Plumbing Market Sees Slight Upturn

BY BOB MIODONSKI of CONTRACTORs staff PLUMBING CONTRACTORS and manufacturers are facing 2002 with more uncertainty than theyve experienced in years. "Weve looked at several variations for 2002," said Ray Kennedy, vice president/marketing for Delta Faucet of Co. "If somebody has a crystal ball, we definitely would like to look at it." Nathan Wright, A.O. Smiths marketing director, said, "Ive never

BY BOB MIODONSKI of CONTRACTOR’s staff

PLUMBING CONTRACTORS and manufacturers are facing 2002 with more uncertainty than they’ve experienced in years.

"We’ve looked at several variations for 2002," said Ray Kennedy, vice president/marketing for Delta Faucet of Co. "If somebody has a crystal ball, we definitely would like to look at it."

Nathan Wright, A.O. Smith’s marketing director, said, "I’ve never seen people wondering as much about what is going to happen as they are now."

That’s not to say, however, that people in the plumbing industry are pessimistic about 2002. While no one sounds wildly optimistic about the coming year, nobody expects a catastrophe either. In fact, some of those who see a good year ahead are almost afraid to admit it.

"My own belief is that it will get better sooner than what we’ve projected," one manufacturer told CONTRACTOR. "I think the rebound will be extremely sharp at the end of the second quarter, but don’t quote me. People will think I’m insane."

The consensus among most companies is that their sales in 2002 will be flat to slightly up, with business improving as the year progresses. For many, increased revenue will come as a result of gaining market share, adjusting prices, introducing new products or operating more efficiently, not from the economy.

Particularly on the residential side, most agree that remodeling will be stronger than new construction.

"It is going to be remodeling and replacement that will hold up the market," said Linda Mayer, Moen’s senior vice president/marketing and product development. "New construction will be flat to down 1% to 2%. If it picks up, it will be in the second half. But I’m not sure it will pick up."

Newbold Warden, Toto USA’s marketing communications manager, also said he sees softness in new housing, but added, "New construction isn’t that far down, it’s just off."

Roger Peugeot of Roger the Plumber in Overland Park, Kan., said he knows new housing is down in the Kansas City area. His contracting company does no new construction work, but he didn’t have to check Commerce Department numbers to discover home building was off.

"When new construction drops off, our phones ring off the wall," he said. "The calls are coming in from new construction plumbers looking for jobs in service work."

Still, geographic and demographic pockets should help buoy the housing market in 2002. Bill Trombly, president of the Plumbing-Heating-Cooling Contractors - National Association, said that new construction hasn’t slowed down around his home base of Manchester, N.H., and in the Northeast in general.

As for demographics, builders continue to erect expensive homes around the country for people with money to spend.

"We’re lucky in that our end of the residential market is the high end," said Alan Lougee, president of Chicago Faucet Co. "The rich always have money. As a company we see more remodeling, but we’d love to get more of that new construction work."

Another category that should fare well this year is the move-up home, Moen’s Mayer said.

"With lower interest rates and refinancing, people are moving up," she said. "They get a better house for the same payment. I see growth for builders in the move-up market."

Demographics are even more favorable for remodeling and renovation work than they are for new construction, said John Heilstedt, Elkay’s vice president/sales and marketing.

"The marketplace is being driven by demographic factors — people’s ages, home ownership, affluence — that are very supportive to our product lines," he said.

Based on his conversations with PHCC-NA members, Trombly said he expects residential remodeling work to be strong nationwide this year. Frank Maddalon, a PHCC member in Hamilton, N.J., said he believes his company, F.R. Maddalon Plumbing, will increase its volume by at least 10% in 2002.

"Long range, we see a lot of renovation and remodeling on the plumbing side," he said.

Faring even better than remodel/renovation work will be repair/replacement jobs. That’s good news for water heater manufacturers and service contractors.

"We usually do a little better than the rest of the market when things get tight because when a water heater fails, people won’t go without showers or hot water," A.O. Smith’s Wright said. "With faucets, for example, people might put off a remodeling job. Water heaters aren’t a glamour industry, but it’s very steady."

Ted Sikorski, Bradford White’s vice president/marketing, added, "Our business is heavily tied to the replacement market, and that stays fairly stable."

Roger the Plumber expects sales to increase to $4 million in 2002 from $3.3 million last year — strictly on repair and replacement work. The economy won’t be much of a factor, Peugeot said.

"We have experienced high interest rates, high inflation, and the Dow going both ways — up and down," he said. "It doesn’t make any difference. If a toilet goes out, people are still willing to pay for high-quality service."

The commercial market will mirror residential activity, said Delta’s Kennedy. Repair, replacement and renovation work will be stronger than new construction. Still, Delta expects to do more work in that sector in 2002 because of the consolidation of its commercial lines and greater focus on that end of the market.

"For us, that business is in the growth mode, regardless of what the market does," Kennedy said.

Toto also forecasts growth for its commercial sales due to a greater emphasis in that area, Warden said.

The slowdown on the commercial side actually started early in 2001, said Richard O’Reagan, vice president of Chicago Faucet. Various municipalities and private owners have continued to put projects on hold, he added. If the market picks up later in the year, the overall effect will be flat with early 2001 levels.

The events of Sept. 11 had an immediate effect on business but may not have the long-term impact that many people had feared.

"Right after Sept. 11, business was off 20% to 25% and then it started to rebound," Lougee noted. "People went from a temporary, ‘What the hell is going on?’ back to their normal level of pessimism going into a downturn."

Elkay modified its already conservative outlook for the remainder of 2001 and 2002 after Sept. 11, Heilstedt said. The actual numbers for the end of 2001 exceeded the levels to which they were adjusted.

"We expected our business to go down after Sept. 11, but that really wasn’t the case," A.O. Smith’s Wright said. "We’ve had good months since then — not great, but considering the circumstances, pretty good. Our commercial sales have been better than we expected."

One fallout from Sept. 11 is the rising cost of insurance, and that may have a dampening effect on commercial construction, Wright said. Part of the recovery that he expects later in the year is based on Congress passing some sort of economic stimulus package including insurance assistance. Other manufacturers said that interest rates lowered in 2001 would have a lag effect, which will kick in about mid-year.

"The U.S. economy has a certain built-in stability and momentum, and though things occur that may affect the fringes of the market, the demographics are there for the plumbing business," Heilstedt said. "The analogy is to a giant aircraft carrier that might hit a significant wave once in awhile. There will be some impact, but it will keep going."