Volume 12, Issue 4 - May 2011

Trend Tracker

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.

"For several years, we’ve stressed that companies would benefit from remembering the
multi-family market in their marketing plans … There isn’t a homeowner in
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.

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.

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.


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