State of the Industry:
Feeling the Pinch

Ultra-competitive pricing rules the day, say store fixture makers and architectural woodworkers.

By Jo-Ann Kaiser

How's business?" used to be a genial greeting. But in a sluggish economy that's affecting many manufacturers and their clients, it has become a loaded question.

The economy's affect on business trends was but one of several questions Wood & Wood Products asked a handful of members of the Architectural Woodwork Institute and the National Association of Store Fixture Manufacturers. Others included the impact of foreign competition, health care costs and educational needs.

Rough Times in Retail
According to Klein Merriman, executive director of the National Association of Store Fixture Manufacturers, when sales are down for retail stores, store fixture manufacturers take a direct hit, too, because most companies are not able to create demand on their own. Merriman said while it's true that retail has suffered in the recession that began in 2001, it's also true that not all parts of retail are bleak and some segments of the large retail market have been unaffected or have prospered.

Dave Mueller, president, and Jeff Uhri, executive vice president of sales, for Leggett & Platt Store Fixtures Group, addressed questions about the impact of a slow economy and the outlook for retailing in the coming year.

"Keep in mind that consumer spending has remained relatively strong compared to the rest of the economy," Mueller said. "We're also seeing a little improvement quarter by quarter, and our value retailers are actually doing quite well. As a result, the industry is looking at total fixture sales to remain at last year's levels."

Uhri pointed to a shift in retail budget allocations, with more money being spent on new store openings and less on renovation. "While some (retailers) are hunkering down, others believe it's important to revitalize their brands during tough times."

Mueller said he thinks one way for store fixture makers to stay healthy is to offer retailers more value. "As partners with retailers we are working with customers to find innovative ways to cut manufacturing and freight costs and maximize their fixturing dollar."

NASFM member Dan Peterson, vice president of Wisconsin Built, Deerfield, WI, said, "Although year-to-date sales are slightly behind last year, the third and fourth quarter are solid and it looks promising that the year will end equal or slightly ahead of last year, and nicely up from 2001.

"Our situation is very good compared to last year," Peterson added. "Our production requirements are coming from a variety of new and growing accounts rather than major requirements from a limited number of major customers. This will provide growth for the next three to five years. This has also helped to insulate us from the general downturn in the industry, but has not insulated us from how competitive it has become."

James Powers, president of Continental Consolidated Industries, Worcester, MA, is an active member of NASFM. "We are at 75 to 80 percent of last year's business and last year was a very good year for us. We are probably even with the year before," Powers said. "We are doing more architectural millwork and work in other markets to offset the downturn in our store fixture business. We have gotten involved in other markets, like food service. We are happy we developed the flexibility that's helped us define where we are going, rather than just reacting to the market."

Visible Changes
"One of the most significant changes in the industry is that a number of our competitors have closed their doors," Uhri said. "While we have the capacity and resources to meet the needs of our customers at Leggett, I think you're going to start seeing longer lead times in the industry."

Uhri added that in "shakier" business climates, retailers tend to look for partners to whom they can outsource more products and services. "We anticipated this trend and put the people in place to offer a complete range of services from initial design concept to installation," Uhri added.

Mueller noted that customers are doing things differently than they did five years ago. "I think our customers are looking for flexibility in fixture design. They want to be able to adapt and change their store economically, to create a fresh look so that they can respond to the ever-changing marketplace."

Signs of the times, according to Powers, see more fixture companies bidding for the same job leading to ultra-competitive pricing. "Margins are definitely shrinking on the work we are doing. We cater to the high-end store fixture market, the department stores, and so it has been a lean year. We see the discount and mid-range stores doing better than some of our customers although none of our customers have gone out of business."

Peterson said, "We continue to decline participation in reverse auctions and concentrate our efforts on customers that recognize the difference between price and value. They are out there."

Free Advice
"Good management is called for in good and bad economic times. The difference is that there is little margin for error in bad economic times and the price of failure is extinction instead of merely poorer profits," said Paul Pinkus, national director, Store Fixture Manufacturing and Point-of-Purchase Practice, American Express Tax and Business Services.

Pinkus said store fixture firms must continuously plan, have access to accurate and timely information and be willing to act decisively and rapidly.

"During the last two difficult years, some of the largest and well-known store fixture makers and POP companies have gone out of business or through restructuring of one form or another. These casualties occurred later in the business cycle than the more well-known publicly traded failures because the overwhelming majority of store fixture manufacturers are privately traded and follow the publicly traded companies in business cycles. That will also be the case as the economy improves.

"I believe that most, if not all the 'bloodletting' is over," Pinkus added. "The casualties have occurred and the survivors will start to see better times as the economy continues to improve. A robust retail season - the first glimmerings of which are starting to be felt - is a must."

Flexibility Helps Firms
Doug Mock, president of Mock Woodworking, Zanesville, OH, described his business as about half architectural woodwork and half store fixtures. Mock's experiences buck the general trend that store fixtures are down compared with architectural woodwork being steady.

"In the first four months of this year, business was down dramatically from the previous year, but the last three months have improved almost to last year's level and last year was our second best year ever. We will end up down for the year, but business has definitely improved in the last several months. Our store fixture business remained stable as customers we worked with continued to build or remodel stores and has been more stable than the architectural business, which is probably the reverse of what most people face.

"The architectural woodwork industry lags construction," Mock added. "Last year we had a backlog of projects that had been sold. We started the year without those, but we finally hit our production this year. In general, there's an improvement in our customers' attitude toward the economy."

Fierce Competition
Richard Ungerbuehler Sr., president of Federal Millwork Corp., Ft. Lauderdale, FL, is a member of AWI. "Some parts of the country are very busy, even beyond the norm, while other parts, as here in south Florida, business remains mixed. While there are more cranes adorning the skyline in our tri-county area than in recent memory, the competition for business is fierce.

Not only are we seeing countless projects being awarded to out-of-state firms from Connecticut, Colorado, Texas and Louisiana, several have crossed the border from Canada. Consequently local firms break the cardinal rule of business and take work for what they perceive to be at their cost only to find out that one cannot sustain a business on the hope that all will go well, including cash flow."

Kirsten Ingham is vice president of sales for Pearson Millwork Inc. of Arlington, WA, and a member of AWI's Board of Directors. "In general, business for our company has been down, but we are seeing a slow recovery in 2003.

"Obviously, retail sales and expansions have slowed down and there seems to be little custom architectural woodwork on projects right now for our market niche," Ingham said. "If there is use of wood on projects, we have found that the design usually is revamped to reduce the cost of the project by using less expensive material or less labor intensive details."

Blankenship said he sees a new positive attitude among people that he thinks will continue to translate into more work and a turn around in the economy. "I see people generally feeling more positive and spending money rather than holding it. Interest rates have been so attractive that people can afford to build buildings whether it's a corporation building or doctor's offices or new headquarters. Government work has been fairly steady through all of this. It's really just been the private sector where we saw work fall off but that's picking up."

Dealing with It
"We have dealt with the slow economy by cutting our labor costs and by turning to other AWI members to help on products they excel at, while we produce the products that we are very competitive at manufacturing," Ingham said. "We have found this to be challenging, because general contractors and architects continue to tighten their project schedules and when we work with other firms, typically we need to have more time to coordinate our work."

Ingham said she has seen other changes as a result of the slow economy. "So far general contractors have found woodworkers willing to continue to cut their pricing to all-time lows, work with tighter schedules forcing overtime, and still sign contracts with liquid liabilities for late product delivery. Ultimately, they eat away at their profits to keep their companies turning cash flow. In the end this will continue to hurt our industry. You must have profit to survive, especially with extreme caution by the banking industry if your company does not fall into the 'numbers' they are looking for in manufacturing."

Ungerbuehler said, "Aside from the cost of insurance, medical, workmen's compensation, liability, etc., the next single problem remains government interference. It is time for OSHA to become the educational tool that is needed, and not the feared enforcement agency it has become. On one hand we are asked to hire more employees but reminded that as soon as we do the government will demand more reports and tighter scrutiny. With our small firm of 46 employees, we have the equivalent of one-and-one-half full-time employees to keep us in compliance."

Competition from Abroad
Because competition from abroad has affected some furniture manufacturers, we asked store fixture and architectural millwork manufacturers to comment on its impact in their industries. Peterson said he has seen some competition from Canadian firms on institutional casework, "but we are not aware of other foreign competition in the time sensitive and service intensive area of store fixtures and architectural woodwork. I believe our philosophy of high quality and agility are reasons we have stayed busy through the past several years and are well positioned for the future."

Ingham said, "We do face foreign competition heavily in the state of Washington. Perhaps due to the fact that we are so close to the Canadian border, the ease of bringing products into the states under NAFTA, and the dollar exchange of 30 percent to 40 percent advantage for the Canadian firms, we have seen very large projects go to our Canadian competitors."

Mock has had the first taste of foreign competition recently on a store fixture project that we thought we had the order, but it turned out it went to China. As a rule, we have not had much of a threat from foreign competition. It was on a relatively standard item and not a large run. It was a result of a bid," Mock said.

"The metal side of the store fixture manufacturing business, especially hardware, has faced foreign competition for a number of years. Foreign competition in wood products is now starting to develop," Pinkus said.