega, AL-based manufacturer of wood cabinets. The combined group's annual volume is currently in excess of $115 million.

Legacy Cabinets became a member of Republic National Cabinet Corp. last year and presently is adding 95,000 square feet to its plant and an additional $750,000 of equipment.

Norcraft Industries saw its highest sales and growth rate in the company's 25-year history and is opening a 190,000-square-foot plant in Yucca, AZ.

Sunshine Kitchens and Legacy Cabinets are each undergoing a 30% expansion with approximately $1 million capital inventory on new equipment.

Crystal Cabinet Works saw specialty finishes demand exceed capacity in 1999 and the company is looking to increase capacity this year by adding a new clean room topcoat system, a new plant layout to accommodate new finish systems and new cart line finish systems.

In 2000 and beyond, McConnell Cabinets will expand into additional product offerings and market penetration.

Canyon Creek Cabinet Co. was honored for its efforts in preventing environmental pollution at its cabinet manufacturing facility and received the 1999 Washington State Governor's Award for "Outstanding Achievement in Pollution Prevention" at the state capital in Olympia, WA.

Eurodesign is in the construction stage of adding an additional 10,000 square feet behind its existing building, doubling its manufacturing facility. Aside from designing its own Web site, research was done on Business Process Management software which is allowing Eurodesign to integrate with each department.

Dura Supreme added $700,000+ in manufacturing equipment in 1999 and a 28,000 square foot addition, doubling its finishing department, adding three shipping dock bays and adding a 4,000 square foot in-house training facility for dealers and sales representatives.

The Brandom Collection and Karman Kitchens, a pair of major cabinet companies owned by the same corporate entity, joined to share the name Mantle White Cabinet Group, continuing to produce and market the two lines separately.