Cabinetmakers look for new ways to increase sales in the wake of a downturn in housing starts.

By Matt Warnock and Wade Vonasek


After a 127-month streak of year-over-year growth, cabinet sales finally decreased 2.9 percent in November 2006. The main cause appears to be a recent national decrease in housing starts, which has made the health of the cabinet industry somewhat unpredictable.



“It has had a direct impact on the number of orders received,” says Jim Ewing, sales manager for McConnell Cabinets Inc. “We are down approximately 30 percent.”

However, an increase in remodeling has softened the blow a bit for some. “It [the decrease in housing starts] has had a negative effect,” says Bob Gronlund, chairman and CEO of Wood-Mode Inc. “The ratio of remodeling to new housing historically, in our business, is very high. What this has done is, it has decreased the amount of new housing business that we do, but has had a limited impact on the remodeling. We have, in fact, noted that some of the people who were thinking of purchasing a new home have retreated and moved themselves into a posture of remodeling instead. The net effect of this is not quite as traumatic with us as it might be with companies that do more business with large building projects.”



And in some cases, companies have seen positive effects from the new housing decrease as well. Mike Junk, president of Crestwood Cabinets, says his company has seen a sales increase of 8 percent. “We have seen a decrease in the dealerships that have a higher concentration on new housing,” he says. “However, we've seen an increase in those dealerships that tend to be more focused on the remodeling side.”



Ed Pell, manager of market research for the National Kitchen & Bath Assn., agrees with this logic, adding that he thinks there will be a slight spur in remodeling that will lead to more cabinet sales. “Counter-intuitively, we think it’s done a little more for business, because although there was a shortfall in starts, we think that we're going to see consumers remodeling the kitchen because they're worried about their home value,” he says. “Also, I think we're going to see builders handling a large inventory of unsold homes, and the way they improve the prospects of selling those homes is to improve the kitchen. For those reasons, I think that we're not going to see a weakness in the cabinet industry the way we do in housing overall. We mirror it somewhat, but by and large, we're going to be a little bit stronger than housing overall.”

Cabinets to 2010, the study by the international business research company, The Freedonia Group, reinforces this line of thinking, stating that “stronger expenditures for residential improvement and repair projects, which are the single largest end use for cabinets, will bolster demand.”



Others agree. In fact, in a survey of cabinetmakers among the Woodworking VIPs (Voices of Industry Professionals) 41 percent noted a slowdown in work directly contributed to the decrease in housing starts, with a majority reporting a drop in sales.



Looking Forward

What does the future hold for the cabinet industry? With the aforementioned drop in new housing starts, a questionable economy and uncertainty over interest rates, many cabinetmakers are cautiously optimistic.



“Right now, we're anxiously watching the sub-prime mortgage problem,” says Pell. “If that becomes really bad and ripples through the economy, then we're looking at a pessimistic view where we might be down 2 to 3 percent (compared to last year). If we have a pretty good year, we're basically going to be flat.”

Dick Titus, executive vice president of the Kitchen Cabinet Manufacturers Assn., agrees, saying the coming year will see flat growth.



“The strong-selling months of the year are ahead of us and just what they might offer is a mystery yet,” says Gronlund.

Even though the streak is over, many members of the cabinet industry remain cautiously optimistic about the future. Photo courtesy of American Woodmark Corp.
Green is Growing



In February, the Kitchen Cabinet Manufacturers Assn. introduced the Environmental Stewardship Program, with the goal of creating an atmosphere of growth for the cabinet industry while remaining mindful of regulatory issues that concern the environment. By the end of March, the KCMA had 34 plants and brands certified under the ESP.



Through initiatives such as the ESP, awareness of environmental issues is increasing among consumers. Many cabinet companies are seeing an increase in requests for products containing green materials.



There is a “growing interest” in green, says Dick Titus, executive vice president of the Kitchen Cabinet Manufacturers Assn.



“There is a lot of interest in green and sustainability,” agrees Ed Pell, manager of market research for the National Kitchen & Bath Assn.



“We started seeing more and more requests about three to four years ago,” says Bob Gronlund, chairman and CEO of Wood-Mode Inc. “This has really gotten up a head of steam, and I have to really compliment the KCMA, because what they've done is create a standard for these green products.”



Seventy-four percent of cabinetmakers among the Woodworking VIPs (Voices of Industry Professionals) that responded to a Wood & Wood Products’ survey said they received the same amount of requests for products containing green materials in the last 12 months compared to the previous 12 months. Another 17 percent said they received more requests for products containing green materials.



The Freedonia Group forecasts the U.S. cabinet market to expand 3.1 percent per year through 2010 to $16.4 billion, according to its study. “Building design trends that lead to greater cabinet use per residence will boost new residential cabinet demand and help offset a decline in single-family housing completions,” the report says.



With many cabinet companies predicting flat sales levels compared to 2006, or even decreased sales in some cases, one thing becomes more important than ever: market share. Limited available market share leads to greater competition among cabinet companies. In this scenario, the customer stands to be the ultimate winner as companies strive to improve quality, reduce prices and cut lead times in an effort to gain market share and expand their customer base.



To gain market share, many companies track and take advantage of current trends in the market, while others employ new strategies in advertising and brand management.

“We have more strategic advertising in certain areas of the country,” says Gronlund. “We continue to bring out products that are responding to any architectural trends. We try to stay on top of that and continue to gain market share.”



Cary Dunston, senior vice president of manufacturing for American Woodmark Corp., which anticipates a strong sales year, says the company “goes to market with a three-brand strategy. It has three distinctly separate brands — two that support the remodeling channel and one for new construction business.



“The company continues to gain market share in the remodeling and new construction markets, as well as to see margin improvement through steps the company has been taking to exit some low-margin business,” he adds.



The Woodworking VIPs were split on their predictions of cabinet sales in 2007 versus cabinet sales from 2006, with slightly more than half predicting sales for the current year above 2006 and slightly less than half predicting sales to be about the same or less than 2006.



Pluses and Minuses

The kinds of opportunities available to cabinetmakers in 2007 are nearly as varied as the cabinetmakers themselves. When the new housing starts cooled off, the remodeling market began to heat up, creating one of the largest opportunities for cabinetmakers.



There is a “solid remodeling market,” says Titus.



Pell agrees, saying that, by and large, kitchens will be a focus for remodeling. Another opportunity along the lines of remodeling is in “retrofitting existing new homes with the hopes of getting unsold inventory sold,” he adds.



“Our biggest opportunity is reaching the remodeling market this year,” says Paul Wellborn, president and CEO for Wellborn Cabinet Inc.

Going hand in hand with remodeling is the need for a wider product range and new styles. A broader range of offerings attracts a new set of customers seeking a different look for their home or office space.



Ewing says the company’s biggest opportunity in 2007 is “coming on line with our new closet products.”



“Over the past several years, we have added the product range needed to get to this segment of the industry, and we are now ready to capture more remodeling projects,” remarks Wellborn.



Once a company has attracted new customers, it will need to manufacture its products faster, cheaper and of a better quality than its competition to maintain a strong presence in the market. Technology opens the door for better quality and consistency, as well as quicker turnaround time and increased productivity.



“One of the biggest opportunities is the continuing positive impact of technology, that and developing logistics in our business,” says Gronlund. “Improving the logistics in a custom factory is very important and very rewarding.”


Top U.S. Cabinet Import Sources-2006
(in $ millions)
Canada

544.57

China 214.68

Italy 47.11

Germany 19.30

Mexico 18.80

Slovakia 8.48

United Kingdom

7.97

Malaysia 5.41

Denmark 2.20

Brazil 2.19

WORLD TOTAL 886.18
Source: U.S. Department of Commerce
Canada remains the country from which the United States imports the most cabinets, as it was in 2005. Total imports for 2006 were up $56.18 million from 2005.

New opportunities mean new business. When asked what they do to attract new business, many of the Woodworking VIPs say they rely mainly on word of mouth, with little or no advertising in terms of print, television or radio.



“We let our customers do our advertising. The main goals in any of our projects are to satisfy the customer, run the project smoothly and be on time,” says a residential cabinet manufacturer in Cleveland, OH, who does not want to be identified. “When we meet or exceed these goals, the customer is our best salesman.”



Others maintain ties with area builders, contacting them to take part in new projects.



"Lately we have been gearing up to approach architects,” remarks a commercial cabinet manufacturer from Salem, NH, who chose to remain anonymous. “We make it a point to ask for business each time we speak with a representative of the general contractors that we deal with. We work with both architects and general contractors to help develop budget values for specific projects and in revising these budgets to help bring these potential projects to life.”



Among the opportunities of 2007, there are also challenges that cabinetmakers are facing every day.



For those companies focused on expanding their market share, no one said it was going to be easy and they know it.



“One of the biggest challenges is one of the biggest opportunities,” explains Gronlund. “One of the biggest challenges when business gets soft like this is everyone works harder to get their piece of the pie. One of the biggest challenges is for us to continue to gain market share, even in a soft market.”



Pell observes that cabinet companies are going to have to remain nimble and make sure they monitor administrative functions, customer demands in terms of style and the status of their accounts.



Several of the Woodworking VIPs point out a challenge that is affecting the entire woodworking industry, hiring and retaining the competent labor necessary to keep their shops in production.



“I have the work, now I need the workers to do the work,” says the owner of a commercial cabinet company in Woodstock, IL, who also preferred to remain anonymous.



“As more woodworking businesses are closed, it gives me more opportunities to bid, but although I have the capacity in my machines and in my shop, my manpower will be a limiting factor.”



Trending to the Dark Side

When companies were asked about current cabinet trends, darker colors were a common reply among the majority.



“Cabinetry trends continue to move to warmer, darker, richer colors and cleaner, straighter lines,” says Dunston.



“Darker browns are still the biggest trends in finishes,” adds Wellborn.



In addition to dark colors, glazes also are gaining popularity.



“Glazes and painted finishes are very popular in both the remodeling and new construction markets,” says Dunston.



“The biggest trend we've seen in finish is toward paints, glazes and dark stains,” says Junk.



Where wood species are concerned, maple seems to be a favorite. “Maple is still the most popular wood species in the market,” says Wellborn.



“It’s still maple in our end for a couple different reasons,” adds Gronlund. “The product has a high appeal to the higher-end, where frequently the customer has a designer, and we see a continuing amount of light color on maple as well as the opaques on maple or MDF.”



Other popular species include beech, cherry, birch and knotty alder. Pell says dark species also are coming back. “You're seeing designers start to use dark woods again,” he says. “For years, dark was very tiny and out of fashion. Now it seems to be rolling back into fashion.”


U.S. Cabinet Supply & Demand
(in $ millions) % Annual Growth
Item 2000 2005 2010 2015 00-05 00-10
Cabinet

Demand
10,920 14,040 16,350 19,900 5.2 3.1
Residential 8,480 11,480 13,140 16,100 6.2 2.7
Nonresidential 2,100 2,100 2,620 3,100 0.0 4.5
Nonconstruction 340 460 590 700 6.2 5.1
             
net imports 440 740 1,050 1,450 — —
             
Cabinet

Shipments
10,480 13,300 15,300 18,450 4.9 2.8
Kitchen 8,725 11,180 12,840 15,580 5.1 2.8
Bath 1,085 1,400 1,610 1,870 5.2 2.8
Other 670 720 850 1,000 1.4 3.4
Source: The Freedonia Group Inc.
The Freedonia Group study forecasts U.S. demand for cabinets to expand 3.1 percent per year through 2010 to $16.4 billion, stating that “building design trends that lead to greater cabinet use per residence will boost new residential cabinet demand and help offset a decline in single-family housing completions.” The study also says that cabinet imports are expected to slightly increase their penetration into the U.S. market, but by 2010, will only account for 7 percent of total cabinet demand.




Kitchens are currently one of the most popular outlets for remodeling and renovation. Photo courtesy of Wellborn Cabinet Inc. To remain a strong presence in the marketplace, cabinet companies will need to find new uses for their products, such as this library and fireplace unit. Photo courtesy of Crestwood Cabinets.
VIPs Concur with Other Industry Professionals



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 experiences with the

current state of the cabinet industry.



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



Of the 93 respondents, 45 percent predicted sales for 2007 will be about the same as or less than 2006; 45 percent said they think sales will be moderately greater in 2007; and only 10 percent are anticipating sales to be much greater in 2007. Also, 41 percent noted a slowdown in work directly contributed to the decrease in housing starts, with a majority reporting a drop in sales.




VIPs Face Their Biggest Opportunities and Challenges



Wood & Wood Products surveyed the cabinetmakers among the Woodworking VIPs to gain insight into the opportunities and challenges, among other things, of the cabinetry industry. This is what they had to say:



The biggest opportunity of 2007 is...

“...custom finishes. The finish is the most important feature of the project. All color and material choices in the room need to complement each other. By providing custom finishes, our customers have the ability to use material and colors in other areas of the room without being limited to the cabinet colors available.” Westlake, OH

“...supplying whole home wood solutions. As people are busier in their work, they need to connect with someone that will take care of everything and make their problems go away.” Raleigh, NC

“...technology improvements that will help improve the bottom line, allowing more product out the door with less cost.”

Cedar City, UT

“...with the slowdown in the industry, the weaker companies will have a harder time competing. This will cause them to close up, much the same as what happened back in the mid-90s.”

Anaheim, CA

The biggest challenge of 2007 is...

“...finding a labor force with a serious work ethic combined with enthusiasm to learn both traditional and contemporary woodworking techniques and design.” New Orleans, LA

“...finding customers who are willing to pay for a quality

product.” Owatonna, MN

“...increasing efficiency to offset increased energy costs. With every segment of the market feeling the utility cost crunch, raising prices isn't a smart option.” Roselle, IL

“...staying competitive. Soon it will be cheaper to design a kitchen in this country and have it made abroad and shipped here. It already seems like this is a trend in the bath industry. We have to make them better, faster and more economically.”

Amagansett, NY

“...to retain and hire good quality employees. There is no venue to encourage or create an interest in this trade. The 'woodshop' class has been dissolved.” Anaheim, CA


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