Quarterly Trends Report

Window Sales Survive the World Cup

Sales

In this latest quarterly trends report produced by Michael Rigby Associates more than two in five fabricators reported sales growth compared with the previous three months. Less than one in five recorded a decrease and for more than two in five sales stayed the same.

A useful way to look at this is by the net balance of fabricators reporting either way. If, for example, 60% of fabricators saw an increase in sales and 40% a decrease, the net balance would be +20%. Reverse the figures and it would be a net -20%. A balance of zero implies that little has changed.

On this basis a net 29% of fabricators interviewed reported increased sales in the three months to June compared with the previous three months.

More firms in the Midlands (48%) and the South (29%) experienced sales growth than companies in the North (17%). A net 34% of small and medium sized fabricators are ahead of large firms (6%). Fabricators producing between 300-700 frames per week (net 67%) grew sales compared with companies producing less than 50 frames per week (10%) whose sales were more muted.

Trade specialists (39%) are slightly ahead of commercial and retail firms (28%).

April-June 2002 sales compared with the previous three months - by size

SIZE	Increase	Decrease	Same	Total	Base
Small	38%	8%	54%	100%	52
Medium	55%	16%	29%	100%	31
Large	41%	35%	24%	100%	17
Total	44%	15%	41%	100%	100

April-June 2002 sales compared with the previous three months - by area

AREA	Increase	Decrease	Same	Total	Base
South	44%	15%	41%	100%	41
Midlands	61%	13%	26%	100%	23
North	33%	17%	50%	100%	36
Total	44%	15%	41%	100%	100

A balance of just over one in two fabricators recorded increased sales in the last three months compared with the same period last year. The picture is similar across all regions. More small and medium sized firms (58% and 55% respectively) improved sales in the period than large companies (24%). A net 65% of trade specialists reported sales growth compared with a net 50% of commercial and retail firms.

Just under 34% of outlets had sales growth of 20% or more over the same period last year.

Conservatories

Thirty four per cent of fabricators turn more than 20% of their windows and doors into conservatories.

Stocks

A balance of more than one in five fabricators built up stock. Small companies (net 31%) grew stocks compared with large and medium sized firms. More fabricators producing between 50-125 (30%) frames per week and between 300-700 frames per week (33%) increased stocks compared with companies producing less than fifty frames per week and between 125-300 frames (17%). Trade fabricators (36%) and retail firms (29%) grew stocks contrasting with commercial companies (-6%) who reported a decrease in stock levels.

Employment

Overall a net 20% of fabricators increased employment levels compared with three months ago. Medium sized firms (39%) are more active than small and large companies. The larger the outlet by weekly production the more widespread the increase with firms producing less than fifty frames per week shedding labour.

Orders

A balance of 36% of fabricators reported an increase in their volume of orders compared with three months ago. Regionally, firms in the North and Midlands (net 45%) are ahead of companies in the South (22%). Significantly more medium and small fabricators (45% and 40% respectively) experienced increased orders than large companies (6%). A net 48% of trade specialists recorded a rise in the volume of orders compared with retail (37%) and commercial (28%) firms.

Capacity

A balance of just over three in five fabricators reported to be working below capacity. A net 67% of firms in the North and South are working below capacity compared with companies in the Midlands (44%). More small and medium sized outlets are working at capacity than large outlets.

Prices

A net 33% of firms increased selling prices compared with three months ago. More fabricators in the North (39%) and South (34%) reported a rise than companies in the Midlands (22%). The larger the company the more widespread the increase with no large companies interviewed cutting prices in the quarter.

Price expectations

A balance of one in two fabricators forecast increased selling prices in the next twelve months compared with the previous twelve. Slightly more medium-sized outlets (net 61%) expect to up their prices than large or small companies. A net 70% of firms producing between 125-300 frames per week foresee a rise in prices compared with a net 38% of fabricators producing less than fifty frames per week.

In terms of business activity, more commercial specialists (78%) expect to hike prices than retail (58%) and trade (26%) firms.

Outlook

Expectations for the next three months are positive with a net 42% of fabricators expecting to improve sales in the period compared with the last three months. More firms in the Midlands and North (47%) forecast a rise in sales than companies in the South (54%). Medium sized firms (58%) are more confident than large and small companies (35%). Expectations for sales growth in the three months to September are strongest among outlets producing in excess of fifty frames per week. Firms with an output of less than fifty frames per week are more cautious in their expectations.

Year-on-year expectations are also high with a net 39% of fabricators expecting sales to improve. Small and medium companies are more confident than large firms. Forecasts are strong across all size of company.

Raw materials

A balance of just over two in five fabricators reported an increase in the purchase cost of materials compared with three months ago. Companies in the North (50%) recorded raised prices compared with firms in the South and Midlands (38% and 32% respectively).

Investment intentions

A net 27% of fabricators plan to up investment into plant and machinery in the next twelve months. Slightly more firms in the Midlands (35%) plan to invest than companies in the South or North (29 and 19%). Large fabricators are planning to be more active in their investment than small and medium firms. A net 44% of commercial companies plan to invest compared with retail and trade specialists (27% and 17% respectively).

Prospects

A balance of 23% of fabricators are more confident now than in the three months to June. Firms in the Midlands (net 35%) are more bullish than companies in the North and South. More medium sized outlets (42%) are confident than large and small firms (24% and 12% respectively). The larger the company by weekly production the more widespread the optimism. Commercial and trade firms are more bullish than retail specialists.

Profitability

A balance of just over one in two fabricators expect profits to increase in the next twelve months. Expectations are strongest among companies in the North and South although a net 44% of firms in the Midlands also forecast improved profits. The larger the company the more widespread the expectation for improved profit, with no large firms foreseeing a drop. A net 74% of trade specialists are planning a rise in profits compared with commercial firms (61%) or retail fabricators (44%).

Problems

Price cutting in the market and lack of skilled staff continue to be the main concerns this quarter, along with margin squeeze.

Thirty seven per cent of firms reported a lack of skilled staff as the single biggest problem.

Staff training (34%) closely followed by marketing (23%) are thought to be the most important issues in the next twelve months.

Comment

Dr. Ron Shakesheff, Chief Executive of Bowater Windows, whose company sponsored this report, remains optimistic about the short-term future of the Window and Door Industry despite the negative impact of the Jubilee Celebrations and the World Cup in June.

“During my time in the Industry, I have been surprised at events, which can impact on consumers buying intentions and decisions,” comments Ron. “Rising house prices, low inflation and low interest rates have for long been regarded as key drivers for increasing consumer confidence, which in turn leads to higher orders in the replacement window market. Similar conditions also help the New Build market. However, I did not expect World Cup fever to have such a distracting influence. Fortunately, it appears to have been a short-term phenomenon and the end of June/early July appears to have returned to more normal trading conditions.”

“Before June, the Industry appeared to be having a strong year in most market areas and even the dreaded market saturation in replacement windows appeared to have been put at bay, at least for the time being.”

“Conservatory sales also remain strong and as house prices rise, are becoming an increasingly more attractive and cost-effective way of increasing living space, whilst improving the potential value of a property.”

“There are a number of clouds on the horizon; however, interest rates will almost certainly rise later in the year, impacting on house prices and consumer confidence and increasing costs for both small and large businesses alike. Next year, the full cost of the Chancellor's 2002 budget will be felt inevitably increasing employment costs, without much hope of passing on this cost in price increases. Productivity improvements will be essential to avoid margin erosion.”

“Then there is the question of PVC resin prices. They continue their roller coaster ride defying economic logic and being almost impossible to predict. Earlier in the year they bottomed at a level not seen for many years, and yet only a few months later they have risen by over 20% and are now above their historical average. Which way will they move? Suppliers argue that they still have to go higher to give their industry an acceptable return. They would say this wouldn't they? Other observers believe the increase has been co-ordinated and will not survive a downturn in the summer. I favour the latter view but I admit my forecasting record has been far from infallible in the past.”

“The situation in Continental Europe remains glum. Demand for PVC windows in Germany continues to plummet and only inflexible labour laws and the high level of private ownership of window companies has delayed significant structural change and industry consolidation. This will inevitably occur and the later it happens the more painful the process.”

“Other older economies such as France, Italy, Holland etc also suffer from falling demand but not as severe as in Germany.”

“Poland, despite a very difficult local economy, continues to grow. Interest rates have fallen but so has the Zloty increasing the cost of imported profile. Demand should remain reasonable but prices are falling as German producers attempt to overcome problems in their house market by exporting.”

“The Czech Republic has had a surprisingly good year with a strong local economy and in contrast to Poland a rising currency.”

“Returning to more general topics in the UK. Fensa appears to have settled down after some initial teething problems but the cost and complications of introducing Document L have probably been underestimated by this industry. Unless these costs are passed on to customers margins will inevitably erode and the UK Window Industry will then repeat the mistakes made in Germany in the mid 90's.”

The Bowater Windows Report, a quarterly trends survey, is produced by Michael Rigby Associates and sponsored by Bowater Windows Ltd in conjunction with Fabrication and Glazing Industries. The aim is to keep a finger on the market pulse, and to monitor fabricators' views and expectations of market movements. Michael Rigby Associates is a management consultancy specialising in marketing research, marketing and business improvement for the window and home improvement markets. The survey covers a representative sample of 100 window fabricators. Telephone interviews took place between the 1st and the 3rd July 2002 across a balanced spread of size of firm, geographical area and type of fabricator. Numbers employed was used as an indication of company size. The categories are small (1-19 employees), medium (20-49) and large (over 50 employees). © Michael Rigby Associates, 2002 Further information: Fiona Lund, Michael Rigby Associates (01453) 521621.