By Greg Landgraf

The situation for cabinetmakers participating in Wood & Wood Products' 2002 State of the Cabinet Industry survey is better than last year - and last year, for all its faults, was not that bad.

Eighty percent of respondents say they expect either a "Very Good" or an "Excellent" year in 2002. Last March, only 66% predicted 2001 would be that good.

"I think the environment was a lot tougher last year," says John Horton, senior vice president and CFO of Omega Holdings Inc. Horton says the Waterloo, IA, company, whose divisions include Omega Cabinets, Home Crest Cabinetry, and Kitchen Craft of Canada, saw unit sales drop by about 2% last year, although dollar sales increased by 7%. So far this year, Horton says, "Orders are booming."

Relatively Unscathed by the Recession
Compared to the difficult year both residential and contract furniture makers suffered through, the cabinet industry's resilience seems stubbornly contrarian.

According to the Kitchen Cabinet Manufacturers Assn.'s Trend of Business survey, cabinet sales increased by 7% in 2001. Moreover, sales growth got progessively stronger as the year passed.

"In comparison to other manufacturers, we benefitted from strength in housing and remodeling," says Dick Titus, executive vice president of the KCMA. "We fared much better than our manufacturing peers."

Nevertheless, those cheery numbers have a downside. Sales growth reported by the survey was slower than recent years - 8.4% in 2000, 12.2% in 1999, and 12.6% in 1998.

"What we're thinking right now is a slow, flat first and second quarter, and then some growth in the second half of the year," Titus says, although he adds that recent data gives hope for better results.

No Time for Standing Still
The economy has not stopped survey participants' business investments. Of the 100 participants, 81 say they made significant capital improvements in the past year or planned some for 2002.

The majority, 60 respondents, say they had purchased or planned to purchase new equipment. A new or expanded facility ranks second, mentioned 22 times. (Some companies listed more than one investment; others did not specify their plans.) Other improvements, each listed three times or fewer, include rethinking the plant layout, starting a new department, improving the showroom and adding new transportation equipment.

Cabinet Import Threat Not Yet on the Horizon
Unlike the furniture industry, the U.S. cabinet industry has not yet lost any significant market share to overseas producers. The United States imported $485 million worth of cabinets in 2000 while exporting $340 million worth. (Data for 2001 is not yet available.) For all wood products, on the other hand, the U.S. had a roughly $9 billion trade deficit.

In addition, while significant furniture imports come from North America, Asia and Europe, almost 90 percent of cabinet imports come from free trade partner Canada. While emerging furniture powerhouse China does rank as the third-largest cabinet supplier, its tally was only $13 million.

Do imports pose a threat to the cabinet industry? Not yet, according to Dick Titus. "We've got the infrastructure, the trained employees and the market here," he says. "The market is fragmented - you have such division with the big and the small players. It's not as concentrated, and therefore less attractive for imports."

Titus notes that the industry faced an import threat once before, in the early 1980s when European manufacturers tried to crack the U.S. market. "U.S. manufacturers responded with technology to reduce cycle times and improve productivity," Titus says.

Four survey participants listed the possibility of imports as their top concern. Buddy Sharpe, vice president and general manager of Tru-Wood Cabinets Inc. of Ashland, AL, says he has seen competition from Chinese manufacturers shipping RTA cabinets to the United States.

Even so, Sharpe says his company's business has not been negatively affected yet. "What I'm doing is developing a wood product that can compete pricewise," he says, using better purchasing and production methods. "I just decided that I wanted to attack that market and I did, and it's been successful."

Economy, Employees Lead List of Concerns
Not surprisingly, the top concern among survey participants was the economy, listed by 34 respondents. The top issue of recent years, finding and keeping employees, slipped to number two - but not by much. Twenty-eight respondents say that the availability of employees was their top concern, even though the layoffs of last year increased the unemployment rate from its historic lows.

"Even though there's a growing supply of workers, we still have a need for lower-trained and lower-skilled workers," says David Davis, president of Stanley Wood Products of Shawnee Mission, KS. "There's not a lot of young kids wanting to get into blue-collar jobs and start at the bottom."

Davis says that to retain his workforce, he has had to raise wages by a total of 33% in the last three years.

Rand Moeller, president of Sweetheart Cabinetmakers of Rohnert Park, CA, has also seen salary woes due to the expensive area where the company is located. Moeller says that the company has to pay its high-end craftsmen up to $30 to $35 per hour.

Moeller says his company does have one bright spot. He says that his company's investment in computerized equipment has made it easier to attract young people to the shop and the industry. "I've got a couple of 20-year-olds who never thought they'd go into the wood industry, but they're having such a blast with the programming," he says. Moeller adds that the arrangement allows him to keep the most highly skilled employees in positions such as quality control and assembly, where their skills can be best used.

What else is on cabinetmakers' minds? Insurance costs, including health and general liability, was listed as the top concern seven times, ranking third. "These insurance costs are absolutely killing us," says James Thompson, president of Thompson Cabinet Shop of Garner, NC. He says that while he has seen machinery and material costs remain fairly stable, the company has had to change health insurance plans every few years because of 25% cost increases.

Other concerns revealed by the survey, with number of times listed as the top concern in parentheses: low-cost, low-quality competition (6), taxes (4), imports (4), timely collections (3), federal regulations (3), labor costs (2), material supply and cost (2), and increasing productivity (2).

Titus says that government regulations are an issue that KCMA is working on. For example, Titus says, "Ergonomics has been kind of treading water for some months, but we're expecting something in the not-too-distant future." Also of note are environmental regulations, such as the new wood dust regulation just adopted by the South Coast Air Quality Management District in California.

'We're also trying to increase awareness on the part of members of safety," Titus says. "Both to meet OSHA requirements and show that it's a good way to increase productivity and lower insurance costs."

Read State of the Cabinet Industry articles dating back to 1997 in the archives.