Volume 13, Issue 2 - March 2012

TrendTracker

IBS is Like Anything
It’s What you Make of It

by Michael Collins
mcollins@jordanknauff.com

The International Builders’ Show (IBS) always represents an interesting microcosm of the overall building products industry, and this year was no exception. While the atmosphere seemed somewhat more upbeat than last year, no one is claiming that we are on our way back to 2 million housing starts. My conversations with door and window manufacturers revealed a primarily optimistic mood. Like many of the manufacturing businesses in this industry, the show has “right-sized” in response to prevailing conditions. Many manufacturers have shuttered excess production capacity and reduced their operations into the smallest, most efficient amount of space. The show, too, has come to occupy a much smaller footprint as well over the past several years. While this certainly makes the show more manageable to navigate, it is a reflection that many small and medium companies have been acquired or have gone out of business.

Some Notable Absences
There were numerous large, perennial participants that chose not to exhibit. That is always a regrettable, if understandable, decision for companies to make. It would appear that for a manufacturer to take a smaller booth but maintain a meaningful presence at the show sends a much better message than pulling out of the show altogether. The risk-reward payoff may not be there on a large double-decker booth, but surely a smaller booth could be made to create an acceptable level of value. A few small- and medium-sized competitors of the larger companies that did not exhibit remarked that the absence of the larger companies hurts them, rather than helping eliminate competition. Their presence at the show creates an additional amount of attendees that is likely to pass by the booths of a variety of door and window manufacturers.

"Needless to say, companies are very cautious when it comes to new product development in a downturn like this."

Lemonade out of Lemons
The final important way in which I believe the show is like the overall industry is that, to a large extent, they are both what you make of them. In reaching out to a wide variety of door and window companies to set meetings at the show, it was very interesting to get their feedback regarding the current market. Groups that shared their outlook on the market were roughly evenly split between positive and negative predictions. Numerous groups reported that they were coming out of a strong 2012 and were optimistic that 2011 would be another growth year, albeit possibly at a slower pace. Many companies that struggled in 2011 have a hard time believing that anyone prospered last year. However, many companies were able to push on a variety of levels and have a strong year. Some of these proactive steps included Business Management 101 tactics, such as geographic expansion, bringing out products that customers are unable to locate elsewhere and adding highly productive dealers, distributors and manufacturers’ representatives.

Needless to say, companies are very cautious when it comes to new product development in a downturn like this. However, the safest new product development available is that which is driven by requests from customers. In most cases in this industry, dealer and distributor customers are the ones with the eyes and ears that reach through to the true end consumer.

When our company first entered this industry segment, we were surprised at the number of manufacturers that were unsure of the split in their revenues that were driven, for example, by new construction or repair and remodeling. A focused series of calls to good customers with the question of what they are hearing that their customers need can only produce positive results for a company. Perhaps the need won’t be a new product, but faster delivery or more product configuration options. The point is that the companies that reported at the Builders’ Show that they are doing well in this market are those that ask the right questions of their customers and find new and efficient ways to capitalize on what they learn.

Michael Collins is an investment banker with Jordan Knauff and Co. He specializes in mergers and acquisitions in the door and window industry.


DWM

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