October 25th, 2018
Three Factors to Watch in the Year Ahead
As the busy season plays out and we approach the beginning of November, we can finally catch our breath and start pondering what the new year might bring. I usually take a week of vacation this time of year and head into the woods to clear my mind and ponder about the future. I see three major factors that will affect the industry in 2019.
The first is material and component costs. They will continue to rise. This is due in part to rising demand but also is partly due to the recent tariffs. Higher component costs will ultimately affect finished goods prices for every window and door manufacturer. So, to gain a competitive edge, manufacturers must do whatever they can to streamline the manufacturing process and minimize waste to help offset higher component costs. This may mean investing in automated machinery coupled with optimization software.
The second factor that could affect business is that interest rates will continue to rise. The Fed is increasing rates to keep the economy from expanding too rapidly and to make sure that inflation rates are kept in check. This impacts rates for 30-year mortgages and impacts new home affordability and ultimately housing starts. Higher interest rates also impact remodeling activity, so if the Fed plans on additional interest rate hikes in 2019 then this could ultimately slow door and window sales. To maintain sales growth, manufacturers must beef up marketing and sales activity thereby gaining market share as opposed to just moving up or down with market activity. At the same time, selling value as opposed to low price will keep profit levels which are pleasing to the company owners.
The third factor that will affect 2019 is that labor shortages are expected to continue for the foreseeable future. Unemployment will remain at very low levels and a high percentage of those that are unemployed simply do not want to work, or at least do not want to work at a manufacturing or a construction job. This unavailability of labor affects not only the new construction market for windows but also the replacement window market. I have been talking to replacement window manufacturers that have quite a backlog of window replacement jobs simply because they do not have enough installers. Labor shortages also affect door and window manufacturing. I have written about labor shortcomings among door and window manufacturers over the last several years, and the problem is not going away. So, if there is some aspect of production that can benefit from automation, then it is a very good idea to invest in it. For example, if you can automate insulating glass fabrication and go from a process that utilizes 10 to 13 people to one that needs only 3 to 4 people, then you can significantly reduce your company’s dependence upon manual labor while simultaneously improving overall quality and consistency of finished product.
At the same time, invest not only in new machinery but also in your people. If you have good people, put compensation and reward programs in place to keep them with your company. Once they are gone, you will not be happy with the prospects of replacing them and training someone new.
So, as we move through the final quarter of the year, keep an eye on these three critical factors and make the appropriate business adjustments to stay ahead of the competition. It is a dynamic market so companies that are quick on their feet will win the bout.