|State of the Industry Series Archives
It's official: 107 months of cabinet sales growth as of February 2005 - and still going strong.
Tracked by the Kitchen Cabinet Manufacturers Assn. as part of its monthly Trends of Business Survey, the just-shy-of-nine-years streak, charted below, eclipses the previous 61-month record that ran from November 1982 to November 1987, as well as the more recent 42-month sales growth streak that ran from November 1991 to May 1995.
Sales growth is based on a comparison of a given month in one year to the same month in the year prior. On average, 83 companies participate regularly in the KCMA's survey.
The current streak began with a vengeance in April 1996, with the recording of a 10.6% increase. Other than a slight hiccup in December 2000, which had a statistically-insignificant 0.5% decline, the industry has remained strong. So strong in fact, that more than half the months - 55 to be exact - recorded double-digit sales growth. End-of-year figures for the past three years were also in double digits, with 2004 hitting a record-high 16.8% increase. 2005 is also starting strong, with 12.8% growth recorded in each of the first two months.
According to Dick Titus, executive vice president of the KCMA, in addition to a strong housing market fueled by low interest rates, a number of factors have contributed to the industry's continued growth, including the post-9/11 cocooning trend, the popularity of cabinets for storage in other rooms and an overall increase in consumer awareness of industry products.
Good Times Keep Rollin'
Neil Lynch, executive vice president, marketing and strategic planning for MasterBrand Cabinets Inc., says the cabinet industry's strength also can be attributed to the "growth of home centers, which has made kitchen and bath remodeling more top of mind and affordable to consumers; baby boomers becoming empty nesters have brought income and a want to remodel into the marketplace as well as the purchase of second homes; and big builder consolidation which has made entry-level homes more available and affordable." The Jasper, IN-based company has averaged double-digit growth, "even excluding acquisitions," over the past five years, Lynch says.
Robert Gronlund, chairman and CEO of Wood-Mode Inc., Kreamer, PA, notes, "About two-thirds of the growth mode over the last nine years had a lot to do with the success of the stock market and, in our case, since remodeling is our primary business, a rebirth of equity growing in people's homes that they began to leverage after about a five- to six-year period of very little equity growth from the savings and loan debacle in the early 1990s." In addition to the upswing in its remodeling business, Gronlund says Wood-Mode has seen added growth in the new construction segment due to increases in upscale home building.
"I think people are willing to invest in their homes," says Stan Bandur, president of Elkay Cabinet Group, Red Lion, PA. "I think with the stock market and 401ks going up and down, people have felt more comfortable investing in their homes over the years, because that value has had a tendency in the last few years to be retained or to grow. It's a good investment - I think that's the simple words for it."
Art Torres, executive vice president of Cardell Cabinetry in San Antonio, TX, agrees. "As mortgage rates continue to be low, buying a new home is still the best personal investment any family can make," Torres says.
Currently, housing starts are continuing at a steady pace. According to U.S. Department of Commerce Department figures, housing starts rose slightly in the first two months of 2005, to a seasonally adjusted annual rate of 2.195 million units, with single-family housing starts recording an all-time high of 1.775 million units. Multi-family housing also increased in February to a seasonally adjusted rate of 420,000 units, up only 0.3% from January, but an increase of 16.7% from a year ago.
The National Association of Home Builders, however, says housing starts should begin to level off after the first quarter as a result of climbing interest rates. In a statement released last month, NAHB Chief Economist David Seiders said, "It's perfectly clear that housing will remain an important component of GDP for the first quarter of the year...However, we do expect housing to plateau as the year progresses, other components of the economy pick up more steam and the interest rate structures moves up further."
Hot Remodeling Market
"The same factors that have driven home ownership to a record high in the U.S., benefit industry products," Titus says. "Kitchen remodeling [for example] adds monetary value to a home that is recoverable at the time of sale." Another factor driving the market, he adds, is that "older Americans are acquiring retirement homes with cabinets, or upgrading their current homes for post-retirement use."
"We're finding that both new construction and remodeling are going through the roof for us," says Bill Weaver, president of Canyon Creek Cabinet Co. Weaver says the Monroe, WA-based company has had at least 107 months of consecutive growth. "I don't think we've had a down month over here for a long while."
"All indications look very strong to continue throughout the year," adds Angela O'Neill, director of marketing for Wellborn Cabinet. Although much of the Ashland, AL, company's customer base is concentrated on new construction, "the dealers who focus on remodeling say remodeling is stronger than ever. Consumers are ready to spend for the remodel."
"The kitchen continues to be the most important room in the house, and cabinetry the most important component of the kitchen," says Jessica Swiger, corporate communications manager for American Woodmark, Winchester, VA. "We see the industry growth continuing for the foreseeable future." Based on its projections for industry growth, the company has built three new plants in the past 18 months, and plans to break ground for a fourth plant later this year, Swiger says.
"We [also] think the growth cycle will continue," Weaver says. "We don't see any end in sight. I think the only thing that will really hurt is if interest rates or something catastrophic blow the economy."
Rising interest rates, along with a slowdown in new housing construction, are expected to have a slight impact on cabinet sales for the remainder of 2005, Titus says, though he predicts the market will remain "quite strong." "The slowdown in new housing sales [should be] offset by remodeling," he adds.
Approximately 70% of today's industry sales are in the remodeling segment, Titus says. "We expect a strong market through the decade," he says.
Titus' view concurs with forecasts by Ohio-based research firm The Freedonia Group, which projects that the remodeling and repair segment will constitute the largest segment of sales for the estimated $16.7 billion cabinet industry by 2008.
"Advances will accelerate, compared to the 1998-2003 period, as a result of stronger expenditures for residential repair and improvement projects, which constitute the single largest end use for cabinets," says Tonia Ferrell, analyst for Freedonia. "Changing consumer preferences in cabinet design and various demographic factors will also aid demand. A recovery in nonresidential construction expenditures will further bolster gains through 2008. Building design trends that lead to greater cabinet use per residence will boost new residential cabinet demand and help offset a weaker new housing environment, including a [projected] decline in single-family housing completions."
While consumer spending on the lower end of the spectrum is affected by economic downturns, discretionary spending on the mid- to high-end level should remain fairly steady, Bandur says.
"When the economy goes down - for instance, like now, with gasoline prices being up - I think there are some people at the lower end, like first-time home buyers or people who are considering redoing a kitchen or a bathroom, who can easily put it off. But when you talk about the mid- to high-end remodeling or home purchases, these people and their discretionary income is less impacted. We're feeling pretty good about this industry, particularly at the mid- to high-end level, for a number of years to come," Bandur adds.
To offset any lags in sales, companies such as Huntwood Ind., have expanded their dealership networks and diversified their markets. "In the past couple of years, we have spent more effort diversifying," says Chris Stookey, director of marketing for the Spokane, WA-based Huntwood. "Three or four years ago, we were more heavily involved in new housing construction....As the housing boom returns to normal, the kitchen and bath dealers will be forced back into remodeling [as their primary market.]"
Regional Sales Trends
Projections by Freedonia through 2008 show cabinet demand increasing 6.6% on an annual basis, to $16.7 billion, and continuing on an upward climb, reaching $22.6 billion by 2013. However, not all regions of the country are expected to grow at the same pace.
According to Ferrell, demand in the cabinet industry will continue to mirror construction activity. Growth in the South and West is projected to outpace the Northeast and Midwest, due to more favorable construction, economic and population growth prospects.
"Although the U.S. is facing a weak housing environment through the forecast period, the outlook in the South and West is generally more favorable than in the Northeast and Midwest, aiding residential demand for cabinets in both new and remodeling applications. Increasing shipments of manufactured housing, from lows set between 1999 and 2003, will bolster demand for cabinets, particularly in the South," Ferrell says.
Regionality also plays a big role in design trends, according to many cabinet manufacturers.
"For example," Stookey says, "the Southwest market favors a couple of different twists, such as really dark finishes and glazes with distressing. While we see that elsewhere, it is far more prevalent there. You also have distinctive flavor door styles that mainly sell in the Southwest." Other design trends Stookey notes include a preference for more modern looking, Asian-style cabinets in the Pacific Northwest. "And the more east we go, the more English and Arts and Crafts designs we see," he adds.
"Cabinet styles and trends vary by region in the U.S., but overall, American Woodmark is seeing an increase in the sale of darker finishes on woods such as cherry and maple. Additionally, homeowners are seeking more premium finishes on their cabinet cabinetry," Swiger says.
Overall, maple and specialty finishes came out tops in popularity, according to cabinet manufacturers. "Maple, maple, maple, brown tones and glazes," says Wellborn's O'Neill. "Oak is still on the decline...consumers just do not want the grain that was in their parents' home."
"Mitered maple, anything in maple and anything with glazing," Torres adds.
"Maple and cherry product sales have increased substantially in the past few years as GÃâ¡ÃÂ¿tight grained' woods have become more popular than oak," Lynch says. "This is especially true in remodel. Also, there has been a continued increase in premium finishes, both in new construction and remodel, reflecting the consumers' interest in the new fashion element of the kitchen cabinetry. Related to this finish trend, we see a rise in the popularity of accent colors, such as red, green and black which are used to highlight kitchen cabinet designs - mouldings, onlays, etc.."
"Stained products with [customized] distressing and glazing is very popular on cherry - a real furniture look," Gronlund says. Also popular is the "GÃâ¡ÃÂ¿cottage" look, which involves physical distressing and glazing over an opaque base color, as well as special colors, primarily opaque or with some special glazing. "Almost all of the above finishes are used with traditional door styles."
With regard to door styles, Shaker continues to be among the most requested styles, although more contemporary looks, such as slab, or the use of steel and glass, were noted by companies such as Wellborn and Wood-Mode.
"The contemporary look is kind of in right now," Bandur says. "Painted finishes and accent colors - it's a fashion industry, it really is."
Predictably, wood dominates as the primary material used in the construction of cabinets. According to Freedonia, wood and wood-based materials accounts for roughly 95% of the cabinet construction. (See Materials Used in Cabinet Production chart below.)
"Through 2008, wood-based materials will provide better opportunities for growth than non-wood materials. Wood-based materials are commonly used in cabinet manufacture because of their favorable performance characteristics, including strength and wear resistance. In addition, these materials will continue to benefit significantly from ingrained consumer preferences for wood-like aesthetics in kitchen and most other cabinetry," Ferrell says.
"Wood veneers will see the fastest gains of any major material category through 2008 because of their increasing use in the construction of plywood cores and as outer layers of plywood and other substrates," she adds.
Non-wood materials, which includes decorative laminates, glass and metal, account for 5% of total materials used during cabinet production.
"Despite the growing use of non-wood materials in kitchen and bathroom design, these materials will continue to represent a small share of the total cabinet market, as most consumers in the U.S. prefer the appearance of wood," Ferrell says. Of the non-wood materials, decorative laminates will post the fastest growth rate among the major non-wood categories.
"Advances in this application will be supported by robust gains in the use of particleboard and MDF, both of which commonly use plastic-based laminate coverings," she adds.
Rich Christianson and Katie Coleman contributed to this article.
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