BY William Atkinson
Special to CONTRACTOR
A YEAR AGO, plumbing industry experts were holding their breath. The previous year had been good to housing, and people were hoping for more of the same in 2003.
Today, the feelings are similar, although the levels of expectation have been ratcheted up quite a bit. That is, overall, 2003 was better than expected for many plumbing companies, and executives hope to maintain that growth in 2004. The outlook for residential remodeling and new construction is bright, and some bounce-back is anticipated in nonresidential markets too.
Delta Faucet Co. expects a strong 2004 in new residential construction for at least three reasons, said Ray Kennedy, senior vice president/sales and marketing. One is that the company expects continued positive results from its market segmentation strategy of focusing its marketing resources.
“In other words, we expect to continue to capture more market share,” he said.
In addition, while the housing industry predicts new construction to be down a bit in 2004 (about half a point, Kennedy said) this is coming off a very strong 2003, so levels will continue to be high.
“We expect 2004 to be another record year for us,” added Mary McCullough, assistant channel manager for Delta. “One reason is that the housing market doesn’t seem to want to slow down.”
Another reason is that the company has a large number of new product launches that it has high hopes for.
“For example, one of our higher-end lines is designed to make installation easier for contractors,” she said.
Rival Moen’s expectations for 2004 are “cautiously optimistic,” said David Lingafelter, vice president/marketing and product development.
“The economy as a whole seems to feel good about growth prospects,” he said. “For example, consumer confidence continues to increase, which helps retail and wholesale business.”
He added that although projections that housing starts will be down in 2004, this downturn is difficult to project with any degree of accuracy.
John Heilstadt, Elkay’s executive vice president/sales and marketing, noted: “While our forecast is for moderate growth, I think every sign has been indicating and continues to indicate the possibility or likelihood of performance beyond that, especially in the segments of our business that are residentially oriented.”
In the residential market, values have remained strong, and underlying demographic factors, such as age and income, are very supportive of investments in homes, he said.
Those demographics bode well for the residential remodeling market too. Plumbing wholesalers are becoming more active with their showrooms and are hoping to connect more with remodeling contractors and small builders who cater to the needs of older consumers, Kennedy said.
“We anticipate the remodeling side of our business to be very strong in 2004,” he said. “The rationale here is that, as the population ages, older people with extra income are shifting from what was once a ‘do-it-yourself’ mode to a ‘do-it-for-me’ mode.”
As the economy continues to improve, the stock market is also rising, with the Dow passing 10,000 in December for the first time since June 2002. This begs the question: Will the housing market (especially remodeling work) weaken as people begin to find the stock market attractive once more? That is, will people who dropped out of the market and invested more in their homes now begin once more to shift their extra dollars back to the stock market?
Although she said she sees some validity to this theory, McCullough added that people still seem to be hesitant about the stock market. “In addition, I think the effects of 9/11 are still in place, meaning that people are still feeling the ‘burrowing effect’ and wanting to put more money into their homes,” she said.
Heilstedt noted: “Even though the market has come back in recent months, I don't think this will have a lot of impact on home investment levels. The reason is that market enthusiasm is different this time. While there is optimism toward the market, the irrational exuberance that existed in the late 1990s will not soon return.”
In sum, while money is beginning to flow back into the stock market, it’s not necessarily money that is being drained from the housing market.
On the nonresidential side of the plumbing market, Richard O’Reagan, senior vice president/sales and marketing for Chicago Faucet, a Geberit Co., said he has seen some good GDP information recently. However, he doesn’t expect this to have a quick impact on the commercial market.
“I think this indicates that we have seen the bottom of the economic downturn,” he said. “We still have state budget deficits and a very high vacancy rate in commercial offices. In addition, we still have a tremendously high job loss rate.”
As such, he believes it will be awhile before the money begins to trickle back into the nonresidential segment.
Tom White, vice president/manufacturing for Haws Corp., said he is seeing some positive signs too, such as increased quotation volume in recent months. He expects to see an upturn in nonresidential business in mid-2004 led by Haws’ engineered products and followed by the company’s catalog items.
“The indicators are showing that business has been picking up,” White said. “Schools, institutional buildings, airports and office buildings have been Band-aiding for so long. All their money has been spent on more security.”
Heilstedt is less optimistic about the 2004 commercial market than he is about the residential business.
“We are hopeful, but less confident, of improvement on the commercial side,” he said. “Projects that may have been deferred because of funding issues and state government weaknesses may gain some strength, but I don't know that for sure.”
However, given what he called the spectacular growth in the economy of 8.2% in the third quarter, a continuation of even a moderate version of this will result in an increase in state revenues, allowing planned projects to finally be implemented.
Water heater sales in 2004 could get a bump from Department of Energy regulations, but Bradford White’s Ted Sikorski, vice president/marketing, said he expects business to remain pretty much at the same level as 2003.
“The new DOE energy standards are going into place in 2004,” he noted, adding that this change will affect how water heaters are insulated as well as some dimensional adjustments. Accordingly, this should give water heater sales a boost in the first part of the year, Sikorski said.
“Since this involves some cost increases, there will be a bit of price hedging in the beginning of the year to cover that,” he explained. “Then things will flatten out again.”