W&WP September 2004

 

State of the Industry: Architectural Woodwork Review

State of the Industry Archive

Optimism Prevails

Despite tighter profit margins and rising material costs, architectural woodworking firms and store fixture manufacturers are optimistic about fourth quarter 2004 and 2005 business projections in light of rising new orders and shipments.

By Karen M. Koenig

 

U.S. store fixture and architectural woodwork manufacturers can look ahead to a brighter future.

According to recent reports by economic analysts, the United States, as well as global economies, are projected to continue their slow, but steady growth pace during the rest of 2004 and into 2005. The Conference Board, which also produces the Consumer Confidence Index, reported last month that "industrial growth has been rising at a 5.6% rate in the United States, and a 5.2% rate globally."

In the United States, total value of construction put in place for the month of July rose slightly to $997 billion, up 0.4% from June and an increase of 9.7% from July 2003. According to U.S. Department of Commerce figures, July residential construction values reached $546 billion, up 0.4% from June and 13.9% from July 2003. Non-residential construction, which includes commercial, offices and recreational facilities, hit $452 billion in July, up 0.5% from June figures and 5.0% compared to July 2003.

Wood & Wood Products recently interviewed executives from the National Association of Store Fixture Manufacturers, the Architectural Woodwork Institute and the Woodwork Institute for their thoughts on the outlooks for the store fixtures and architectural woodwork industries and concerns for the future.

 

Store Fixture Industry Projects Increased Revenues

 

The modest climbing of retail sales continues to be good news to the store fixture manufacturers who count on the chains for much of their business.

According to Platt Retail Institute's Monthly Retail Analytics, retail sales, excluding autos, rose a modest 0.2% in July, following slight increases in June and May. On an annualized rate, sales are up 5.3% for the trailing three months, and 7.8% for the trailing 12 months.

 

Store fixture manufacturers depend on the chains for much of their business. According to the National Association of Store Fixture Manufacturers, 85% of fixtures produced are for retail stores. Photo courtesy of Premier EuroCase.

"The economy appears to be stronger, so retailers are renovating and expanding," says Klein Merriman, executive director of the National Association of Store Fixture Manufacturers.

That's good news for the estimated 3,000 companies that manufacture store fixtures in the United States. According to the NASFM, the U.S. store fixture manufacturing industry generated approximately $10.2 million in revenue for 2003.

"We've forecast 2004 to be up approximately 8 percent in revenues. Increased demand and pent-up demand are helping to account for the increase," Merriman says.

"We're also pretty optimistic about the next 18 months," Merriman adds. "2005 is difficult to quantify yet, but the industry appears to be upbeat about revenues. We base this on information members are hearing from their customers."

The upcoming holiday shopping season, he adds, will also play a crucial role in determining the profitability of the store fixture industry.

Another factor affecting manufacturers' profitability is rising material costs. According to the Institute for Supply Management's August report, hardwood lumber, steel and plastic products are all up in price, some for the 11th straight month. "We surveyed members in June regarding material increases. While some increases are not as dramatic as those of steel prices, we're still seeing increases across the board," Merriman says.

Store fixture manufacturers have added pressure to keep costs down as they bid for jobs in the competitive retail market, he adds.

Facing Foreign Competition

"China is also playing a role with aggressively-priced imports," Merriman says. A recent trade mission to China was conducted to help NASFM members better understand the growing fixture manufacturing industry in Asia.

"Lots of our members are outsourcing items from there or investigating it. A handful have also developed more formalized relationships, either through contracting or investing directly, although those that have invested directly are in the minority," Merriman says.

Items suitable for importing tend to be high-labor or commodity-type fixtures, such as wire-wrapped baskets or chrome-plated four-ways and hang racks, "more so than labor-intensive items," Merriman adds. North American manufacturers appear to have an advantage when it comes to shorter lead-time requirements and customization. (See chart below.)

"The retail industry is an ever-changing, ongoing process, oftentimes demanding short lead times," he says.

According to NASFM, approximately 85% of fixtures are installed in retail stores, with the remaining 15% manufactured for schools, offices, casinos and other types of non-retail businesses.

 

Low-cost labor also factors into play. According to the National Association of Store Fixture Manufacturers, seven laborers in China cost less than one-fourth the cost for a single worker's annual salary in the United States. NASFM estimates the costs at $1,500 for each Chinese worker, compared to $40,000 for one U.S. employee. According to the U.S. Department of Labor, the average hourly earning for the month of August was $15.77, totaling to $32,801.60 per year.
Considerations for manufacturing Fixtures in China
Item to Consider
Not Well Suited
A Good Candidate
Labor Content
Low labor: Gondola Shelving
High labor: Specialty, individually-wrapped wire baskets
Lead Time
Short (6 to 7 weeks)
Long (more than 12 weeks)
Quantity
Less than a container, short run
At least a full container or multiple containers, long run
Material
Veneer-clad MDF
Steel
Finish
Clear-coated veneer
Chrome-plated steel
Density of Shipment
Low-density assembled fixtures, i.e., assembled bookshelves
Fixtures that can be densely packaged, i.e., boxed, RTA four-ways
Quality & Complexity
Complicated, high-quality fixtures, i.e., back islands
Components or simple, average-quality fixtures, i.e., thrift-store fixtures
Source: NASFM

                                                                                                                                                                                           

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