Diagnosing the Damage

July 22nd, 2021 by Nathan Hobbs

After Taking Over the Economy, COVID Leaves Door and Window Companies With Mixed Signals but a Positive Attitude

By Drew Vass

For several years now, the door and window industries have braced for a potential slowdown. And there have been threats of one.

In December 2018 and January 2019, the economy breached two setbacks when the Federal Reserve raised interest rates and the U.S. Government shutdown for 35 days. In August 2019, the federal government announced tariffs, as experts said the bond market showed signs of a recession. But each time a bump surfaced, it was smoothed out, partly by low unemployment and high consumer confidence. Even if a recession were to strike (which analysts agreed was unlikely for 2020) the length and severity would be nothing like the last, they assured.

Until COVID-19, the economy seemed invincible.

When it comes to employment and consumer confidence, the pandemic brought on what could be described as one of the most drastic about-faces in U.S. history. In 2019, the net share of Americans who said they weren’t concerned about losing their jobs rose to more than 80%, according to the Fannie Mae Home Purchase Sentiment Index. That was partly due to an abundance of available positions. Even as unemployment remained below 4% nationally, people knew that if they lost their jobs, they could find other employment.

But then in February 2020, as the World Health Organization (WHO) officially named COVID-19 and a string of countries reported spikes in cases and related deaths, the U.S. stock market plummeted. By then it was clear: COVID-19 was doing more than infecting humans; it was taking over the U.S. economy.

Sandbagging

“I remember sitting in a meeting [in] early March, telling staff to prepare for the worst and to make absolute certain we wrapped up as much as we could possibly get done, utilizing overtime and whatever tools we had available, as this might be our last good revenue opportunity for a while,” says Richard Martin, president and CEO of Designers Mirror and Glass Inc.

Experts say recent changes now hitch the U.S. economy to consumer spending like never before— particularly when it comes to how money flows through service-based industries and into other areas of business. As many of those industries were suspended, or at least significantly curtailed in the earliest days of the virus, and with roughly 30% of U.S. consumer spending at risk, a recession looked eminent.

But not all steep decreases in consumer confidence surpassing 20% necessarily signify such an event, says John Leer, an economist with Morning Consult. In a report published in April, Leer explains that from March 1991 to January 1992, consumer confidence fell 26%; from February to August 2011, it fell by 33%. Meanwhile, neither event triggered nor was caused by a recession.

With or without a recession, the U.S. economy would stall if consumers lost confidence in their incomes and abilities to spend. In the beginning phases of the pandemic, Morning Consult’s Index of Consumer Sentiment plunged from the highest point recorded since its start in January 2018, to an all-time low on April 7—a 30% decrease. But that rate of decline is still 6 percentage points less than the average shown during the past five recessions. Meanwhile, through its Beige Book, the Federal Reserve reported there were indications as late as mid-April that consumers were spending, while simply shifting their focus away from things like dining and retail. Left with mixed signals, as they prepared for the worst, door and window companies hoped for the best outcome: a short, economic downturn.

With construction starts already expected to show a 4% decline from 2019 levels of activity, building product manufacturers were prepared for slight decreases in 2020. But not something the scale of COVID-19.

By March 11, when WHO declared COVID-19 a pandemic and additional flight restrictions were placed, those relying heavily on travel tell [DWM] they were among the first to be impacted. Companies with customers in Europe say they began to feel the pinch as early as mid-February. In the weeks that followed, as COVID-19’s numbers approached 100,000 infections worldwide, companies say they became extremely concerned about supply chains. But for many, those fears quickly gave way to something they consider more important.

The Human Factor

“At first we were mainly concerned with our supply chain continuity,” says Tim Eggebraaten, vice president of sales and marketing for Vector Windows. “We took action to contact our key supply partners and took strategic supply actions to mitigate potential risks.” By early March, however, “as we learned more from our experts, we realized the safety of our workforce was our most important initiative,” he adds.

Reality sat in early in Seattle, where the virus was first detected in the U.S., says Stephanie Miller, North American marketing manager for Vetrotech Saint-Gobain. “We had an advantage, being in the Seattle area,” she says. “It was clear very quickly, as March began, that the coronavirus was an extreme health hazard, so we started equipment cleaning and sanitization protocols right away.” By March 9, her company was already talking about social distancing and preparing teams to work virtually. Nearly 3,000 miles away, in New Jersey, the same reality unfolded. Near to the East Coast epicenter for the virus, United Window and Door was “well ahead [of] the flattening of the curve,” says Gregg Proscia, vice president of sales and marketing.

Proscia says his company had nurses check the temperature of every employee before shifts. Buildings were cleaned and disinfected each night with, “the latest and greatest cleaning [materials] that kill anything on contact.” Social distancing was made a mandatory practice and the company rearranged its production lines to accommodate safe distances. Anyone who was able to work from home was asked to do so, minimizing the number of employees in the workplace.

Companies quickly migrated to software such as Microsoft Teams and Zoom in order to connect virtually and continue with business operations. But there were learning curves.

“While we have discovered how much work can be done from home, there is a corresponding knowledge vacuum that has been created by not sharing communal office space,” says Brad Schultz, vice president of Associated Laboratories Inc. “Information must now be repeated multiple times, and is not always shared easily.” As a result, “often questions go unasked in a timely manner,” he says, slowing operations.

As door and window companies nationwide sought to batten down their hatches against COVID-19, most—if not all—of these practices became universal.

Refusing to Give Up

Even amid those constraints, the industry showed its resiliency. Among those surveyed by [DWM], a majority of companies ranked their operating capacities at around 60% of normal—some reporting levels as high as even 90 to 100%. Heather Heflin, owner of All Glass Inc., says her company was able to deploy acrylic partitions to keep customers and employees safe. Using remote sales presentations and other safe practices, some dealers report that they’re operating at around 70% of capacity, on average. “We were busy going into this pandemic, so we weren’t sure how it would directly affect us,” says Wendy Duran chief financial officer and vice president of General Millwork Supply Inc. “We just closed our showroom to the public to protect our employees, but continued business by phone.”

But one issue stopped companies dead in their tracks.

As the federal government deployed shutdowns for all but essential businesses to slow the spread of the virus, door and window companies at first failed to make the essential list. States soon followed suit with their own guidelines—many leaving it unclear which industries were included. By now it looked inevitable: in order to weather even brief shutdowns, companies would need to make cutbacks.

“The moment state government officials began to declare businesses and jobs essential and nonessential, we knew our work force would need to be trimmed to get through,” says Brian Andrews, commercial sales coordinator for Vinylmax Windows.

Officials for some companies say they panicked— one reported furloughing all employees immediately. Martin says Designers Mirror and Glass Inc. had to enter “a near complete shutdown, temporary layoff status.” Others began clinging to cash reserves, in hopes of carrying employees. One dealer tells [DWM] it had around 30 jobs in progress—all of which were placed on hold immediately. Meanwhile, consumers entered a similar holding pattern. Todd Tamalak, senior vice president at John Burns Real Estate Consulting, an independent housing research firm, says that by late April his company’s surveys for remodeling showed a 12% cancellation rate; another 25% said they were postponing.

The same consumer confidence that repelled recent economic threats was finally waning.

Worsening matters, some door and window companies suggest that signals were “mixed,” regarding the types of companies that were allowed to stay open or reopen. As a result, some closed initially on what they believed to be government orders, only to realize that their businesses were listed as essential—in some cases bringing employees back just a week after letting them go. One dealer (who wishes to be anonymous) tells [DWM] that when they were forced to close and furlough workers, then had the opportunity to reopen, employees had moved elsewhere.

More Mixed Signals

In early March, an $8.3 billion emergency spending package was signed—including a Paycheck Protection Program (PPP) that offered short-term grants and loans to help businesses keep employees on payroll. A number of companies say those measures helped to keep them going; others say they were able to survive without them. “We are busy and there are smaller businesses who need it more than we do,” Hefl in says. But among some of the companies that did accept loans, confusion ensued.

“Not one person at the banking level can actually tell us the exact forgiveness of the loan,” Martin says. “Then the clauses are not perfectly clear on the federal tax side. Do we get gross wages less the company provided FICA tax, or do we get gross wages less FICA both sides and less federal withholding? Or, do we get a part thereof? I have read it several times and it could go both ways.”

By April, the industry was providing itself with more mixed signals. As some crept along on skeleton crews, telling [DWM] they were down by 30%, others said they were “thriving and busy.” Then the industry received a reality check: Thermal Windows and Doors in Murrysville, Pa., announced it had closed—not temporarily, but permanently. With no end in sight for the effects of a pandemic, the company was forced to cease operations, said CEO and president Gary Acinapura. The industry saw its first business casualty.

By the start of May, Victor Calanog, head of CRE Economics at Moody’s Analytics, warned that the U.S. economy was poised to register the worse second-quarter gross domestic product (GDP) figures since WWII, adding that, “The near-term future of retail is bleak.”

Door and window companies were left bracing.

“In April we were fortunate to be operational on two large projects unaffected by the shutdown, but it only provided 50% of normal revenue … enough to break a major fall, allowing for a soft landing with break-even results,” Martin says. Heading into May, his company forecasted break even scenarios for the foreseeable future, expecting, “what will be an operationally ugly month,” he says.

The Road Ahead

While companies say they’re expecting between 15 and 20% declines in revenue for the year, overall long-term outlooks remain optimistic.

Richard Branch, chief economist for Dodge Data and Analytics, says his company expects the economy to grow by 2.7% in 2021, with the majority of growth happening in the second half of the year. But experts warn that predicting economic recovery is as much a moving target as the spread of the virus, leaving analysts to act like epidemiologists. Dodge’s predictions hinged on the assumption that there will be three to eight million confirmed cases in the U.S. and that infections will abate by July.

So far as housing is concerned, “Second quarter home sales could decline 50% to levels we saw in the Great Recession,” Branch warns. “The spring and summer selling season is gone and this weakness might continue into the third quarter. As the virus recedes, we’ll start to see construction pick up, but the economic damage will take time to repair and heal.” He expects strong single-family growth in 2022 and 2023, but forecasts a decline in starts of -19% and -2% in 2020 and 2021, respectively. At the same time, according to the Leading Indicator of Remodeling Activity (LIRA) released by the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University, spending on home renovations is expected to decline at least through the first quarter of next year, with further worsening expected. But there are indications that among construction products, doors and windows could represent an anomaly, Tamalak suggests. “If we were a hedge fund, and we were buying one category and shorting another category, I would want to be an owner of windows and doors, versus some other categories,” he says. “We see in our data some really positive things within doors and windows that doesn’t happen in other product segments …”.

Already some companies report seeing rebounds.

“After the initial lockdown and abrupt disruption in business, we are starting to see a gradual increase in demand, as more areas begin to open and construction comes back in more states,” Koch says. Eggebraaten says his company expects to recover “probably by [the] end [of] 2021.”

In the process, there might be consolidations, suggests Schultz. Just as in 2008, there is a “potential for small to medium companies to be closed, or sold to larger companies,” he says, but those moves, “could absorb the economic changes.”

Shifting Philosophies

Adding to the puzzle left behind by a pandemic, some companies are weighing social implications that could mandate permanent changes to how they do business.

“My concern more than anything right now is societal shifts in preference … and the carnage to other industries,” Martin says. “Leisure, travel and retail … If there is a fundamental shift, what will buildings look like and what part of those structures will we have a hand in?” he asks.

Those unpredictable factors could leave the industry with a blank slate for how it operates, he suggests. But therein lies a chance for reinvention, others say.

“As the saying goes, a crisis also brings opportunity,” Koch says. “While the coronavirus pandemic is unprecedented—unlike anything we’ve experienced in our 50+ years in business, including the Great Recession—we believe the measures we’re taking today are preparing us for the future,” he explains. “We will grow and be better for it as a company and in our communities.”

Among changes like social distancing, masks, cleaning and sanitizing—many are expected to become standards of practice.

“I suspect a decline in socializing during breaks, lunch time and after hours will remain for quite some time,” Andrews says. “We will continue to practice sanitizing and disinfecting to keep our workers safe and our workplaces as clean as possible.”

Others see deeper, moral implications.

“I call all employees under my supervision regularly, just to see how they and their families are coping,” Schultz says. That’s not to say he didn’t check in with employees before, but it’s inspired him to do so more regularly, more emphatically, he says.

If nothing more, the experience of operating under shutdowns and cutbacks has taught the industry “how to do more with less,” Proscia suggests. And going forward, that could be its best insurance policy.

Are Robots Winning?

Among companies reporting the highest levels of capacity amid COVID-19, a common trend immerged in [DWM]’s survey data. When asked to rank their levels of automation on a scale of one to 10, the average among all companies was four. But those rating themselves to be highly automated (an eight or better) said that—without a doubt—robotics and automation helped them to maintain high levels of productivity.

“One guy and automated equipment can get a lot done,” one respondent commented.

“We would not be able to keep up with demands without these investments,” says Tim Eggebraaten, vice president of sales and marketing for Vector Windows.

Meanwhile, at least one equipment manufacturer tells [DWM] that it’s seen an increase in interest for automation since the start of the virus.

Drew Vass is the editor of [DWM] magazine.
dvass@glass.com

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