Easier to be an Optimist
by Michael Collins
With the middle of the year approaching, it is a good time
to take stock of the momentum of the industry. The key question coming
into 2011 was whether there would be a bubble following the expiration
of the $1,500 energy tax credit. Anecdotal evidence as early as January
2011 suggested that this wouldn’t be the case. By that point, numerous
companies had informed us that the decrease they saw in January sales
was very modest and could readily be explained by bad weather. A five
or ten percent decrease from the prior year is not the bursting of a bubble;
it’s a blip on the chart.
Multi-Family Fares Well
The multi-family market is doing very well. For several years, we’ve stressed
that companies would benefit from remembering the multi-family market
in their marketing plans. Detractors remind us that payment is often slower
in the multi-family market than when dealing with a homeowner. Our response
to that has always been that there isn’t a homeowner in America who buys
windows one thousand at a time. That kind of volume goes a long way toward
making up for what may not turn out to be a much slower payment.
Within the multi-family market, the high-end segment is outperforming
cheaper apartments and condos. There are tens of thousands of people that
lost high-end homes to foreclosure because teaser rates on mortgages reset
to higher levels. The pop in growth required for the home purchase to
make sense did not take place and the home entered foreclosure. The point
is that many of these individuals did not lose their high-paying jobs—they
simply lost their homes. This means that, when they became renters and
began working toward owning a home again, they had significant disposable
income. They’re not going to rent a $650 per month apartment. They’re
going to look at the higher end of the market. This means many buildings
that straddle price points will be remodeled and upgraded in order to
attract this higher paying renter.
years, we’ve stressed that companies would benefit from remembering the
multi-family market in their marketing plans … There isn’t a homeowner
America who buys windows one thousand at a time."
This continuing recovery in the residential market bodes
well for the commercial market as well. The commercial market tends to
lag the residential market by roughly 12 to 18 months. If 2011 is the
year in which the residential recovery becomes more palpable, it makes
the prevailing belief that the commercial markets will recover in 2012
more likely to come to pass.
Michael Collins is a Chicago-based investment banker with a specialized
merger and acquisition practice in the door and window industry. His opinions
are solely his own and not necessarily those of this magazine.
Becoming a One-Stop Shop
Another important trend that continues to play out in the market is the
trend toward becoming a one-stop shop for customers. In some cases, this
desire to sell a broader range of products to one’s customers manifests
itself in new product launches or product line expansions. In other cases,
companies will undertake acquisitions that are driven in large part by
the desire to access complementary products of the target company. It
is often cheaper to acquire existing products that have been tested and
commercialized than to create those products from scratch. The benefits
of serving as a one-stop shop include winning incremental business from
one’s customer with a modest additional investment in sales and marketing.
Shipping logistics can become more attractive because each truck going
to each customer is fuller than in the past. The increased sales lead
to better utilization of existing plant capacity and a steadier contribution
to paying the overhead of the company.
When it comes to offering a new product that represents an expansion of
the product line, there are two decisions to make. First, the manufacturer
must decide whether it wants to sell its product to the client. The second,
sometimes overlooked, decision is that of whether the manufacturer wishes
to take the chance of letting a competitor meet that need for the customer.
A final benefit of selling a broader range of products to your customer
is that it strengthens the overall relationship.
© Copyright 2011 Key Communications Inc. All rights reserved.
No reproduction of any type without expressed written permission.