Volume 18, Issue 5 - September/October 2014

feature

Surge Protection
While Analysts Predict Robust Growth in Solar Film, Corroboration Remains Slim
by Drew Vass

In spite of the fact that at least six major window film brands are now owned by publicly traded companies, locating analysts who research the window film markets proves next to impossible. And a review of recent annual and financial reports among the “big three” (parent companies: Eastman Chemical Co., Saint Gobain and The 3M Co.) provides clues for why this may be the case: Rarely—if ever— do they delineate window film from other product segments.

Nonetheless, between June and July 2014, window film appeared in a pair of market reports, each keyed in on specific predictions for the solar reflective architectural market —both forecasting increases in demand over the next few years and one calling for higher margins among dealers. Numerous small business experts advise that now is the time for window film dealers to craft their contingency plans for potential growth.

Stealing the Stage

In June 2014, Lux Research Inc., an independent research firm that’s headquartered in Boston, released a report forecasting a near doubling of the worldwide architectural solar reflective films market by 2018. According to the report, the predicted 92-percent increase will be driven largely by tightening building codes and standards, an increased interest in daylighting methods that block solar heat gain and film’s low cost when compared to replacing existing glass. The U.S. market is predicted to increase by 45 percent, or 11.25 percent per year through 2018, which researchers say exceeds an estimated 5 to 7 percent historical rate. Meanwhile, a separate report, published in July 2014 by IBISWorld Inc., a global business intelligence provider that’s based in Melbourne, Australia, calls for a 2.4 percent annual increase in service prices among architectural window film dealers through 2017, leading estimated averages of $8.50 USD per square foot (including labor and materials) upward to $9.13. Similar to Lux Research, IBISWorld’s report forecasts increased demands for solar films, which it partly attributes to a 2011 Department of Energy study touting their effectiveness.

Aditya Ranade, Ph.D., senior analyst and lead author of Lux Research’s report, entitled “Opportunities and Challenges for Solar Control Films,” says his company cued in on window film when researchers noticed the product’s low price point when compared to alternatives.

“We looked at all of the technologies for architectural glass that can balance solar heat gain with entirety of views and aesthetics,” Ranade says. “Within those technologies, we found a lot of switchable glazing, electrochromic and thermochromic technologies, and daylighting louvers and such, but our analysis indicated that solar control window films have the lowest payback periods and capital investments for building owners. So that was the point at which we started to become interested.”

Over the course of their research, Lux Research’s analysts developed bottom-up estimations of value for the architectural solar films market, based on revenues starting at the manufacturing level; they then developed coefficients for such influences like rates of new construction, maturity of the energy security companies (ESCOs) and property management industries, the attractiveness of film at the codes and policies level, costs for electricity, and market saturation points, which are based on estimates for the total amount of existing commercial glass. Also cited is an increase in the use of architectural glass between the years of 1991-2009, which analysts estimate at a compound annual growth rate of 4.8 percent, twice the global gross domestic product (GDP).

In addition to its key predictions, Lux Research posits an optimistic scenario, which cues in on the ability of national building codes to drive demand even further in the U.S. market, while a pessimistic outlook accounts for political uncertainty, which may hold such codes at bay.

“Challenges” listed in Lux Research’s report include momentum induced by competing products, including low-E glass and external shading, push-back from window manufacturers, many of which void their warranties when aftermarket films are applied and perceptions of surface heat build-up, which is believed by some to create glass failure. These factors are keyed into (and therefore do not detract from) the company’s primary predictions.

The solar control window film market is predicted to nearly double in size in the next four years.

Meeting of the Minds


So how can film manufacturers can improve relations with window manufacturers and forgo perceptions of glass failure? Ranade suggests two approaches: one boils down to marketing and public relations, the other involving product improvements. But he also suggests that, based on his research, the issue of heat build-up and glass failure, “… isn’t as widespread as window manufacturers perceive it to be,” and that window film manufacturers could provide additional hard data to lay this issue to rest.

“Selling the products directly to [window manufacturers], of course would be ideal,” he says. “They’re doing [residential glazing] installations anyways, in most cases. The residential segment is so fragmented, that anywhere you can consolidate the channel, that’s a winning solution.”

But at least one representative for a window film manufacturer suggests that there’s no real incentive for window manufacturers to endorse window films, nor is there currently an avenue for stimulating such collaborations.

“Here [in the U.S.], we have the International Window Film Association (IWFA), which is one organization, then the glass manufacturers have their own, as do window manufacturers,” says Jeffrey Plummer, Madico’s senior vice president of sales and marketing.

Regarding the warranty issue, Plummer says he’s not sure what window manufacturers stand to gain through retracting their cancellation policies.

“If they have a way to eliminate the fairly significant warranty exposure that’s created when an unknown product is installed on their windows — because they don’t know what the homeowner is installing and whether it’s a high quality film, or whether they’ve taken into account the glass type and climate ... so, I think partly because it reduces their liability and partly because of concerns regarding these unknowns, that their positions of voiding warranties isn’t likely to change.”

Key Players
Remain Mute

When asked to provide feedback regarding Lux Research’s predictions and their own outlooks for the solar control window films market, Eastman Chemical Co, and the The 3M Co. both declined to comment, while Saint Gobain deferred comment to its subsidiary, Solar Gard. Among the recent Securities and Exchange Commission filings for all three companies, the only signs of corroboration appears via comments posted in Saint Gobain’s 2013 annual report, which cites energy efficiency and stricter regulations for new construction and renovations as high growth markets, but fails to (specifically) mention window film. Saint Gobain also notes an increase in the use of glass among architectural buildings as a key market driver; but, again, the company does not equate that increase (specifically) to a stronger window film market.

“It is our belief that we will continue to see strong demand for solar control film solutions,” says Dave Anderson, director of research, development and marketing for Solar Gard. And while Anderson declined to comment on specific estimates, he says he feels the market is shifting in response to such things as increased demand for energy solutions, a strengthening reputation among solar film products as a retrofit solution and improved certification standards, which he says help to “ensure a level playing field” throughout the window film industry.

Josh Buis, chief operating officer for Scorpion Window Films, a Cloverdale, Ind.-based manufacturer, says his company is geared up for major growth, which he attributes to increased product awareness. Meanwhile, Plummer suggests that Lux Research’s predictions may be a bit overstated, but he admits that checking the financial pulse of the window film industry is easier said than done.

“I honestly don’t know how close you’re going to get on analyst input, because most window film companies, whether they’re private or public, guard their information, or blend it with other segments,” Plummer says. “A lot of manufacturers don’t share their exact data and even the IWFA doesn’t actually have clear data on market size.”

Jeff Fransen, president and CEO for Window Film Depot, a nationwide window film dealer, concurs with Plummer’s suggestion that Lux Research’s predictions may be a bit bloated, but also notes that he thinks the industry may be reaching a tipping point.

“I think our products are making their way, after 10 to 15 years of ESCOs saying they weren’t interested, to the point where they’re starting to see films as a more integral part of an overall solution,” Fransen says. “I think a lot of that may have to do with technological advances of products.”



Run a Reverse


While most of the small business consultants interviewed for this article suggest leaning on contract installers to avoid (or postpone) hiring additional permanent staff, Susan Lee-Marrow, associate state director of programs for Virginia Small Business Development Centers Network, suggests that smaller window film dealers could turn the tables on this equation.

“Another strategy includes [hiring additional installers], then linking up with larger companies who may need contract installers from time to time, offering up your crew for installation purposes,” Lee-Marrow says. “That would allow you to staff up and then, when you don’t have enough work to keep them busy, your company contracts with those larger firms to do installations for them.” 



Stay in the Driver’s Seat


Should Lux Research’s predictions prove true, four expert small business consultants interviewed for this article concur that window film dealers would be best served by controlling the growth of their businesses through marketing efforts. They also suggest the use of contract installers, before dealers consider adding to their workforces.

“Instead of shooting into the dark, in anticipation [of increased demand] by hiring an additional installer, you can control demands through marketing,” says Bernard Ferret, senior business consultant for the George Mason University Small Business Development Center in Fairfax, Va. For this reason, Ferret suggests that window film dealers should focus first on their marketing efforts, where IBISWorld’s report estimates that most currently funnel one percent of their budgets. Ferret, and other experts suggest that, combined, sales and marketing have the ability to help dealers cope with increased demands, not only by driving steady sales in an up market, but through their ability to slow operations when installation capacities are stretched thin. And not all of those marketing efforts require skilled personnel. Susan Lee-Merrow, associate state director of programs for Virginia Small Business De-velopment Centers Network, says many of her clients utilize unskilled labor for such things as door-to-door marketing efforts.

“Door-to-door canvassing generated more sales conversions than anything else,” Lee-Marrow says. “They used articulate, clean-cut, high school-aged boys. All they’re required to do is hand out info and walk away with warm leads, which are then handed off to professional sales people.”

Buis says Scorpion employs a similar program with local organizations and high schools.

“We developed a program, called Scorpion Local, which gives money to area organizations and schools, like school volleyball teams, for instance,” Buis says. “We donate money to their programs in [exchange for door-to-door marketing].”

Preparedness is Key

All of the small business experts interviewed for this article agree that the key to responding to market fluctuations isn’t in anticipation, so much as it’s in a good contingency plan.

“I spent a lot of time as a brand manager for Fortune 500 companies,” says Mary Lysaught, a retired marketing executive and professor, and now a volunteer mentor for SCORE, a nonprofit association dedicated to coaching small businesses. “When you launch a major marketing effort at that level, you have to anticipate how that’s going to impact cycles. In a big company environment, you have a contingency plan built into your business, so back-up suppliers or resellers are already established for the ups and downs. The same applies to businesses of any size.”

In the case of window film dealers, experts suggest that those backup suppliers could take the form of contract installers, which they say is the best course of action before hiring. And all of the experts interviewed for this article agree that establishing and maintaining ties with a bank of reputable and dependable contract employees is in dealers’ best interests.
Fransen says a bank of hand-selected contract employees are keys to his business.

“As hard as it is to get high-end clients and to earn their work, it’s that much easier for them to fire you if you don’t represent what they expect,” he says. “A lot of what you do on the installation end is for show. Your employees need to look like they’ve come ready to work, like they’re focused and they know what they’re doing. All of this is part of the show of installation services. Don’t get me wrong, they need to do excellent work; but this show aspect is part of what it takes to make customers happy. So it’s critically important that, when you pick subcontractors, they be the creme de la creme.”

Fransen further suggests that, no matter who’s performing the installation, his company ensures that a Window Film Depot employee is onsite and in charge of the management aspects of every project. Handing those responsibilities over to a subcontractor or another business, he says, is simply too risky.

According to IBISWorld’s findings, window film dealers may have to reach a little deeper into their pockets in order to secure the crème de la crème installers that Fransen mentions, as researchers cite a “small pool of experienced installers to draw from” as cause for driving up wages as dealers strive to employ and retain qualified technicians. At the same time, the company forecasts that increased demand for window film products will allow dealers to raise margins and pass some of those added expenses along to their customers.

Wait to Exhale

Whether or not the research firms’ predictions will prove true is anyone’s guess. Until window film manufacturers are willing to open up and share their own predictions, there’s little to compare. In the meantime, there is at least corroboration between the analysts of two independent firms, predicting increases in demand for solar films through 2017. Beyond this, both companies diverge in their predictions, with Lux Research calling for at least six more years of similar growth, while IBISWorld suggests that window film is in the peak of its maturity phase, to be followed by gradual decreases year over year. Ultimately, with or without market changes, the real answer may lie in how dealers respond to and create opportunities. WF

Drew Vass is a contributing writer for Window Film magazine.


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