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Part 1: The state of the industry

January 1st, 2014 / By: / Feature, Industry News, Markets

Worldwide GDP remains subdued, and the specialty fabrics industry is responding with care, but stronger growth is anticipated in 2014.

Worldwide GDP growth has settled into a subdued pace at 2.9 percent in 2013, and growth in U.S. GDP is expected to be at about 1.7 percent in 2013, down from 2.8 percent in 2012.

Cautious consumer spending has been the main restraint for better economic growth. The annual growth in consumer spending in the U.S. inched along at 1.5 percent in the third quarter of 2013—the weakest quarterly increase in two years. Five years after the global economy was falling at its fastest rate, economies in the U.S. and the 17-nation Eurozone are still working to gain momentum.

Growth in the U.S. economy has also been reined in by reduced federal spending, which was largely a result of the automatic sequestration cuts that kicked in January 2, 2013. This has been felt particularly in the U.S. defense industry. Some organizations have faced cancelled orders and generally weak sales due to the effects of sequestration.

The good news is that through the first half of 2014, the Federal Reserve System has stated it will continue its $85 billion per month purchase of Treasury- and mortgage-backed securities, which have helped reduce borrowing costs for businesses and consumers. The Federal Reserve is also holding short-term interest rates near zero to reduce borrowing costs for businesses and consumers—its main tool for stimulating the economy.

On the other hand, the Federal Reserve could decide to begin scaling back its monthly asset purchases in the next few months, provided this was warranted by economic growth: satisfactory improvement in the job market and in consumer and business spending. In essence, the Federal Reserve is waiting to make its decision until evidence shows that economic progress will be sustained before adjusting the pace of its asset purchases.

The second quarter of 2013 marks the first quarter of growth since late 2011 for both the U.S. and Eurozone, where GDP should show slight improvement with a decrease of 0.4 percent in 2013 compared to 0.6 percent in 2012. The recovery is expected to continue and to gather some speed in 2014.

All of the traditional end product market (EPM) segments IFAI monitors regularly achieved single-digit sales growth in 2013. Investing in state-of-the-art equipment, lean/quality improvement manufacturing practices, training staff and vastly improved marketing efforts targeted toward the customer have helped many organizations increase sales and profit margins.

The world market for specialty fabrics grew 2.5 percent in 2013 and is expected to achieve 2.7 percent sales growth in 2014. Constraints are largely attributable to a projected growth rate of 2.9 percent in worldwide GDP, down from its projection of 3.3 percent in April 2013.

U.S. growth increased by 2 percent in 2013; in the U.S., a growth rate closer to 2.5 percent in 2014 will depend on a healthy release of pent-up consumer demand—which was expected but did not occur. But it is anticipated in 2014. With expected growth in GDP, continuing improvements in the housing market and reduction in the unemployment rate—at 7.5 percent as of November 2013—there’s reason to be optimistic.

IFAI serves nine U.S. markets in the specialty fabrics industry. Four of them will be discussed in this article.

Awnings and canopies

In 2013, growth was up 1.5 percent in the U.S. EPM awning and canopy market, due in part to the estimated 16 percent improvement in housing starts and an increase of 6.7 percent in home values. New home sales increased 36 percent in 2013 and are expected to increase 16 percent in 2014.

The growth in home sales through 2013, rising home values and increase in home equity has prompted many home owners to remodel. The National Association of Home Builders Remodeling Market Index (RMI) figure for third quarter 2013 was 57, the best quarterly RMI result since the first quarter of 2004.

Construction activity increased dramatically in 2013. Total U.S. construction was up 5 percent over 2012; residential was up 17 percent over 2012 and nonresidential construction was down 1 percent. For 2013, total fabric consumed for awnings and canopies by U.S./Canadian EPMs reached 28.3 million square yards—a 1.5 percent increase over 2012. For 2014, IFAI projects a 2 percent increase in fabric consumption by U.S./Canadian awning and canopy manufacturers, with total sales forecast to reach 29 million square yards.

Higher existing home prices and the unusually long, cold, wet spring in the U. S. and Canada kept a lid on 2013 awning sales. Instead of 2–3 percent growth in 2013, it was a modest 1.5 percent.

In 2013, fabric awnings represented 88 percent of all awnings in the U.S., metal awnings 11 percent and the remaining 1 percent were from other materials.

Awnings and canopies outlook. The health of the awning and canopy market in 2014 will depend on the release of pent-up demand. The commercial market experienced flat growth in 2013. Corporations are expected to remain conservative in investing in construction projects in 2014, which could keep commercial awnings sales stagnant. The residential awning market shows more positive signs, and 2014 should lead to at least a 2 percent increase in sales.

Marine

Although the U.S. marine fabric EPM market experienced negative annual growth from 2008–2011, it has steered itself onto a path of solid growth in 2012 and 2013. There were 546,395 new boats sold in 2012, an increase of 4 percent compared to 2011. On top of this, total pre-owned boat sales reached 969,900 units in 2012, a 6 percent increase over 2011. Marine aftermarket accessories sales were very good, increasing 40 percent to $5.6 billion in 2012 versus $4 billion in 2011.

For 2013, OEM boat manufacturers projected at least a 3 percent increase in new boat sales. For 2014, new boat sales will grow slowly at 2–3 percent. It appears that the autumn of 2013 became the spring selling season. The mild weather in the fall extended sales in many areas.

Marine outlook. IFAI projects that the 2013 U.S./Canadian marine fabric end product market will grow about 5 percent to 23.3 million square yards. Buttressed by an improved GDP in 2014, steady slow growing new boat sales and a continued 2–4 percent increase in pre-owned boats, IFAI projects the 2014 U.S./Canadian marine fabric end product market will grow about 6 percent—reaching 24.7 million square yards. The consumer confidence index, a key marine industry barometer, has been up significantly in 2013 and is expected to continue into 2014.

Tents

This is a fragmented, competitive market with thousands of companies competing for events to rent tents and tent-related equipment. The U.S. tent EPM market increased about 2 percent in 2012, up from 1 percent growth in 2011.

Growth in the EPM tent segment grew by 3 percent in 2013; it is expected to grow by 4 percent in 2014. The party and event rental market grew 6 percent in 2013. It is expected to grow by 7 percent in 2014. The corporate event market improved in 2013, but extravagant events were scaled back. This trend is expected to continue in 2014.

Challenges. According to a recent Special Events magazine survey forecast for 2013, 49 percent of party tent rental operators reported they expected to handle more events in 2013, up 2 percentage points from 47 percent in last year’s survey. Specifically, 42 percent of in-house professionals and 55 percent of independent event professionals surveyed reported they would stage more events in 2013 than they did in 2012, an increase of 2 percent.

In 2013, 64 percent of party rental companies reported the poor economy was their number one challenge. In 2012, this was rated slightly higher at 67 percent. These figures are vastly improved over 2011 when 76 percent said the same.

Other challenges are the continuing shortage of skilled labor and reduced client budgets: 68 percent of in-house professionals and 61 percent of independent event professionals surveyed reported this would be their greatest challenge in 2013, similar to 2012.

Fabric suppliers also reported their businesses have been impacted by cheaper, poor-quality tent fabrics imported from China, adversely affecting the reputation of tents with consumers and profitability for all market players. Consumer complaints have increased with the growing use of poor quality, cheaper laminates.

Tent fabric suppliers and tent EPMs report a gradual shift in the fabrics used to manufacture event tents, shifting from laminated vinyls to more coated vinyls. This has changed the product mix and affected the allocation of resources and sales for suppliers and EPMs.

Tent rental outlook. In 2014, tent fabric suppliers and tent manufacturers will introduce new products to the event industry to increase sales by offering tent event professionals high-end tent fabrics and structures, especially for clearspans and frame tents. Tent event professionals will enjoy the opportunity to acquire new, improved tent structures to differentiate their business from competitors and more readily meet building and fire code requirements. In 2013, much of the sales growth experienced came from renting add-ons, such as flooring, lighting and tables.

Tent event professionals who thrive will be those who offer full-service solutions. More importantly, they must try to build their business based on producing and delivering quality products and services.

Fabric structures

After several years of slow business, the U.S. fabric structures market has experienced modest, steady growth of 2–3 percent per year in 2012 and 2013. As of 2013, the U.S./Canadian fabric structure industry was about 10 million square yards at the end product level. Demand is expected to continue to grow, though modestly; the growth rate in 2013 was 2.5 percent and should reach 3 percent or better in 2014.

Fabric structures outlook. In an October 2013 fabric structures survey by IFAI, respondents reported they feel the U.S./Canadian fabric structures industry will be somewhat better in 2014. Opportunities cited included:

  • More projects in infrastructure development
  • More architects offering fabrics as alternative
    materials for indoor/outdoor use
  • An increase in the number of traditional business sectors—schools, auto dealerships, commercial buildings, storage facilities, airports
  • Increased demand for temporary structures
  • Replacement of aging structures
  • Growth in the energy sector—new fabrics
    incorporating photovoltaics
  • An increase in fabric quality

Fabric structures is a growing market that is in need of some new ideas and materials, with sun protection a major factor for new growth. There is demand worldwide for projects such as larger clearspans and cable net structures for sports facilities, waste containment facilities and agricultural applications.

The industry needs to be vigilant about poorly designed fabric structures and workmanship that can damage its image for architects and builders as a reliable alternative to brick and mortar structures. Design standards need to be updated and manufacturers must increase safety factors. Fabric suppliers need to somehow reduce the cost of finished fabric to allow fabric structures to be supplied at a lower cost per square foot.

The fabric structures industry has been a resilient market, achieving slow but steady growth in 2012 and 2013. Its resiliency should be rewarded over the next few years with growth expected to reach its highest level since 2007 in both large and smaller, expressive projects.

Industry outlook

Leaders in the industry interviewed at IFAI’s 2013 Specialty Fabrics Expo said they are optimistic about sales prospects for 2014 and that they plan on allocating more funds for capital expenditures in 2014 than they did in 2013.

EPMs who focus on producing and selling high value products and services—safety and protection, geosynthetics, smart fabrics, medical textiles, wide-format digital textile printing, eco-friendly materials and applications such as soft signage in the fabric graphics market—should achieve solid growth ranging from 2–10 percent in 2014.

Seeing opportunity. Industry participants who actively look for opportunities and take advantage of them are cementing their place as leaders in the industry. Their position is that they must continue to invest in innovative products and internal business processes each year. These industry leaders continue to selectively invest in new product development and internal business processes, such as Enterprise Resource Planning (ERP) and Lean Six Sigma manufacturing programs.

Such investments have enabled U.S. manufacturers to become more competitive with overseas imports, from China and India in particular, as the cost of production and labor costs escalate in China, resulting in greater parity with U.S. manufacturers.

Jeffrey Rasmussen is IFAI’s market research director. He can be reached at
+1 651 225 6967 or jcrasmussen@ifai.com.

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