|Focusing on the future|
|Small shops are big business|
|Drawers, legs and more|
|Sitting on the fence|
During the last 10 years, the U.S. wood components industry has suffered through a confusing and complicated period. The main factors contributing to the turbulent time have been the substantial increase in imports, the downslide in the housing market, and the current uncertainties associated with the nation’s economy. Much of the wood components industry is directly tied to the successes and failures of the housing market, and therefore companies that lack diversity in product selection and are solely dependent on the residential market are fighting to survive.
Despite the doom and gloom expressed by many in the components segment of the wood products industry, there are several factors that offer a ray of hope that the situation may slightly change for the better during the next several years. Those include increased labor costs in China, the devaluation of the Chinese yuan to the U.S. dollar, improved technology, and the escalation of energy costs, which ironically may result in what industry representatives hope will be a rebirth in U.S. manufacturing that has been previously lost to overseas manufacturers.
Despite the potential of a change for the better, any quick turnaround in the U.S. wood components industry is several years away, at best. Economic conditions in the U.S. have not been this bad since the 1970s when the country was suffering from a slowing economy, rising inflation, an unpopular war, rising oil prices, a declining stock market and more, says Steve Lawser, executive director of the Wood Components Manufacturers Association.
“The main reason why the woodworking industry is struggling more than I have ever seen it is because of the downturn in our leading market, which is building products for the housing and remodeling markets,” he says. “We manufacture components for a variety of non-structural, building-related products for interior applications such as cabinetry, flooring, staircases, interior trim, moldings, millwork, fireplace surrounds, wall paneling, etc.
“Building products replaced furniture as our No. 1 market for components in 1996 and had grown to a high of 46 percent of our members’ business in 2006. In 2007, it dropped down to 41 percent and we expect it to decline again in 2008. Total housing starts peaked at two million in 2005 and are projected to drop below one million in 2008, so it’s like cutting your No. 1 market in half.”
The influence of imports on the wood components industry is reflected in the latest figures from the U.S. Department of Commerce, as provided by Lawser.
Imports of furniture, moldings, flooring and related wood products declined slightly in 2007 because of the decrease in overall demand for wood products. However, WCMA expects imports to continue because low-cost developing countries such as China, Vietnam, other areas in Southeast Asia, Brazil, Eastern Europe and others have built woodworking factories to employ their workers and depend on the export markets for sales.
Alexander Dodds Co. Tel: 800-843-6337. www.dodds.com
Augustin Morley Cabinetmakers. Tel: 315-685-2411. www.gusmorley.com
Blum Inc. Tel: 800-438-6788. www.blum.com
Cab Fab. Tel: 315-701-4380. www.cabfab.com
Classic Designs by Mathew Burak. Tel: 800-748-3480. www.tablelegs.com
Conestoga Wood Specialties. Tel: 800-964-3667. www.conestogawood.com
Contemporary Kitchens. Tel: 804-758-2001. www.conkit.com
CVH International. Tel: 973-470-7177. www.cvhinternational.com
Dykes Lumber Co. Tel: 212-246-6480. www.dykeslumber.com
Enkeboll Designs. Tel: 800-745-5507. www.enkeboll.com
Horizon CNC Products. Tel: 800-768-1495. www.horizon-cnc.com
Lewis Lumber Products. Tel: 800-233-8450. www.lewislp.com
Odhner & Odhner Fine Woodworking. 800-870-0900. www.odhnerandodhner.com
Russell Plywood. Tel: 800-373-1004. www.russellplywood.com
Top Drawer Components. Tel: 800-745-9540. www.topdrwr.com
Turnings Unlimited. Tel: 937-588-4050. www.turningsunlimited.com
WCMA. Tel: 770-565-6660. www.woodcomponents.org
Wohners Inc. Tel: 201-568-7307. www.wohners.com
In the United States, imports represent 59 percent of wood household furniture, 37 percent of wood moldings, 30 percent of components, 28 percent of upholstered furniture, 22 percent of office furniture, 14 percent of wood flooring, and 4 percent of wood kitchen cabinets.
However, many of the low-cost offshore manufacturers are facing rising energy and shipping costs, higher currency valuations, and higher costs of doing business that will make them less competitive, so there may be a leveling off of imports in the future.
Almost all manufacturers and small shop owners involved with imported wood components failed to return phone calls placed by Woodshop News or were reluctant to talk about the business of importing on the record. It seemed as though shop owners didn’t want to appear as though they were unpatriotic by dealing with imports, specifically from Asia. However, importing hardware from Europe, especially Germany, was discussed openly and viewed as a smart business decision.
Small shops are big business
Until this year, sales volume at Lewis Lumber Products in Picture Rocks, Pa., has been about 60 percent hardwood and 40 percent millwork. This year, it’s about a 50-50 split, and small custom shops are a sizeable portion of the company’s clientele.
“Small shops probably represent about 70 to 80 percent of our customer base by numbers. By volume, it’s the opposite. It’s the old 80-20 rule [20 percent of the customer base might make up 80 percent of the sales volume], but it is a significant portion of our customer base,” says Keith Atherholt, president of Lewis Lumber Products and the WCMA’s vice president. “We do business with a lot of one-man, two-man and five-man shops.”
Most of the millwork produced is moldings and custom profiles, and to a lesser degree, cut-to-length parts for furniture and cabinet shops. The company also produces “program work,” which is the same profile time and again, but maybe using different species and different quantities on a just-in-time basis.
There’s no doubt outsourcing has become a far more prominent feature or option for businesses to look at, and for a lot of different reasons, Atherholt says.
“The cost of labor is considerably higher; just the cost of general operating is higher — insurance, fuel, utilities … So, if you’re going to carry overhead, you’re going to have to capture that overhead somehow. And in a growing economy, where sales are growing, you have that opportunity to capture those costs. But we’re in a declining economy — or whatever we’re in — and to try to capture those costs is just brutal. You’re losing sales and then you have to try to capture increasing costs. I think that it makes sense, in particular for smaller shops, to be able to have options on outsourcing parts, millwork, whatever.”
Conestoga Wood Specialties, based in East Earl, Pa., has seven facilities in the U.S. and is one of the largest wood component manufacturers in the country. Conestoga has two separate operating units — an OEM side and a high-end custom side.
“We service over 3,000 custom cabinet shops in all 50 states, and the vast majority of those shops would be 20 people and under,” says Chris Watson, president of the custom side of Conestoga’s business and current WCMA president. “The statistics are a little bit misleading. They probably make up 90 percent of our customer base, but they may only account for 30 to 40 percent of our overall business, just because we do service some of the very large manufacturers.”
Conestoga’s custom manufacturing process throughout all of its operations is set up to create a one-piece order. As a general rule, the company builds everything as a unit of one.
“Surprisingly our No. 1 order quantity is a single piece,” Watson says. “That’s our largest-order size, followed by two-piece orders, and then it kind of moves around from there. It’s rare to get a 50- to 60-piece order; we get them everyday, but for most of every full kitchen order that you receive, you’re going to receive three to six one- or two-piece orders. So we build our whole business around servicing that end of the model. It’s difficult and it’s not inexpensive, but over 45 years we have kind of perfected the process.”
Although most of Conestoga products are American-made, the company does import a large quantity of plywood and hardwoods.
“In our case we only bring in self assemblies; we don’t bring in any final product,” Watson explains. “All the final machining, assembling and finishing are done here in the States with our people.”
Drawers, legs and more
Some outsource companies concentrate on a single product. Top Drawer Components in Phoenix, has been manufacturing drawer boxes for 20 years and has about 55 employees. The company produces between 800 and 1,000 drawer boxes a day using Dodds dovetail equipment, and bases its business philosophy on three factors — quality, technology and customer service.
“The majority of our business is the smaller custom shops because we are just providing a part to the whole,” says company president Josh Emerson. “We provide the drawer boxes for a local cabinetry manufacturer who just has a few guys in the shop doing a couple of houses a month or even a year.
“Everything we manufacture is typically considered custom, so any size, shape and material is per spec by the customer. We have clients in both fields [residential and commercial]. Most of the commercial stuff right now is high volume, green products, only a couple of sizes, and then the residential cabinetry is pretty much all sizes.”
The biggest movers for Top Drawer Components are made from Baltic birch, maple and beech. Certified materials are growing in popularity and there has been a big push for the no-added urea formaldehyde material, especially from neighboring California shops. Another product receiving more recognition is the company’s UV-finished drawer, which doesn’t contain VOC-filled sprayed lacquers.
Table legs of all styles, shapes, sizes and species are the specialty from Classic Designs by Matthew Burak in St. Johnsbury, Vt. The company concentrates on serving the needs of small commercial shops, while providing specific parts for several larger cabinet and furniture manufacturers.
“We’re dealing with a lot of custom work so we can respond pretty quickly to the custom needs,” says company spokesman Mark Desrochers. “We’re doing a tremendous variety of custom parts and not tremendous volumes in any one of them. That’s difficult for the offshore competitors to grapple with — the huge number of skews and not a lot of depth in any one.”
The ultimate outsource shop
The rule of thumb for many custom shops is if a product can be outsourced at a cheaper price than it can be built, and quality standards are met, then you outsource the product. There is an instant savings on machinery costs, labor and, in most cases, a quicker product turnaround.
Dirk Odhner, owner of Odhner & Odhner, in Easton, Pa., has been building custom woodwork for nearly 30 years. The company works with clients, interior designers and architects from the design phase right through installation. One of the company’s specialties is designing and building entire custom rooms in high-end homes.
“At certain times we will make things for ourselves; doors, for example, if the job requires something that we can’t get easily. But most of the time I’ll outsource to Conestoga,” says Odhner. “As far as drawer boxes, it’s the same thing. We run a lot of moldings here, but we also outsource a lot. If there is something that we can get from Dykes Lumber [New York], it is cheaper than [running it] ourselves. Carvings … all that kind of stuff we’re outsourcing to Wohners [New Jersey] and Raymond Enkeboll [California].”
Odhner hasn’t outsourced from any foreign manufacturer and doesn’t feel a desire to do so. The quality provided by Conestoga, Dykes and other companies meets the standards of the materials he can produce in his shop. But he is extremely careful about what companies he chooses for his outsourcing. If a customer has a quality problem with a job, the problem is of the same importance whether the product was produced in the shop or outsourced.
Sitting on the fence
Augustin Morley Cabinetmakers of Skaneateles, N.Y., is a four-man shop that designs and builds fine cabinetry in the Finger Lakes region of the Empire State. Owner Gus Morley says his company has been guided by the single policy of quality and excellence. In an environment where one bad job can kill a business, Morley outsources some of his custom items while keeping a close eye on quality.
“We’ll outsource for a couple of reasons,” Morley says. “One is if we just don’t have the time to do it in the shop; and two, if the work is really beyond our capability in one form or another. I’m starting to outsource some more of our finishing also.”
Morley outsources most of his boxes to Cab Fab in Syracuse, N.Y., a supplier he has found to be reliable and quick. He sends an AutoCAD file to the company, which runs the program and quickly sends the boxes back. One benefit for Morley and other small shop owners that outsource is that the practice provides the opportunity for them to take on other jobs, thus increasing the bottom line.
“If I can take in another job that I can profit on and outsource, I do it. The other form of outsourcing that I’ve done is things that we can’t do and that comes down to some turnings. I’ve done some really big rope turnings that look like a barber pole and I’ve outsourced those to Turnings Unlimited in Ohio, and they’ve been great. I send them an AutoCAD file also. If it comes back with a mistake, it’s usually my mistake. They follow that plan to a fraction of a millimeter, so I’ve been very happy with them.”
Most of Morley’s customers frown upon the idea of outsourcing to foreign countries and to some degree that has become a selling point for the New York cabinetmaker.
“They’re all going very green, which is good, and I think they’re all growing very national.”
Thanks, but no thanks
Not every custom shop owner is a believer in outsourcing. Take Paul Sherwood, owner of Contemporary Kitchens, a six-man custom shop in Topping, Va., for example. His business is strictly high-end kitchens. Except for occasionally ordering doors during busy times from Horizon CNC Products in South Carolina, and hardware such as Blum’s stainless-steel drawer systems, Sherwood has no desire to outsource, nor do his clients want him to.
“It’s because of quality control, primarily,” he explains. “We have to be very careful with quality. The people that we work with now are assuming there is not going to be a quality issue. The only issue they might have is a design flaw and that’s usually with the architect or interior designer that they use. What we produce is just a given that it’s going to be the best quality that they can get because we sure do charge them a lot of money.”
Sherwood works primarily with architects and interior designers, and on rare occasions directly with clients. Some homeowners are insistent that everything be made in Sherwood’s shop, regardless of the price.
“We do 5,000- to 6,000-sq.-ft. houses. And we find a lot of [our customers] are interested in having craftsmen doing the work. They don’t want a manufactured product. We often hear from customers asking that we build everything here, don’t you? And I like to say yes.
“I know how much it costs me, exactly, to produce a dovetail drawer. We use a Porter-Cable jig and a router. I have one guy that can produce three drawers an hour and another guy, two doors an hour. My shop rate is $60 an hour. The drawers are ready when I want them ready. I don’t have to have them sitting on the floor here for two weeks. We make them a couple days before we need them.”
Recently, Sherwood has found that his customers love the stainless-steel drawers from Blum. The shop needs are minimal: cut the bottom and back of the boxes; the sides of the drawer are stainless steel, and the bottom is a stainless-steel contact paper Sherwood buys from Outwater Plastics. The drawer front is the design of the kitchen and it takes about 10 minutes of labor to assemble each drawer.
The future of the wood components industry has even the prognosticators unable to predict what is likely to happen in the next few years. The uncertainties are too numerous to shed any reliable light on where the industry is headed. Energy costs, labor costs, technological advancements, a horrible housing market, a fair remodeling market, the credit crunch, an increased awareness of green products, the potential of new markets, and even the upcoming presidential election, are all factors that will help determine the industry’s course.
The commercial market is presently more profitable than the residential market, but once again, how long that will last is unknown.
“The non-residential construction and remodeling markets have been reasonably good for office buildings, public buildings, hotels, and recreational and healthcare facilities,” Lawser says. “According to Economy.com, non-
residential/commercial construction markets are projected to increase around 14 percent in 2008. However, a 17 percent decline in residential construction is expected in 2008, according to the National Association of Home Builders. So the residential and non-residential markets are moving in opposite directions.”
The remodeling market has been adversely affected by the decline in housing prices which has resulted in lower home equities, while rising energy and food prices have resulted in less disposable income for consumers, adds Lawser.
“However, people still value their homes as their best investment and are willing to use their available resources to remodel and upgrade their current homes. According to the latest Harvard Joint Center for Housing Studies, remodeling is projected to grow much faster and will equal new housing construction spending by 2015.”
“We’ve been blessed to be in the markets [residential and commercial] that we are in,” says Atherholt. “We didn’t do this on purpose. It wasn’t like we said if the residential markets really decline, we need to be on the commercial side. It just happened to be that that’s what we were better at. We’re very good at the custom-molding business; we grind our own tooling, we make a high-quality molding, we produce it to the customer specifications, and we produce it very quickly.”
Lawser says the industry won’t begin to see any real recovery until the financial and credit markets get back to normal and housing inventories work their way down. The good news is demographics, immigration, and the replacement and remodeling of older homes will bring the housing market back, as soon as late 2009. Until then, woodworkers are going to have to innovate and automate to lower costs and become better marketers by focusing on their strengths of shorter lead times, quicker deliveries, providing smaller orders, more customized products, and better service and attention to their customer’s ever-changing needs.
Not everyone in the components business is as optimistic.
“All of our planning would suggest that we don’t anticipate any form of rebound in the marketplace until at least 2010, and we think that when the rebound begins it is going to be very slow. It’s not going to be anything dramatic,” says Watson. “We think it will bottom out in 2009 and then stay flat for a period of time, and maybe in the spring of 2010 we’ll see a little bit of an up-kick.
“With the economy being in the state that it is, what we always say is when the times are good, [for] outsource companies like Conestoga and our competitors, times are very, very good. And when times are bad, times are very, very bad. There’s very little margin for error right now in the business.