It all started way back at the turn of the century. Following a few strong years, the architectural paint market began to show signs of a slowdown in mid-2000. By the end of the year, shipments were down three percent in value ($6.4 billion) and 2.2% in volume (644 million gallons), according to Orr & Boss's U.S. Paint and Coatings Market Analysis. "And then it just rolled right into 2001," said Charles Bangert, a partner with Orr & Boss. When final numbers are tallied, 2001 sales of architectural coatings will be approximately $6.2 billion and 627 million gallons, a 2.6% decline in volume and 2.1% drop in value compared to 2000, according to Orr & Boss estimates.
"Certainly, within the architectural and decorative markets for coatings and paint we are seeing a slow down as housing and office building permits are slowing," said Phil Phillips, president of PGPhillips, a Southern Pines, NC-based consultancy.
"As long as the economy is in the shape that it is in, and things are as sluggish as they are, I think the industry is going to be that way," said Mr. Bangert. "As soon as we see that recovery, the industry will see that recovery."
The question is when. "We don't see things changing much going into the first part of 2002. It will probably be mid-year or so," Mr. Bangert said.
If You Build It...
The single biggest driver for architectural coatings is residential construction, and keeping an eye on the numbers is key. "That's the bellwether for the turnaround in the industry," said Scott Detiveaux of Orr & Boss.
In the U.S., housing starts rose 8.2% in November 2001 to a surprisingly strong, seasonally-adjusted annual rate of 1.65 million units, according to the U.S. Commerce Department. Permits for new housing also rose substantially, by 5.3% overall, to a 1.56 million-unit rate, according to the National Association of Home Builders (NAHB).
"Our recent surveys have revealed increasing optimism among single-family home builders on the strength of solid market fundamentals such as continuing low interest rates, solid increases in house values and improving consumer confidence," said Bruce Smith, president of NAHB.
Single-family housing starts in November regained nearly all the ground they lost in the previous month, with a 3.2% increase to a rate of 1.26 million units, according to NAHB. Multifamily housing starts rose by more than 28% to 384,000 units, the highest rate recorded since March 2001.
"Based on the favorable conditions in today's housing market, it now seems likely that housing starts will total about 1.6 million units in 2001, up about two percent from last year. Housing has been one of the few bright spots in the economy all year, and the prospects for 2002 also are positive," Mr. Smith said.
Despite the sluggish economy and rising unemployment, home sales have been steady. David Lereah, chief economist of the National Association of Realtors, said home sales this year have defied projections. "The housing market is proving to be much more resilient than most analysts expected, and we will be just shy of the all-time record for existing home sales, which was 5.21 million transactions in 1999," Dr. Lereah said.
In 2002, existing sales are expected to slip one percent to 5.15 million-but it will still mark the third-best year, according to NAR.
There is another question to ponder. Could sales of architectural paint market get a boost from a change in consumer attitude and lifestyles stemming from the September 11, 2001 events in the U.S.?
"There has been trackable consumer behaviors as a response to that tragic day," said Dan Claybaugh, group product manager at Benjamin Moore. "Travel, of course, is down and people are spending more time at home with family and friends. People have become more reflective and look to their home as haven. Consequently, making the home a comfortable, safe, tranquil environment are important elements in people deciding to invest in their homes-either small, fix-up projects, like painting a room, or changing all the colors in the bedrooms to reflect happier, more serene emotions, or painting the exterior because it was time for that maintenance and they decided not to put it off any longer."
Jane Brill, marketing promotions manager at Ace Paint, agrees that there can be a link between time spent and home and home improvement projects. "As consumers spend more time at home, they take more interest in their home's décor," said Ms. Brill.
While anything that motivates a person to buy a gallon of paint or hire a paint contractor is a good thing, it won't make much of an impact overall, according to Mr. Bangert. The driving factor remains the general economy.
Belt-tightening can affect purchasing decisions and the type of paint sold. In economic slow downs there tend to be a drop off in sales of lower-end and lower grade paint, according to Mr. Bangert. "There is a drop off in the kind of paint being sold for new construction because there is less new construction going on," he said.
The good news is that current economic conditions shouldn't push the growing contractor market too far off the track. "If you look at the macro trends that drive the business to contractors-the aging population, dual income families-that hasn't changed. The things that would stop someone from doing the work themselves are still there," Mr. Detiveaux said. "The question isn't: do I hire a contractor or do I paint myself. The question is: do I do it now, or do I wait?"
Can Down Time Be Good?
Granted, there aren't too many good things one can say about a sluggish economy, but current conditions afford companies an opportunity to shore up operations now to benefit in the long run.
"A number of companies we deal with are taking the opportunity to refine their process, to become more efficient, to extract costs out of their operations wherever they can in anticipation of a turnaround," said Mr. Detiveaux.
One of his clients has cut its plant and warehouse workforce by more than 30% through a more efficient layout, a bit of automation and doing things more efficiently.
"Now that's a good thing-maybe not for the nine or so people (affected)-but for the company as a whole," Mr. Bangert said. "When (the market) turns around-and it will turn around-if they maintain that level of efficiency, they can get a lot more product through there and their profitability is going to improve dramatically."
De-bottlenecking at the plant is just one area to look at, according to Mr. Phillips. He suggests combing through the supply chain and focusing on areas such as procurement of raw materials.
"The process st EPS of procuring raw materials from your suppliers must be analyzed in detail to determine how they can be streamlined," said Mr. Phillips. "Secondly, the amount of raw material inventory that you normally would have in your stock, costing you money in interest, should be studied to determined how much can be placed in the just-in-time (JIT) category and how much must remain on your property. The more inventory that can be 'pushed back' onto your supplier causing him to react to your production needs and on a JIT basis, the less costly that inventory will be to you."
Using suppliers as "consultants" is another avenue to explore. "Many times these suppliers have in-house expertise that is rarely used at their customer level," Mr. Phillips said. "Optimizing the handling of pigments to avoid dust contamination, spills and measuring problems can be a major expense for a paint company. Ask your pigment suppliers to assist you in this critical part of your operation," he said.
And lastly, maybe mom was right-honesty is the best policy, even in tough economic times. "Being open and honest up and down the supply stream of activity is important in order to gain efficiencies in this time of economic uncertainty and get lean," said Mr. Phillips. "Everyone in your stream has similar problems. By being open, sharing what you feel you must do and asking for the supply side and the buy side to assist one another, in and of itself, is a tool for survival."
Savvy Introductions, New Plans for 2002
Benjamin Moore will relaunch its exterior paint lines MoorLife, MoorGard and MoorGlo. Chemists have reformulated the products to provide improved hiding and richer body, while continuing to provide the best adhesion in the industry with their fortified acrylic formula, according to Dan Claybaugh, group product manager. The company is also offering a new 20 year warranty on MoorLife and will back MoorGard and MoorGlo, its exterior low luster and semi-gloss finishes, with 25 year warranties.
Off to Market
In addition to the introductions covered in the print version of this article, here are more new products and planned launches from some of the top players in the industry.
Kelly-Moore has added 655 Dura Wall interior latex flat enamel and 1680 Series Dura-Poxy+ interior/exterior 100% acrylic enamels. The first is a 1005 acrylic flat finish that provides walls and ceilings with excellent hiding, even in the lightest whites, according to the company. Kelly-Moore's DuraPoxy+, sold in gloss, semi-gloss and eggshell, is formulated with an "extremely hard 100% acrylic polymer" which provides an epoxy-like finish for residential, commercial and industrial applications.
McCloskey is planning the launch of a new addition to its Special Effects collection-Venetian Plaster, which allows consumers to create a highly polished marble faux finish in a two-layer application. The formulation includes crushed marble and lime. The product is tint able to 24 shades. Also new to the McCloskey stable is Multi-Use, a new DIY exterior product billed as a "paint and primer all in one." The self-priming paint coats and protects a wide range of surfaces, including new and previously painted wood siding and trim, vinyl and aluminum siding, stucco, concrete, brick, masonry and painted and galvanized metal. The 100% acrylic latex is backed with a 20-year guarantee on siding and five years on decks and floors.
Valspar now offers American Tradition paints, a line of colors authenticated by the National Trust for Historic Preservation and created through a licensing agreement with MODA International Marketing. (For more on this line, see "What's in a Name" http://www.coatingsworld.com/Nov012.htm.)