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Seeing light in the shade industry

May 1st, 2011 / By: / Awnings & Shades, Markets

An IFAI market survey indicates signs of improvement in the U.S. and Canadian awning and canopy market.

Slow-growing improvement characterized the 2010 U.S. end product manufacturer (EPM) awnings and canopy market, down only about 2 percent, which was much better than the 16 percent decrease witnessed in 2009. An approximate 14 percent decrease in the U.S. non-residential construction market in 2010, and a 1 percent decrease in the U.S. residential construction market, contributed in large part to the decrease in 2010. For 2011, IFAI’s market research is projecting a 1-2 percent increase in fabric consumption versus 2010 by U.S. and Canadian awning and canopy manufacturers, as the U.S. construction industry begins to finally garner some growth in the 2-4 percent range.

IFAI market research

The housing impact

A major factor contributing to the slow U.S.-Canadian awnings and canopy market has been the slump in sales in the U.S. housing sector, which is expected to continue for at least another three years. The U.S. housing market still faces a number of problems going into 2011: a weak economy, a 2010 average unemployment rate of 9.6 percent, tight mortgage underwriting, falling home prices and slow sales. Housing starts in 2010 hovered near 30-year lows, and the supply of houses in default or foreclosure—known as shadow inventory because they may eventually be put up for sale—is preventing prices from bottoming out.

In 2010, measures of house prices continued to decline through December; households are concerned that the downward slide in home values might continue. Once prices do hit bottom, possibly by mid-2011, it will likely take three to four years for prices to rise 1-2 percent a year. In summary, all of these factors faced by consumers are weighing on demand in general, not just houses. This dampens demand for many businesses, including those in the specialty fabrics industry.

According to the National Association of Home Builders Remodeling Market Index (RMI), consumers remain cautious about spending on remodeling projects for their homes. The latest RMI figure was 41.5 in the fourth quarter of 2010. An RMI below 50 indicates that more remodelers report that market activity is declining than those reporting an increase; so on balance, the sentiment of remodelers was that the market declined in 2010.

Many homeowners wanted to invest in remodeling projects but were afraid to do so in 2010, but they are expected to slowly begin to commit to investing in more remodeling projects in 2011. Expected improvements in the job market and the overall economy are beginning to increase homeowners’ confidence, and remodelers are seeing indications that business will pick up in 2011.

Watching the trends

IFAI awning/canopy survey results show that suppliers and EPMs are feeling the impact of a more competitive environment resulting from trends such as increases in already high raw material prices, a tight credit market, and slow market growth in the construction industry due to the downturn in the global economy. Declining consumer demand for new construction and remodeling products impacted revenue by as much as 80 percent for some EPMs. Additionally, the number of quick sales dropped as customers waited longer to make purchases.

EPMs faced increased competition locally, which reduced revenue by 12 percent at the retail level. With competition from national brands, and more inexpensive imported awnings flooding the market, EPMs saw a need to market their companies as a brand, too. Additionally, fire retardant requirements for fabric awnings contributed to the growth of the metal awnings market; more time was needed on projects to obtain permits and provide proof that fabric awnings meet FR requirements.

However, home improvement showed growth and RV sales were bouncing back, which gave awning companies some sales opportunities.

For suppliers, it was a similar story. With a weak economy, sales lagged, making it difficult to project awning fabric usage. Stormy weather and a warm summer actually led to increased business to repair damaged awnings and canopies, but with high raw material prices and reduced sales, margins were still thinner. An influx of low-priced products, especially from China, added to the squeeze on profit margins.

Changes in 2011

EPMs experienced a modest increase in commercial business, recovers and remodeling of existing awnings in 2010. Growth will continue to be slow but steady in 2011, with more interest in retractable awnings. It may not be enough, however, for smaller companies that continue to struggle, and some “mom and pop” shops will likely close. With a consolidation in the number of companies competing, stronger companies will expand their market share while weaker firms will struggle to maintain or be eliminated.

Raw material prices will remain high, which will drive down the number of projects, and with code regulations becoming more stringent, awnings may seem less affordable.

However, the demand for shade will grow, providing opportunities for creative and unusual shade solutions. The focus on architectural and sustainable structures, and a shift to more sophisticated designs, could likely prompt growth in engineered canopies, metal cladding and free standing structures. Interest in smart fabrics and fabrics with solar capabilities will grow along with more demand for flame retardant fabrics. Awning companies will continue to diversify into other market segments to strengthen their overall market positions.

Suppliers will get some relief with slightly higher sales in 2011. The number of distributors offering a wide range of product choices will increase, and there will likely be more new products, but with tougher city and state regulations, it will become more expensive to produce fabrics that meet codes.

The outlook

Suppliers and EPMs alike saw a drop in sales revenue in 2010 due to the slow U.S. economy, tight credit conditions and a retrenchment in spending by customers; however, they will likely see an overall increase in sales for 2011. In fact, in an IFAI survey in January 2011, 69 percent of suppliers and EPMs surveyed reported a favorable outlook for sales growth in 2011 compared to 2010; only 12 percent reported an unfavorable outlook for sales growth in 2011 compared to 2010.

Growth, however, is very local. Certain areas of the United States are strong while other areas are suffering due to the economic conditions, and there is still a strong need to increase consumer awareness about awnings and their benefits.

As of March 2011, the projection for GDP in 2011 is between 3.3 to 3.6 percent—a nice improvement over 2010, which came in at 2.9 percent. The constraint on the residential awning market will be the continued poor U.S. housing market and high unemployment, which has created a cautious spending environment on the part of consumers concerned with making ends meet.

Still, the consumer confidence index has improved in the first two months of 2011. If the economic climate continues to improve, suppliers, end product manufacturers and customers will continue to gain confidence in the economy, which will help to spur business investment, consumer spending and real growth for the awning and canopy market in 2011 and beyond.

This summary focuses mostly on the U.S. fabric awning marketplace. Much of the information was derived from a January 2011 survey conducted by IFAI with U.S./Canadian awning and canopy fabric suppliers and end product manufacturers. Secondary research supplemented the results in this summary. If you have questions regarding this article, contact Jeff Rasmussen, IFAI market research manager, at +1 651 225 6967 or jcrasmussen@ifai.com.

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