Volume 45, Issue 9 - September 2010

feature

Seismic Activity
How the Economy is Contributing toSeismic Shifts in the Glass Industry

by Megan Headley


Even with modest improvements in the overall U.S. economy, nonresidential construction spending is expected to decrease by more than 20 percent in 2010. A marginal increase of 3.1 percent is expected in 2011.1 According to a recent construction report, poor conditions remain because of an oversupply of nonresidential facilities in most construction categories, weak demand for space, continuing declines in commercial property values and a strong reluctance by lenders to provide credit.2


“The steep decline in nonresidential property values has slowed investment in new facilities,” says AIA chief economist Kermit Baker. “Conditions at architecture firms continue to remain very soft, but we’re optimistic that they will improve before the end of the year.”

So just how is the glass-architecture interface adjusting to the dearth of new projects?

“Architects have suffered a great downturn in their ranks in the last year and a half,” says Bill Bonner, architectural representative for the glazing contractor Crawford Tracey Corp. in Deerfield Beach, Fla. “Some of the larger firms have let a lot of their staff go … and the larger companies … are now going to be competing against other firms started by all the people who have been fired,” he adds.

Those remaining architectural firms, large and small, are seeing the pinch on the companies with which they work.

As a result, seismic changes are occurring in the way glass is bought and sold among contract glaziers. Seismic is a good word for such transformation. As of now, they are small, below-the-surface modifications that could eventually lead to large-scale, long-lasting shifts in the way in which business is done.

Glazing contractors also find themselves bidding on fewer and tighter projects and architects find themselves the object of more and more attention from product manufacturers as well.

“The suppliers all are trying to get their portion of the market right now and it’s really tough for them. A lot of the local [ones] are doing their best to promote their product to everybody that they possibly can,” says Lee Whiteside, sales estimator/design residential for Giroux Glass in Los Angeles.

“I spend more time marketing when the economy is down and I think that’s what’s happening out there,” adds Steve Downing, president of Window Consultants Inc., a glazing contractor in Owens Mill, Md. “Manufacturers are making sure their reps are out there. By the same token, high-quality glass and window companies and installation companies are going and meeting with architects, too.”

The Shift: Price as the Only Factor
For years, price has consistently been among the top three factors in a building owner’s purchase of glazing materials. Within the past two years, it has become the number-one factor.3

“Price sensitivity is the highest I’ve ever seen it,” says Bob Ferguson, a Mid-Atlantic contract glazier. “I understand it, but there is usually a reason the low-bidder is the low bidder, and it’s usually not a good reason.”

Downing shares one example. “… Our price was $1.2 million for sales and installation of a product. We were second on the job. The low bidder was at $800,000. They gave them the job, and it is a nightmare. It’s been written up in the paper—the job hasn’t even started and it was supposed to be well under way by now. Any general contractor who looks at $800,000 versus $1.2 million and everybody else is above us—obviously something’s wrong.

“But [the general contractors] say, ‘wait a minute, if we didn’t use that price someone was going to use it and they were going to get the job.’ So it really is a double-edged sword—if you don’t use the bad price you’re not going to get the job but if you get the job you’re not going to want it because you’re going to lose money anyway. It’s become pretty tough,” Downing says.

“If the company that had bid $800,000 had been honest and forthright—saying ‘we didn’t include the blocking, we didn’t include the demo, we didn’t include this kind of glass that was spec-ed’—this nightmare wouldn’t be going on now … The building won’t be completed on time and the litigation could take years.”

While a poor economy generally reduces the number of long-term companies in existence, it also can flood the market with new work-for-wage competitors.

The Shift: Your [Former] Employee, Now Competitor
“I’ve seen some guys laid off who are in their mid-40s and have been in the business for 20-some years,” Downing says. “There’s no place to go, so they figure, ‘what the hell, I’ll try to do this on my own.’ The problem is that they are not properly insured and they probably can’t get bonding, but their prices are low. How can I compete against them? How can I compete against them when they may not be paying their workman’s compensation, may not be giving fringe benefits and health benefits?

“Some people out there out there have been low-balling and that is screwing up the industry,” Downing continues. “I don’t necessarily blame them—you’ve got to make a living, you’ve got to feed your family—but it is screwing up the industry.”

The Shift: There at the Beginning
For years, larger glazing contractors have found a way around the bid madness by taking a design-assist approach and becoming involved with a project almost at conception.

“Nearly every one of our projects is a design-assist one,” says Paul Becks, executive vice president of National Enclosure Co. (NEC) in Pontiac, Mich. “We don’t really bid projects and we don’t pursue projects that are bidding; we’re asked to get involved in a design-assist situation where we’re bringing products to the table. The higher end of our market is going in this direction.”

Becks believes there are two main reasons for this change.

“The facades … are becoming far more sophisticated in both design and technology. At the same time, the schedules are becoming shorter; people are able to build buildings at a quicker pace because of technology. Lastly, financial pressure has not abated. So you have a perfect storm. They [customers] want a very sophisticated design that works perfectly, [and] they want it quickly for a reasonable amount of money. The only way that can work is through the design-assist process,” he says.

Downing says the “design-assist” approach has worked well for his company. “We are a registered architectural firm,” he explains. “At one point, we had an 85-percent close ratio because we would get involved from the very beginning. We would lock in not just the performance specification, but the manufacturer’s as well. We would then work out deals with the manufacturers, so we [were] protected.”

Some contract glaziers, such as Trainor Glass Company, have taken such efforts to a new level. The Chicago-based glazing company has begun opening “design centers” that cater to architects and interior designers alike in strategic locations throughout the United States (see related story on page 66).

Downing mentions that such cradle-to-grave project involvement does seem to occur more frequently among glazing contractors than in other trades. And suppliers, too, now seem to be trying to secure their places early in the design process.

Downing puts the responsibility for a successful project squarely on the back of glazing subcontractors. “In order to be successful in doing [design-assist], you’ve got to have integrity,” he says. “You build up a relationship with the people who make the decisions, and that’s why they want to work with you. But it all comes down to running a good, clean, honest business. Because otherwise it’s going to catch up to you.”

The Shift: Downstream to the End User
The down economy also may be contributing to a transformation in the traditional channels used to bring glass to market.

“The industry is shifting from the glassmaker to the glazier and to the consumer,” Russell Ebeid, Guardian Glass Group president, recently told USGlass.4 “At some point you’re going to read about ShowerGuard [Guardian’s shower product] and think, ‘I could use that. Where do I get this?’ You’re going to go to anybody that has it rather than being loyal to one fabricator.

“The consumer is going to pick which products he wants,” Ebeid predicts. “The industry is shifting from producer to fabricator to glazier and architect to consumer and the consumer will be the king.”

Not everyone agrees. “We may see a rise in consumer awareness surrounding brands of primary glass,” says Ferguson, “but commercial building owners will still look to the glazier as the authority. I often have to educate my customer as to why he might not want to use the product that is spec-ed and I am successful in doing so just about every time I try, which is most of the time.”

Ferguson says, in the end, it’s about who signs the checks. “Architects like the illusion of power,” he says, but asks rhetorically,
“What do they really buy? The general contractor pays my company. He represents the owner. My company pays the glass manufacturer. Architects are consultants, but they are not my customer.”

Some suppliers are going further, promising not just a product that will last—but a one-stop-shop of services that may range from design to, in some cases, installation.

The Shift: Glaziers as the Sole-Source Supplier
Having suppliers that market direct to the glazing contractors’ customers aren’t the only channel changes coming. There are hints of seismic changes to come as fabricators expand, acquire and reposition themselves to become sole-source suppliers of the building façade.

General contractors and owners say sole-source suppliers simplify the unwieldy chain of products, design and installation. This is especially true now that building owners may be holding properties longer—and so have responsibility for construction problems long into the building’s life cycle.

Building Owners and Managers Association International (BOMA) president Henry Chamberlain and chair Kurt Padavano point to a new trend toward long-term lease extensions of five to ten years. “Larger tenants are renewing longer,” says Chamberlain.5

Mike Kent, U.S. president of real estate management services for Colliers International, has noted the importance of collaboration. “In today’s market, collaboration between property and asset managers and also with vendors and service providers is critical to compressing expenses and creating value,” he says.6

Becks recalls two projects for the University of Michigan that speak to the involvement of building owners today. Both featured complicated rainscreen facades with unitized curtainwall. “Both [were] total enclosure design projects … in theory, if anything goes wrong with either one of those facades it’s very simple for them [the owners]; they simply pick up the phone and call one person. It doesn’t matter whether it’s coming in at the stone or the terra cotta or the glass,”Becks says. “It’s one call.”

Downing also sees increased interest from municipalities or universities and other educational institutions. “They recognize the importance of a single source,” he says. “When they come to the glazing contractor they want ‘the whole package.’ You’re going to design it, you’re going to engineer it, you’re going to field-measure it, you’re going to supply the product that they want—and you’re going to be there the whole way.”

“An owner is going to look for somebody who’s got a track record of success. They also look at the longevity of projects that they’ve worked on. I would think that owners are more conscientious about that now,” he adds.

There’s a familiar Aesop fable about an old man who asks his squabbling sons each to break a single twig, which they easily do—but when given a bundle of such twigs they find that the bundle proves too difficult to break. You might say that the challenging construction market has broken a number of fabricators and installers alike, and now some of these companies are partnering to strengthen their appeal to designers and general contractors.

These relationships among suppliers and installers are hardly new. Apogee Enterprises is the parent company of glass fabricator Viracon, curtainwall fabricators Wausau Windows & Wall and Tubelite, along with the contract glazing company Harmon Inc. Oldcastle’s recent shift from Oldcastle Glass to Oldcastle BuildingEnvelope™(7) officially solidified its range of acquisitions under the new moniker.

“As we have evolved and transitioned from a glass fabricator to a supplier of integrated building envelope solutions, people see us as a more desirable supplier and partner,” Ted Hathaway, chief executive officer of Oldcastle, told USGlass earlier this year8.“I think people are interested in partnering with us and developing strategic alliances that are positive for both parties.”

Arch Aluminum, which used the slogan, “Always your supplier, never your competitor,” for a time, is looking for expansion at certain industry levels. “Asahi and Vitro are backwards-integrated,” said Arch CEO Jeff Leone in a recent interview9.“The capital investment in order to do this is huge—float plants are hundreds of millions of dollars ... I don’t think Arch will backwards-integrate, but there are other ways to grow.”

Ferguson thinks Arch may have it right. “Most glazing contractors will do anything they can to avoid buying from a competitor,” he says. “Companies need to decide what they are. Are you my supplier, my partner or are you a competitor? You can’t have it all different ways at the same time and be successful.”

In July, NEC announced a strategic business alliance with MERO Structures Inc., the new American division of Germany-based MERO-TSK. According to Becks, the partnership was one step in an evolution toward becoming a one-stop façade solution.

Becks explains, “We started looking at the type of work that we’re really good at and it’s really large, sophisticated total building enclosures—meaning we would [install] glass, structural glass, terra cotta, rain screens. We became experts at the total building enclosure.”

In working with MERO, NEC is able to offer a full range of glass products and services.

“They are experts at design, engineering [and] fabrication, whereas in North America we’re experts at the installation and the management. So it’s a perfect marriage. They wanted to get into the U.S. market as a solid entity so it made perfect sense. We formed the alliance and then we pursued jobs as a team, essentially exclusively to each other,” Becks says.

Bonner says that owners don’t want to break projects up because “it breaks up the warranty. Most of these people in the glass business are buying materials from the manufacturer second-hand. They don’t manufacture it themselves.”

 

 

The Shift: Labor Only
Still, some installation companies are taking a more desperate route by accepting labor-only contracts in order to get work.

“That’s an easy way to get around a mark-up, maybe, but massive risk goes with it,” Becks cautions building owners and designers alike.

“Glass companies that undermine the industry by working for straight time without material margin should go back to installing drywall … These same individuals would also install annealed glass in a door rather than learn how to cut laminated safety glass on the side of a truck during an emergency,” says Martin Kerruish, consultant, designer and implementation manager at Canada Glass and Mirror Co. in Toronto. “It is disappointing to see the trade be cheapened by those who do not appreciate its worth and value.”

Ferguson agrees. “It’s an incredibly high amount of risk to take for an incredibly small percentage of profit. Tough times make people do tough things, but it’s never a first choice. You may survive but you will never thrive on labor-only jobs.”
With somewhat less outrage, Whiteside says, “If you’ve been around for the last 30, 40 years, you’ve seen it come and go a few times.”

Downing explains that his company provides labor-only contracts to its sister company, a fabricator, Get The Lead Out LLC. “They’ll supply the products and we’ll put together the package for engineering design and installation,” Downing says. “It’s under the same umbrella.”

“If the [subcontractor] is really having enough problems that they have gotten to a point where they’re giving the materials away straight at cost, they’re going to hit a point where there’s not going to be any reserve there. They’re ruining the market for anybody who’s going to be around and they’re looking at a very quick demise of their company,” Whiteside says.

He continues, “If [the glazing subcontractor’s] not around later on when things start happening to your home or at the jobsite, you’ve got to go back to the contractors and builder that did it. Companies that have been around substantially a long time [will] weather the hard storms.”

“Labor-only is a recipe for bankruptcy,” Bonner says point-blank.

Staying Shift-less
“There is never a cause to de-value your work, never a reason to beg, never a reason to accept the conditions forced on you by those who feel that the work we perform could be carried out by a general contractor’s laborer,” Kerruish says. “We are a skilled trade; however, we have always been taken for granted. We do not enjoy the same recognition as our partners in other trades.”

He encourages fellow glazing contractors not to “delegate our responsibility in providing experienced advice to our clients though our interpretation of the designs and drawings presented to us for tender. It is through the interpretation of the design that we are able to engineer the solution that is best suited for the application through our hands-on knowledge. If interpretation of the design is left to the supplier, profit will be the motivating factor.”

Whiteside has a simple secret for success. “We just always make sure that we pay close attention to what everybody’s telling us their needs are,” he says. “We put forth the effort from the first step to understand their needs. And if there [are] any doubts, if they’ve got any questions, please ask them because we can answer them. We’ll make the full process as painless as possible.”

“Clients, at all levels, make value judgments,” Becks says. “A project in which even one of the decision-makers is not value-driven—meaning they can’t assess the value of a partnered relationship or a total enclosure—is not a good business environment in which to operate.”

 


Trainor Glass Company Launches Three Design Centers
Trainor Glass in Alsip, Ill., recently opened the third of three glass design centers so it can showcase its product offerings to designers and architects in Chicago. The center was designed to show architects and designers the endless potential of glass, according to the company, and includes everything from glass stairs to kitchen countertops that change colors, to illuminated glass shelving and shower enclosures. Trainor also keeps experienced design consultants on-hand to assist customers with their glass projects.

Exterior uses being demonstrated include railings, fencing, awnings, sunshades and decorative printed glass. Likewise, Trainor displays its interior glass possibilities there, which include glass and mirrored closets, custom mirrors, shelving, digitally printed glass, partition walls and doors, kitchen, shower and bath glass, shower and tub enclosures, screens, glass countertops, sinks and backsplashes.

“Chicagoans just love glass,” says Bob Trainor, chief executive officer of the company. “Glass has a style and elegance that is fresh and unique, and that is a value our customers recognize no matter what the economy is doing.”


NOTES
1 The American Institute of Architects (AIA) Semi-Annual Consensus Construction Forecast (January 2010). Figures when adjusted for inflation;
2 ibid;
3 USGlass magazine Contract Glazier’s Survey 2008 and Contract Glazier’s Survey beta test 2010;
4 USGlass magazine, August 2010, page 18;
5 Presentation at Building Owners and Managers Association Inter-
national (BOMA) 2010 Conference;
6 Presentation at 2010 Building Owners and Managers Association
Annual Conference;
7 USGlass magazine, June 2010, page 14;
8 USGlass magazine, February 2010, page 28; and
9 Interview with Jeff Leone, USGlass News Network, USGNN.com™,
August 30, 2010.

 

Megan Headley is editor of USGlass.













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