Construction-based markets continued an overall growth trend in 2014 as they have for the past 3 years. As shown in Figure 1, U.S. spending on single family housing, multi-family housing, and nonresidential construction increased in 2014, but repair & remodeling (i.e., residential improvements) declined. The largest proportional increase was in multi-family housing, which increased by 38% from 2013 to 2014, while single family housing increased by 12%. Increased activity in multi-family housing construction likely reflects, in part, affordability factors for single family homes, especially for potential first-time buyers. The seasonally adjusted annual rate (SAAR) of new single-family housing starts in March 2015 was 618,000, a slight decrease over 2014 (647,900) and still far short of the peak number of nearly 1,716,000 single-family units started in 2005 prior to the housing crisis (U.S. Census Bureau).
Against this backdrop, the sixth annual housing market study was conducted in early 2015 with subscribers to Woodworking Network to assess market conditions for secondary woodworking manufacturers involved in construction-based sectors. Did the secondary industry continue to see sales volume increases, as it did from 2013 to 2014? What are the plans for firms’ investments to improve capabilities in the current business environment? This article provides information on the status and activities of U.S. secondary woodworking manufacturers, as well as analysis of what has changed since last year. As in previous years, the study was a joint effort by Virginia Tech, the U.S. Forest Service, and Woodworking Network. (See “About the Survey” for details of the study design).
Changes in Performance and Markets Served
Analysis of year-over-year sales performance over the 6 years for which the study has been conducted (2009-2014) reveals continued gradual improvement in the percentage of firms reporting positive changes in sales volume. In 2009, 81% of respondents reported losing sales volume from the previous year; by 2014, this proportion had declined to 21% (Figure 2). Furthermore, the proportions of respondents in the Somewhat Better (sales up by 10%) and Much Better (sales up by 20% or more) categories have been increasing or holding steady each year. Nearly a quarter of respondents indicated that their sales were up by 20% or more from 2013 to 2014. This year’s results also show an increasing number of respondents indicating sales were unchanged year-over-year, suggesting more firms are seeing a stabilizing marketplace.
For 2014, it appeared there was movement away from the residential housing market toward other sectors. This was indicated by the 6 percentage-point decline in the proportion of respondents reporting that a substantial portion of their production volume (defined here as more than one-fifth) was directly associated with the new single family residential construction market (from 58% in 2013 to 52% in 2014). A higher proportion of respondents indicated that more than one-fifth of their 2014 production volume was in the residential repair & remodeling market (61%), which was essentially unchanged from 2013 (62%). Conversely, the percentage of respondents indicating more than one-fifth of their production volume was in the nonresidential construction market increased by 6 percentage-points in 2014. Overall, in 2014, 52%, 61%, and 38% of respondents indicated that more than one-fifth of their production volume was in the single family housing, residential repair and remodeling, and nonresidential construction markets, respectively.
Actions Taken to Increase Sales Volume
Similar to previous years, respondents did not rate any of the possible reasons for sales increases offered in the survey as major factors (for those firms indicating a sales increase). In 2014, growing in conjunction with the overall economy continued to be rated highest, although a decrease in the rating for this variable was evident compared to 2013 (Figure 3). While growth was still viewed by respondents as largely “economy dependent”, there was evidence in 2014 of increased firm-specific activities, including offering new services, entering new markets with existing products, and seeking productivity improvements. This trend might indicate an increase in the perceived need firms felt in 2014 to generate new business, and to lower costs.
For those firms indicating a decline in sales volume from 2013 to 2014, the possible reasons listed on the survey showed a mixture of factors increasing or decreasing in their average ratings from previous years (Figure 4). There was a continued large decrease in the importance of housing and remodeling markets as causes of sales declines, and an increase in the importance of nonresidential construction. It also was interesting that the overall economy, rather than construction markets specifically, became the highest rated cause of sales declines in 2014. There were minor increases in the importance of the other factors investigated as well (offshore competition, more domestic competition, and non-wood substitutes) from 2013 to 2014, but none of these factors were rated outside the historical highs across the 6 years of the survey.
Respondents also were given a chance to add any open-ended comments related to actions taken to maintain or grow sales volume in 2014-2015. The general categories of comments that were offered by respondents, in approximate order, included: marketing/advertising-based activities (n=21), actions to improve manufacturing efficiency/lean manufacturing (n=18), development of new products and/or new distribution channels (n=18), new equipment purchases (n=16), development of e-commerce/use of social media/improved websites (n=12), sales force expansion (n=10), adding additional space for manufacturing, showrooms, etc. (n=9), improving customer service (n=8), and increasing workforce training (n=7). Many of these actions (e.g., sales force and space expansions) seem to reflect a planned growth strategy for many companies for the near-term.
Green building products are another market for secondary woodworkers to possibly leverage sales volume. Across most years of this study, however, there has been a declining trend of respondents indicating having seen increased interest from customers seeking to source products compliant with a green building standards program. While there has been stabilization for the past 3 years in the proportion of respondents indicating they had seen an increase (37-38%), 2014 saw the highest proportion yet indicating they had not seen an increase (49%). Fourteen percent were uncertain, down from 18% in 2013.
Demand for made-to-order production continues to be important for the secondary wood industry, as noted in each year of the housing survey. The year 2014 was no exception, with 50% of respondents indicated that over 80% of their overall product mix could be classified as made-to-order. However, this was somewhat lower than 2013 (60%) and even lower than previous years of the survey (65-70%). The industry continues to target higher price-points, as 68% of respondents reported they operated at medium-to-high to high price-points, which is similar to previous years.
Lastly, respondents to this year’s survey continued to be domestically focused, with 84% indicating that more than 60% of their sales in 2015 would result from domestically produced and/or sourced products. Furthermore, about 24% indicated that they had increased use of wood imports in their respective product lines over the past 5 years. Of those reporting increased use of wood imports, 52% brought in components or lumber, 22% imported finished products, and 26% imported both finished products and lumber or components.
Planned Investment Activities
A new feature of this year’s study, given the continued improvement observed in year-over-year sales volume, was to assess plans and activities related to the industry’s investments to improve productivity and capabilities. The sample was divided into small firms (1-19 employees) and large firms (20 or more employees) for analysis. While a majority of large firms (65%) planned to invest more in 2015 than 2014 to improve productivity and capabilities, just over a third of small firms indicated they planned to increase investments in 2015 (Figure 5). For small firms, many (42%) were uncertain about their investment plans for 2015 at the time of the study. Furthermore, a majority of small firms (67%) indicated they planned to spend less than $250,000 in investments over the next 3 years, and nearly a quarter had no investment plans. Conversely, large firms were somewhat equally distributed across the investment categories studied, and only 4% indicated their firms had no investment plans.
The study also assessed the general categories or areas where investments were planned. In nearly every category (i.e., except component outsourcing), a higher percentage of large firms indicated planned investments than did small firms (Figure 6). This was especially true for inventory reduction, assembly, and sales force expansion. The results suggest that many large firms are expecting to expand sales in the next 3 years, and are looking to become leaner. For small firms, the areas with the most planned investment activity were advertising/marketing communications (30%), employee training (24%), solid wood processing (22%), and design or manufacturing software (22%). For large firms, the areas with the most planned investment activity were sales force expansion/development (50%), employee training (46%), and advertising/marketing communications (41%).
There was a continuation in this year’s study of more firms indicating year-over-year sales increases, and also more firms indicating that sales were unchanged. Overall, a stable or improving market was perceived by most respondents. However, it seems there has been a shift in the primary driver of sales performance, from housing construction and remodeling markets specifically to the economy in general. Correspondingly, fewer firms were directly involved with the single family housing market in 2014, and more were involved with nonresidential construction. Perhaps, the secondary woodworking industry is finding ways to diversify its dependence on single family housing as the recovery of this sector from the crisis of 2007-2008 has remained somewhat sluggish. The uptick in firm-specific activities to increase sales in 2014 also suggests that the economic environment remains somewhat challenging for many woodworkers, and fewer firms indicated that a rising economy alone was enough to improve sales in 2014 compared to 2013.
This year’s study had a focus on investment activity given the continued increase in sales performance observed in previous years. Overall, 76% of small firms and 96% of large firms indicated they planned to invest to improve productivity or capabilities over the next 3 years. Large firms showed a clear tendency for greater investment activity overall, as well as less uncertainty over their investment plans for the next 3 years. For small firms, most indicated investments over the next 3 years would amount to $250,000 or less. Planned investment amounts varied for larger firms, but three-quarters indicated they would spend at least $250,000. However, there were some consistencies between small and large firms; for example, employee training and marketing communications were rated relatively high by both groups as important investment areas.
About the Survey
This is the sixth consecutive year of the Housing Market survey. While several of the questions have remained the same year-over-year to help track industry activities over time, this year’s study also included new questions related to industrial investment plans and activities. The 2015 study was conducted in February/April via e-mail to subscribers to Woodworking Network. A total of 228 usable responses were received, about 18% more than last year’s total.
Similar to years past, kitchen/bath cabinet producers comprised the largest percentage of the sample, representing 32% of respondents (however, this was the lowest percentage for cabinets in the 6 years of the survey). Nearly 18% were household furniture producers (representing the largest percentage for household furniture in the 6 years of the study), 12% were millwork manufacturers, 7% were architectural fixtures firms, 7% were producers of dimension or components, and 5% manufactured office/hospitality/contract furniture. While an additional 20% indicated their production was in “other” categories, most could reasonably be classified into one of the aforementioned categories (especially millwork); closets again were a somewhat common product area. Similar to past years, most responding firms were small, with 49% having sales of less than $1 million in 2014, and another 28% having sales of $1-$10 million. Furthermore, 65% of respondents had 1-19 employees.
A plurality of respondents (46%) held positions in corporate or operating management, and another 18% indicated they were the owners of their respective firms. However, it was noted that this combined total for corporate management/owners (64%) was the lowest of the previous surveys, with proportionally more respondents in positions of production and marketing/sales than past years’ studies. Responses were received from 40 states (similar to previous years), with CA, NC, IN, PA, IL, MI, NY, TX, and OH each accounting for at least 4% of the total responses.
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