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Cabinet Industry Continues Growth Surge

Confidence and sales are high for the cabinet industry in 1998 -- despite concerns of employee availability and the cost, quantity and quality of lumber.

BY LARRY ADAMS

On the heels of a prosperous 1997, the cabinet industry's largest companies are predicting an even stronger year in 1998, according to Wood & Wood Products' 11th Annual Survey of the Cabinet Industry.

According to this year's survey, 68 percent of cabinet executives said 1998 will be a "Very Good Year" and another 19 percent predicted 1998 will be their company's "Best Year Ever." A year ago, 56 percent said 1997 would be a very good or best year ever.

Eight cabinet companies predicted 1998 will be best years ever for their concern, including seven out of the 11 companies who said 1997 was a record year for their companies. Companies predicting best years ever range in size from Mill's Pride (more than $400 million) and Wood Mode ($110 million) to Canyon Creek ($30 million) and Grandview Products ($20 million). None of the cabinetmakers surveyed believed that 1998 will be a poor year. Only 13 percent of those who responded said that 1998 would be just an OK year.

In terms of percentage growth, Cardell Cabinets had the biggest percentage sales growth of the responding companies, increasing approximately 60 percent from $72 million to $115 million. Other big "gainers" by percentage included: Canyon Creek (+46.3%); Bertch Cabinets (+36.0%); Mills Pride (+33.3%); Distributors USA (Weskar) (+29.7%); and Elkay Manufacturing (+26.9%).

"The economy is good," said Steve Utsey, executive vice president of Republic Industries. "At the end of 1996, we had sold more cabinets then ever before, and I thought if we could just duplicate that in 1997 I would be a happy camper. Instead we grew 20 to 25 percent. I think everybody is questioning when the economy is going to drop. I don't think anybody has answers."

Art Torres, general manager of Cardell Cabinets, said the economy is healthy and it "looks like it is going to be good for another couple of years."

The Kitchen Cabinet Manufacturers Assn. projects that 1998 cabinet shipments will grow to 74.5 million units, up from 74.1 million in 1997, with new construction totalling 55.7 million and remodeling 18.8 million. The year started strong as cabinet sales for January 1998 beat January 1997 by 4.9 percent, and February 1998 outgrew February 1997 by 10.6 percent.

"Unexpected strength in the new and existing home sale market, combined with continued strong remodeling activity, each of which result from the strong overall economy, helped account for the very solid performance," said KCMA executive vice president Dick Titus.

Indeed, sales of new single-family houses in February 1998 totalled a seasonally-adjusted annual rate of 893,000, according to U.S. Department of Commerce estimates. This is 5 percent above the January rate of 852,000, and 9 percent above the February 1997 rate of 817,000. Housing starts were also up by 6 percent in February, according to the Commerce Department. Construction began on an estimated 1.64 million privately-owned homes in February as compared to an estimated 1.54 million homes started in February of 1997.

"The current condition of the construction industry can still be regarded as healthy, since it remains close to the elevated levels achieved during the prior year," said Robert Murray, vice president of economic affairs for F.W. Dodge. "It's true that total construction this year will be hard pressed to match the 8 percent growth reported in 1996 or the 5 percent growth in 1997. Yet, there are still a number of factors which should support high level construction activity in 1998 -- low interest rates, a sound fiscal status for state and local governments, and an increasing amount of funding being directed at commercial real estate."

Things that Keep Cabinet Execs Up at Night

Despite all the positive economic news, cabinetmakers reported a number of concerns (see chart page 52). The biggest concern was employee skills; 57 percent of the cabinet executives said they were extremely concerned about the issue and 38 percent were more concerned about the issue than they were a year ago.

"As a company we have been going through growing pains in terms of employee skills and getting employees that we need to help us achieve the new levels," said Jean Butler, vice president of marketing for Yorktowne Inc. "We are making a strong effort in new hiring to get employees with broader background skills and education. We have been investing in training and tearing down the walls (that block) communication to encourage cross training."

A number of companies said they are working with local schools to help meet this need for trained employees. One example is Grandview Products of Parsons, KS. "We have become very productive with local school-to-work programs," said Grandview president E.F. "Sonny" Zetmeir. "We are also attempting to do more training with existing employees."

Steve Mouser of Mouser Custom Cabinetry, said his Kentucky company plans "compensation and benefit improvements, job training, skills development through education systems, and aggressive recruiting and retention," to meet it staffing needs.

Perhaps no company is working harder at this then Minnesota-based Medallion Kitchens, an Elkay company. Medallion, who had its best year ever in 1997 and predicts an even better year in 1998, is in a state with under 2 percent unemployment rates and in one of the lowest unemployment counties in Minnesota. "We have really ratcheted up our training," said Stanley Bandur, vice president/general manager of Medallion, "we have a whole curriculum that we teach."

Bandur said Medallion found that 80 percent of employee turnover occurred in the first 60 days of employment, especially for people with little or no experience in the cabinetmaking industry, so the training starts with the basics. "We teach them how to read a ruler, what types of materials we use, construction, scheduling and the terminology we use," Bandur said. "We are trying to make them feel more comfortable. By giving them this initial basic training, new employees get a jump start which helps alleviate some of the anxiety."

More Concerns About Wood Supply Issues

Compared to how they felt a year ago, wood supply is the issue more cabinet executives are worried about than any other. While 15 percent of cabinetmakers said they were extremely concerned about the issue, 45 percent said they were more concerned about the supply of wood then they were a year ago.

"It seems like the (wood) pricing hasn't stabilized and it continues to be a commodity that we don't know what it is going to do," said Torres. "With maples alone, we have seen an increase of 30 percent over the past year and now cherry seems to be on the same track. If the economy stays healthy, demand will go up and so will pricing. That is a concern."

Republic Industries' Utsey said his feeling is that the "quality wood" is going to get "more and more scarce and as it becomes more scarce it will become more expensive. We try to be a price point leader but as the price goes up we may have to raise prices." To meet this challenge, Republic is looking at different species of wood and using MDF and thermofoils on more of its products.

It is not just the cost of raw material, but the quality that has some industry executives concerned.

"We are seeing more mineral streaks in maple and cherry than ever before and it is a constant challenge for us to find the best wood," Bandur said. "You can try and buy lumber that gives the least amount of mineral streaks but my concern is that we will not be able to keep up with demand. Now when we have to replace a door because of the streaks, we are choosing to eat that cost to the keep the customer happy, but we might ultimately have to raise prices."

 

News at the Top

Mergers, acquisitions, plant expansions and product introductions were some of the many undertakings by leading cabinet manufacturing companies in 1997. Here are some of the highlights:

Masco, North America's largest cabinet manufacturer, acquired several companies in 1997. In July, Masco bought Texwood Ind., a Texas-based company with $150 million in sales, and the Alvic Group, a $50 million, Spain-based producer of kitchen and bath components and cabinetry. Additionally, Masco bought Liberty Hardware Manufacturing Corp., a North Carolina cabinet and furniture hardware producer.

In February 1998, Masco company Kraftmaid introduced a North American poplar cabinet line, a new pine cabinet style, and two new glaze finishes.

Aristokraft introduced new box construction choices including: Standard, a standard box construction; Select, a dovetailed drawer box with a 3Ã?4-inch shelf; and Ply Select, an upgrade that includes Select features and plywood sides. The company also launched four new lines geared for the remodeling sector.

Canac Kitchens launched six new door styles and two new colors. Work began on a major physical expansion at the company's headquarters. Canac plans to launch three new door styles, four new colors and one new wood species.

Norcraft Cos. Inc. plans to develop and expand its rough mill. "We will continue to become further integrated as a company," said president Harold Dokmo. In addition, a cherry cabinet is planned for 1998.

LesCare Kitchens completed an $8.5 million expansion project that included: a 47,000-square-foot addition to its Southington, CT, factory and conversion of 60,000 square feet for manufacturing.

Republic Ind. has purchased the machinery to begin manufacturing a veneer raised panel door. The company is planning to manufacture a frameless cabinet.

Medallion Kitchens, an Elkay Group Company, plans to add 50,000 square feet of space to its Waconia, MN, facility. A pine product was also introduced.

Also, Elkay purchased Westwood Products of Salem, OR, a custom cabinet manufacturer. The company, renamed Westwood Custom Cabinetry Inc., will be managed by Medallion.

Yorktowne Inc., also an Elkay company, introduced several private label brands, in partnership with key national retailers. The company says it has targeted retail home centers as a primary channel targeted for growth in 1998. Also in 1998, Yorktowne plans to introduce several new products including an all wood box, mix 'n' match door style and box construction combination, and glazed finishes. Additionally, components for the Mastercraft company, which Elkay bought in 1996, are being produced at the Yorktowne facility.

Bathroom vanity manufacturer General Marble was bought out by RSI Home Products, manufacturers of medicine cabinets and kitchen and bath cabinets. Manufacturing was consolidated into RSI's facility in Anaheim, CA. No further information on the sale or RSI Home Products was released by the company.

Karman Kitchens and Brandom Mfg. Co., both owned by Distributors U.S.A., have combined their management teams. Karman's product name is Cabinetry by Karman, while the name Karman Kitchens remains the corporate name.

Celebrating its 50th anniversary, Crystal Cabinet Works remodeled its facility. The company introduced old world and gabled ends at the 1997 K/BIS.

Haas Cabinet Co. rebounded after a major fire destroyed 30,000 square feet of its operation. The company added an automated door profiling line and plans to change from a conversion varnish finish to a UV-cured finish.

Canyon Creek Cabinet Co. built a 190,000-square-foot facility and invested $5 million in new equipment, including a 24,000-square-foot finishing room.

Both Rutt Custom Cabinetry and Heritage Custom Kitchens were purchased by Berwind Financial Group last year. Heritage plans to introduce two new product groups in 1998.

DeWils Ind. added 30,000 square feet of manufacturing space and implemented a national expansion program.

Eurodesign Cabinets purchased a melamine press, CNC router and a membrane press. It introduced a laminate wood floor line.

Evans Cabinet Corp. expanded its facility by 50,000 square feet.

Legacy Cabinets expanded its plant by 60,000 square feet. The company plans to spend $450,000 in new equipment this year.

Mouser Custom Cabinetry installed CNC machinery and used CAD software to automate its bill of materials reports. It plans to introduce new finishing options (such as glazing) and expand its customer base by expanding sales geographically.

Named a "Top Ten Pick" for cabinets for 98 by Better Homes & Gardens' Kitchen & Bath Ideas (Winter 1997-1998), Plain & Fancy Custom Cabinetry has introduced a Shaker Maple Kitchen. Also, a new line of hardware matched with finishes and styles has been introduced.

 

Spotlight on the Top 10

The combined revenue of the 25 companies in this year's survey totaled more than $3.41 billion last year. More than 75 percent of that revenue was generated by the Top 10 companies, which accounted for $2.6 billion. The leading companies also tended to be among the biggest sales "gainers," as several of the Top 10 companies enjoyed large sales growth from 1996 to 1997.

All of the Top 10 companies topped the $100 million mark in 1997, and two experienced their best year ever. Masco had not announced its final total for the current fiscal year as of press time, but it did have a record 1996 with sales of $832 million. Mill's Pride placed second with more than $400 million, making 1997 its best year ever. The company hopes to expand on its 33 percent sales growth over the last two years. American Woodmark also reported a record year, with sales increasing 11.8 percent to $219.4 million. Elkay and Omega Cabinets each earned $130 million last year but improved to $165 and $150 million, respectively. One of Elkay's divisions, Medallion Cabinets, had a record year with $50 million in sales as well. The sales growths of 26.9 percent by Elkay and 15.4 percent by Omega make them two of the survey's fastest-growing companies. Cardell Cabinetry also experienced a big gain, increasing from $72 million in last year's survey to $115 million this year. That sales increase of almost 60 percent represents the largest gain of any company this year.

Outlook for 1998 also seems bright. Three top companies, Mill's Pride, Wood-Mode and Medallion Cabinets, expect it to be their best ever. Three more hope to match the very good years they experienced in 1997.

Largely due to Mill's Pride and Elkay's sales, frameless cabinets accounted for 41% of sales among the top companies. The companies in the rest of the survey had only 9% frameless sales by comparison. Almost half of the top companies' products were distributed through wholesale or stocking distributors. Cardell, in fact, worked exclusively with wholesalers. Kitchen and bath stores, while being the number one distributor on the Top 25 survey at 41%, came in second among the Top Ten companies with 26%. Cabinets for remodeled housing were responsible for the most sales, with only Triangle Pacific and Aristokraft selling a majority of cabinets for new housing among those in the Top 10.

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