State of the Industry Series Archives

April 2005

The Streak Goes On

But after 107 months of cabinet growth, how much longer will it last?

By Karen M. Koenig
Click here to download a PDF of the charts and graphs featured in this article and its sidebar.
Annual Cabinet Sales Growth
8.2 8.2 13.2 12.2 8.4 7.0 10.8 13.1 16.8 12.8

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'



All of the cabinet manufacturing executives interviewed for this story predict the good times to continue through 2005.

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.

Design Trends

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 GÇÿtight 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 "GÇÿcottage" 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.

Cabinet Imports Glom onto the Streak's Coattails

Foreign manufacturers have a small but growing share of the U.S. cabinet market.

U.S. cabinetmakers are not the only ones benefiting from the 107-month-long-and-counting sales streak being charted by the Kitchen Cabinet Manufacturers Assn.

Foreign manufacturers, particularly those based in Canada, have collectively increased shipments more than four-fold since 1995, the year before the streak began. During that same 10-year period, U.S. cabinet exports have tripled to $58.5 million.

Canadian manufacturers accounted for $590 million, which is slightly more than three-quarters of the $778.1 million worth of cabinets imported into the United States in 2004. Chinese manufacturers also have made relatively huge inroads, increasing cabinet shipments to the United States by 59%, from $62.6 million in 2003 to $99.6 million last year. In 1995, Chinese cabinet imports stood at $5.7 million.



Not a Huge Concern

Even with these solid gains, however, imports only represent about 5% of the total U.S. cabinet market.

As a result, most of the eight executives of major U.S. cabinet companies interviewed by Wood & Wood Products say their companies have not been affected much by imports, but are nonetheless monitoring the situation.

"China has not had a big impact on us," says Bill Weaver, president of Canyon Creek Cabinet Co. of Monroe, WA. "We do source some components, primarily wood drawer sides. But I'm not overly concerned about China. Canada is obviously a bigger factor for us with imports. I think China at some point could be a bigger factor, but it has a lot of big obstacles to overcome to really make inroads into the U.S. cabinet business."

Robert Gronlund, chairman and CEO of Wood-Mode Inc. of Kreamer, PA, and Chris Stookey, director of marketing for Huntwood Ind. of Spokane, WA, each say the fact their cabinet businesses are highly custom immunizes them from Chinese competition.

"Imports from China have had very little impact on our end of the business, especially because the customized nature of our products does not afford the volume opportunity," Gronlund says. "There is always a need to keep an eye on the development of how imports might become a bigger factor, but for the near term this appears to be remote."

Stookey says China might be a threat to stock cabinetmakers, "but we haven't felt threatened because of the products we make and the markets we pursue. If they were more successful at creating imitation looks of what we do, then I think they would make an impact."

Dick Titus, executive vice president of the KCMA, based in Reston, VA, says investments in new plants and equipment have helped the U.S. cabinet industry fend off imports. "The industry's products are now more diverse, better engineered with many more special features and delivered faster," Titus says.

"American Woodmark is always concerned about competition," says Jessica Swiger, corporate communications manager of the Winchester, VA-based firm. "However, the company continues to invest in new technologies to help it maintain its competitiveness, as well as to develop new products and supply chain efficiencies that meet the demands of its growing customers."

Stan Bandur, president of the Elkay Cabinet Group of Red Lion, PA, says he is "concerned" that China could become a stronger competitor. But he also points out that the need for quick delivery makes it difficult for manufacturers in China and other overseas nations to make more serious inroads into the U.S. cabinet market.

Imports a Bigger Factor at Entry Level Pricepoint

"As it relates to unique kitchens that are built to order, it is difficult for importers, whether they be Chinese or anybody else, to deliver a kitchen in three to six weeks," Bandur says. "We're concerned, and we're going to keep watching it. If imports are going to be an increasing factor, we think it'll be at the stock or lower-end introductory kind of product lines."

Art Torres, executive vice president of Cardell Cabinetry of San Antonio, TX, is more specific in addressing his concerns with competition from China and other Asian countries. "It's getting more difficult to compete our current entry level oak products with the cabinet imports from China and other Asian countries. Yes, there is concern that the market might get saturated with these types of products. We will continue to do our studies to come up with solutions to compete, as we always have."

"We have seen imports from Asia begin to play a minor role in some project-related work on the East Coast and the West Coast," says Neil Lynch, executive vice president, marketing and strategic planning for MasterBrand Cabinets Inc. of Jasper, IN. "We continue to monitor their presence in the marketplace to assure our competitiveness."

Wellborn Cabinet of Ashland, AL, also is keeping tabs on foreign competition, says Angela O'Neill, director of marketing. "At this point, China products appear to be at the price sensitive level and also at the specialty furniture vanity level. We will certainly always review factors that change the market."

Offshore Outsourcing Grows

Representatives of 16 KCMA member companies participated in a spring 2003 trade mission to China. Many of the executives interviewed by W&WP say their companies are outsourcing some of their component needs to China or elsewhere.

"Growth in imported components for cabinets are very difficult to track, but are known to be increasing," Titus says.

Gronlund says that while his company is not outsourcing to the Far East, "We know that several of our vendors are doing this to maintain a price position, or they have established their own manufacturing centers in China managed by their own people. Otherwise, we are highly integrated at Wood-Mode, especially with our own components."

Bandur says Elkay outsources some of its components "on an occasional basis. But that kind of ebbs and flows as well. There's a lot folks doing that. We're really no different than any of the other large cabinet groups. We use foreign-source components when it makes sense."

"We rely primarily on domestic, and some global sources for materials used in our products, depending on the wood type and application," says Lynch of MasterBrand . "All of our cabinets are assembled in the USA or Canada."

Karen Koenig and Katie Coleman contributed to this article.

                                                                                                                                                                                           

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