THE CUTTING EDGE
Optimism is the Key in Uncertain Economic Times
by Jim Plavecsky
On September 11, as the terrorist attack unfolded upon the World Trade Center and the Pentagon, I was enroute to visit a potential customer in York, Pa., on our company plane.
During the brief flight, my colleagues and I were discussing the state of the economy in respect to the window and door industry. Since we have all been traveling in different directions the last couple of months, we were comparing notes about different regions of the country to see what areas are reporting business growth versus areas that are in decline.
There didn’t seem to be any particular pattern that we could note. Each one of us reported that, in each area of the country, some manufacturers reported that sales were booming while others were saying sales were soft. One thing that stood out overall, however, was the extreme sense of optimism that prevails in this industry. None of us could recall a single manufacturer expressing anything other than optimism.
Yes, optimism, despite reports that industrial output was down in September for the twelfth consecutive month—something we have not seen since World War II. Retail sales are also down, and the job market is continuing to deteriorate. Weekly claims for unemployment insurance are at their highest level since the 1990-91 recession. Especially important to the window and door industry is the issuance of housing permits, which weakened in September. This means fewer housing starts for October, and of course, fewer orders for prime windows.
However, the National Association of Home Builders (NAHB) forecast shows a rebound in the new housing market and a renewal of economic growth in the first quarter of 2002. This is to be followed be an even stronger recovery for the remainder of next year. According to Lawrence Lindsey, chief White House economic advisor, “the economy is in the middle of a brief and shallow economic recession, and the prospects for 2002 are quite good.”
Federal Reserve chairperson Alan Greenspan, speaking before the Joint Economic Committee in the House of Representatives on October 17, commented that the September 11 attacks served as a serious shock to an already weak economy that is bound to put downward pressure on the economy at least in the near-term. But he also stated that the nation’s long-term prospects are strong, partly in response to massive monetary and fiscal policy responses and a substantial fall in energy costs. Does this mean we should count on energy costs staying low? Absolutely not, for as the economy rebounds, so will demand for our natural resources.
Now, let’s look at the trend in existing home sales. The same general pattern can be seen except the flat spot is expected to occur in the first quarter of 2002 with a recovery occurring for the balance of the year. I have studied this in the past and have noted a correlation between existing home sales and replacement windows.
Homeowners are either replacing windows prior to the sale of their existing homes or they are remodeling after moving into their recent purchases of existing homes.
Although we are expecting the beginning of a slide in existing home sales, the low point of 4.99 million units (seasonally adjusted rate) forecasted for the first quarter of 2002 is still 10 percent higher than the average rate that we have seen in the 1990s. Additionally, the overall average for next year is still expected to be slightly ahead of what we have seen this year.
The bottom line is that if we remain optimistic and avoid talking ourselves into a sustained recession, we are simply experiencing a bump in what is still an otherwise very solid highway leading to continued growth and profit for the window and door industry.
What does this mean in terms of marketing and sales strategies? Well, back in 1998-99, when housing starts were peaking at the 1.6 million-plus rate, window manufacturers were not so much interested in talking about marketing and sales strategies as they were production efficiencies and output capacity. “Jim,” they would say, “I would love to talk with you about marketing, but right now I just need someone to show me how I can make more windows in an 8-hour shift!”
Today, that scenario has changed dramatically. The window market is still very strong, but the recent slowdown is causing window and door manufacturers to look closely at marketing strategies, namely product differentiation. Yes, they are still concerned about maximizing production efficiencies in order to remain competitive from a cost standpoint. But, they are also keenly interested in adding value to their product line with technologies such as enhanced frame design, low-E glass, warm-edge spacers, argon gas and even laminated glass to increase security and improve sound attenuation.
Therefore, as we move forward into the second year of the new millennium, you will see even more discussion in this publication of window product-line enhancement, product differentiation and automated fabrication machinery designed to enhance features and benefits while increasing production efficiency and lowering overall window cost. It all adds up to increased value for the window consumer and continued prosperity for the progressive window and door manufacturer who is willing and able to invest in new technologies enabling him to stay one step ahead of the competition.
Those manufacturers reporting very strong sales do not expect the bottom to fall out anytime soon, and the window and door companies that have reported slowdowns are predicting an increase in sales in the very near future. The latter are looking at the brief slowdown as an opportunity to catch their breaths, regroup and re-examine their sales and marketing strategies. Indeed, the leaders in this industry are not ones to sit around waiting for the economy to drive their businesses. Instead, they are answering the challenge with creative ideas that will propel their businesses forward.
Jim Plavecsky serves as vice president of marketing and sales for Edgetech IG, based in Cambridge, Ohio.
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