Volume 38, Issue 9, September 2003

Will the 
West be Won?

Industry Sectors Surge, Others Decline on the West Coast

by Leslie Shaver

Construction jobs such as libraries and houses have provided steady work for glass shops in the West. Just as the way of life in cities throughout the West Coast varies, operations of the area’s glass businesses do as well. But lately, there seems to be a common mantra among the West Coast glass industry: while business is not as good as it could be, things could be a lot worse.

Industry professionals know things could be a lot worse in the future. While they are thankful for the work they get, they realize things could turn around if the economy does not pick up. This is why they are taking a skeptical look at the future. 

“People are standing back and are a little afraid,” said Bill George, president of General Storefronts Inc. in Everett, Wash. “Until we see growth in the economy, people will be apprehensive.”

California Conundrum

California Don Friese and Rey Cano have a couple of things in common: both are presidents of California manufacturers that ship products nationwide. Friese is with C.R. Laurence Co. Inc. (CRL) of Los Angeles, while Cano is with Beveled Glass Works of Malibu. And both grapple with issues common to business owners in California—high energy costs and high workers’ compensation insurance.

The energy problems started two summers ago when power costs skyrocketed and rolling blackouts plagued the state. One company that did not want to be identified for this article, said its power costs rose from $60,000 to around $100,000 a month. On top of this, the company’s representative said that rolling four-hour blackouts hampered its production severely. While the energy costs have stabilized, they still are not cheap. 

The other problems—high insurance and workers’ compensation costs—are more recent, but probably more severe. California is the most litigious state in the country, and as a result of these lawsuits, insurance companies have been raising their rates to the point where it’s difficult for some glaziers to stay in business. 

“The workers’ compensation costs are becoming ridiculous,” Friese said.

Cano agreed. “I have seen an increase of more than 100 percent in workers’ compensation,” he said. “If you multiply this from ten people up to 150, it can get really expensive.”

Donn Harter, president of the California Glass Association, said the state is losing one of its more than 3,500 glass shops per day. He attributes much of this to the high workers’ compensation costs in the state. 

“They are facing severe hardships on liability and workers’ compensation,” he said. “People are having to close their doors because of this. They either can’t get insurance or insurance is too expensive.”

Still, these increased insurance and power costs are not stopping CRL. The company has expanded its distribution facility and built a manufacturing facility, adding additional energy and personnel expenses.
 
“You can’t sit and worry about all of these things,” Friese said. “You have to go out and impact the 
marketplace.”

Construction jobs such as libraries and houses have provided steady work for glass shops in the West. In most places on the West Coast, two segments are keeping the industry afloat: the residential and public works markets. In residential, interest rates around 5 percent at the time of publication have kept consumers buying and renovating their homes. On the public works side, bonds for new schools and libraries passed in the mid 1990s when the economy was still hot have helped. Now, though the economy has slowed and government budgets have tightened, these projects are still coming up for bid. 

“I think the government work has helped sustain a lot of our customers,” said Cliff Green, area manager of ACI Distribution in Santa Fe Springs, Calif.

However, as government and residential work helps sustain the industry, commercial work is minimizing these gains. Many glass shops interviewed for this story say their commercial business has dropped 15 to 30 percent since the late 1990s. 

The Domino Effect
The West Coast may have benefited as much as any sector of the country from the technology boom of the late 1990s. In the Northwest, there was computer giant, Microsoft, cashing in on each computer sold with its Windows operating system during the Internet craze of the late 1990s. Intel in Portland, Ore., was also successful, producing many of the processors behind those same computers being sold with Microsoft operating systems. As the computer industry grew, these companies expanded and became major drivers of the Seattle and Portland economies.

Construction jobs such as libraries and houses have provided steady work for glass shops in the West. Further down the road is Silicon Valley—probably the world hub of computer technology. As the computer industry and the Internet grew, through, investors pumped money into these technology companies hoping to catch onto the next big thing in the tech sector. But, as the 1990s became 2000 and 2001, the bubble burst. Those same buildings overflowing with tech millionaires were suddenly vacant. Construction stopped, as did rehabs. The Seattle commercial market has been slow for about three years, according to Lou Novak, president of Window Tech Inc., a manufacturer’s representative in Seattle. Novak estimates that his business is down 15 to 20 percent during the past few years, while construction as a whole is down 60 percent.

Others have noted the effects of the technology demise. 

“I have not seen it this bad for 15 years,” said Gary Towndrow, owner of RGA Architectural in Redmond, Wash. “A lot of the dot-coms died and vacancy is now extreme. I see 16 bidders for every project that is coming up.”

The story down the road in Oregon is similar. Cedric Lindquist, owner of Lindquist Glass, a contract glazing company in Portland, has been hit especially hard. At his height in the 1990s, Lindquist had 15 contract glaziers; now he can only afford four. He attributes this to slow commercial work.

“There are a lot of buildings with vacancies standing around,” Lindquist said. “Intel cut jobs and that has gone all the way down the line to the smaller companies that feed off of it. It leaves a large vacuum.” 

Construction jobs such as libraries and houses have provided steady work for glass shops in the West. The California situation varies a bit more. Silicon Valley, the wasteland of numerous companies, is similar to Oregon and Washington, but Southern California, which has a number of economic drivers, including tourism, entertainment, shipping and the military, is holding up fairly well. Mark Hooper, owner and president of Marc Anthony Glazing Contracting in San Dimas, Calif., said that commercial work is still going fairly well in Southern California. He knows this because when things dry up, he sees those commercial glaziers bid on the public-works jobs he does. 

“I have not seen many of them coming in,” he said. 

Donn Harter, president of the California Glass Association, thinks the state’s commercial sector has just begun to slip. 

“It’s starting to slowly [decline], just because the general economy is slowing,” he said. “It will probably take a dip after the economy begins to perk back up because construction usually follows the regular economy by about eight months.”

Workin’ for Uncle Sam
While the commercial market on the West Coast (and around the rest of the country) is sputtering along, the public works or government market is flourishing in some places. Even with tight budgets in Washington, Oregon and California, there is a lot of government activity in the form of libraries, hospitals, schools and military bases. Fueling these new construction and rehabilitation projects are bonds passed during the past few years, some of which went through during the economic boom. Much of the building in California, for instance, can be attributed to two big bonds passed in 2000 and 2002 for libraries and schools, respectively.

Quite simply, these bonds have been a godsend to the California glass industry. Hooper is of the biggest beneficiaries. He says he has a $10 million backlog that is constantly growing. 

“Our backlog of work is bigger than ever,” he said. 

Other people have been depending on the government work for survival while they wait for the commercial market to recover.

“I think the city and state government work has helped sustain some people,” Green said.

However, with state budgets tightening, the funds spent for construction may be needed elsewhere—or not available at all. 

The story is similar in the Pacific Northwest. 

“The biggest percentage of work going on up here is publically funded,” Lindquist said. However, without a sales tax, much of Oregon’s revenue comes from income taxes. With a rising unemployment rate in the state, people will have less income to claim and the state coffers will be depleted, possibly taking money away from these public-works projects.

In Washington, work at schools, hospitals and libraries is keeping business afloat. 

“These are typical capital improvement projects,” Novak said. “We are still seeing a lot of government spending at the state level.”

One new niche for government work that Novak and other glass people on the West Coast have noticed is the bullet- and blast-resistant market. After 9/11, a number of state and local governments began taking the threat of terrorism more seriously and are now upgrading facilities.
 
“Some of these are being bid for military bases, dormitories and police stations,” Novak said. “We are definitely seeing upgrades in certain military and government buildings.”

Residential Rewards
Outside of government spending, the other driving force behind the West Coast construction market is the low interest rates, which keep money moving throughout the market. The most tangible evidence of this is in housing starts, which are still strong. “The residential sector is holding its own,” Green said. “The lower interest rates are bringing a lot of people into the housing market that may not have been able to afford home ownership in the past.”

The story is the same further north. 

“The low interest rates are keeping the residential market going,” Lindquist said. “It’s a bright spot in this area.”

The other less noticeable effect of low interest rates is that it allows people to refinance their current homes and have lower monthly payments. They are often putting this money back in their homes, in the form of improvements. A number of West Coast glazing contractors mentioned that people use the money they save from refinancing to put new energy-efficient windows, shower doors and mirrors in their homes. 

“People are spending lots of money for shower doors and retrofit windows,” Harter said.

In California especially, the need for better windows is acute. With high energy costs, Californians are looking for any way to make their homes more energy-efficient. 

“People are able to take out their monolithic glass and replace it with insulating, high-performance low-E windows, which are much more energy-efficient,” Green said. “Energy costs skyrocketed two years ago and people are looking for ways to be more energy efficient and save money.”

And then there are companies whose main job is to replace broken glass. For them, business seems to be humming along as usual. Skip Southworth, owner of Mac’s Glass and Mirror in the seaside town of San Pedro, Calif., still does healthy business replacing shower doors, mirrors and windows. However, he admits he has one advantage. 

“People usually don’t leave town to buy anything,” he said. In other words, Southworth has cornered his market.

In Oregon, Mitch Denniston, a partner in Aloha Glass in Beaverton, has the same specialty. He says his business was slower this year because the rainy season lasted longer than normal. But now, as the sun comes out, people are going outside to do yard work and fix their houses and consequently notice problems with their windows. 

“When they do spring cleaning they will spot problems with their thermoplanes,” he said.

Despite the focus on interest rates, dot-coms, government bonds and the economic effects of September 11, sometimes the glass economy is still driven by the simplest thing—a homeowner cleaning windows when the weather clears and noticing a crack in their glazing or a child throwing a ball through a window. When this happens, people call the glass guy to come out and replace the window. But, for many glass shops on the West Coast, it seems it’s not always quite so simple. 

California Offers Incentives for Energy Efficient Options 

The State of California is funding a program in which it is offering $1 per square foot to consumers putting up solar shade screens on their windows. Spencer Mills, program manager for the California solar screen rebate program and an employee of Novatia Inc. of Folsom, Calif., a solar shade screen company, is excited about the possibilities the program has to offer his industry.

“This is the most aggressive rebate for shade screens to date, and we are very pleased with the response,” Mills said. “We are receiving hundreds of rebate applications for homes. Supermarkets, local governments and businesses are also taking advantage of the rebate.”

The rebate pays $1 per square foot on installed exterior solar screens on all south-, west- and east-facing windows, skylights and glass doors. The rebate is offered for both residential and commercial buildings and the amount of the rebate is unlimited.

“Solar screens install like regular insect screening, making the installation very affordable, unlike the more expensive alternative, low-E glass,” reads the release.

In addition, the Los Angeles Department of Water and Power is offering a rebate to businesses for reflective film applied to windows. The amount of the rebate is based on square footage of the window film applied along with its shading coefficient. (See chart below for more info.)|

 

Shading Coefficient 0.50-0.75 
(LEC*) 
0.75-1.0 Greater
than 1.0
0.55 - 0.45
Less than 0.45
55 cents**
65 cents
65 cents
75 cents
85 cents
$1.05
* Luminous Efficacy Constant (visual light transmittance)
** Per square foot

 

Leslie Shaver is a contributing editor for USGlass magazineUSG

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