When all is said and done, 2003 turned out to be a pretty good year for the architectural and decorative coatings market, and industry pundits and coatings executives say they expect more of the same in 2004.
Industry trackers are predicting between two and four percent growth in 2004, and that increase will come on top of similar growth posted in 2003.
"2003 will wind up being the record year in the business in terms of gallons and value," commented Scott Detiveaux, a senior consultant Orr & Boss.
According to Orr & Boss, the U.S. architectural/decorative coatings market posted a two-three percent sales increase in 2003 to reach $7.4 billion, and another three to four percent growth is forecast for 2004.
The driving force is the housing and new construction.
"New construction is the fuel for the market," said Chuck Bangert, a partner with Orr & Boss. "It continues to boom."
"The housing and construction markets have been relatively and consistently good for the past couple of years," commented Stephen Einhorn, president of Einhorn Associates, Inc. In particular, the Fed's clampdown on interest rates have helped maintain very low mortgage rates. "This has been a major factor in maintaining the strength of these markets," Einhorn added.
That's music to ears of coatings executives throughout the industry, who know that new construction, resales and renovation projects translate into paint sales.
"Based on homes built and purchased over the past several years, 2004 will be a good year" said Dick Bristol, director, Ace Paint. "For 2004, we are very optimistic."
His optimism is justified if figures from the end of 2003 are an indication of things to come. According to Bristol, Ace's same-store paint sales in November 2003 rose almost 10%. "The fourth quarter of 2003 will be one of strongest in many years, and that is the start of something."
A similar trend was noted by Duron's Gary Saiter. He said that while weather conditions hampered sales early in 2003, the market picked up later in the year. "It has come on strong with a lot of pent-up demand. I think 2003 will turn out to be a good year," he added.
Battling the Big Boxes
|Sherwin-Williams will relaunch Accolade in 2004, with formulation improvements and a new Twist & Pour container.|
But their success is coming at the expense of others.
"The independent dealer channel has been beaten up and bruised," Detiveaux said.
But, it appears players in the independent channel are ready to fight back, unveiling new programs and new lines to win back DIY customers.
"Over the last 20 years, the hardware channel has lost market share in the paint business. The big boxes have taken market share away," said Bristol of Ace. "The consumer doesn't even think of the hardware channel when they go to buy paint."
Ace is out to change that. "Simply put, the big push is to try and create in the consumer's mind the Ace store as a paint destination," Bristol said. Ace's efforts began with the start of the Color Your Life program which has since been adopted by 1450 Ace retailers.
But a slick store is only part of the equation. Consumers want choice when it comes to paint purchases.
To that end, Ace has unveiled a new program that will bring a well-recognized premium-priced paint line to its shelves. Through an accord with Sherwin-Williams, Ace retailers will have the opportunity to stock Pratt & Lambert's (P&L) Accolade and Red Seal brands, which it hopes will allow it to tap into the 15% of consumers who buys paint priced above $22 dollars per gallon.
Company officials are confident that P&L will complement, rather than cannibalize its house brand.
"We believe it will be a totally separate customer," said Bristol. "The bulk of the business will still be done under $20 dollars. We feel it will drive new customers our way."
Judging by early response, Ace retailers are excited about the program. Officially launched at the company's fall show in 2003, 300 retailers have already signed up.
Sherwin-Williams officials are equally pleased.
"We launched our program at Ace's fall show and dramatically exceeded our placement expectations, said Ken Erdmann, senior vice president, sales and marketing, consumer division of The Sherwin-Williams Company.
Ace test-marketed the Sherwin-Williams products and another major national brand before choosing P&L. "The results of this test, both in sales and profits, are the reason we are now formally working together," Erdmann said. "Having similar goals, we see Ace has a progressive retailer and ideal paint destination for the high level of product quality and service associated with the P&L brand, which complement the already successfully Ace Paint brand," he added.
Although it operates the largest roster of company-owned stores in the U.S., Sherwin-Williams also sells to the independent channel and is keenly aware of current market conditions hampering retailers.
|Para Paints is seeing a move towards softer, warmer, 'Old World' tones as consumers opt for safer, soothing hues which have been 'whitened down' in virtually every color family.|
Plans include a relaunch of Accolade in the award-winning Twist & Pour container, adding new labels and making formulation improvements to what Erdmann said is "already considered the marquis product in the channel." The improved formulation of Accolade will boast a lifetime warranty.
Ace isn't the only hardware store trying to bring in more DIY shoppers. TruServ's General Paint & Manufacturing (GPM) unit has been granted a license from Discovery Consumer Products to sell a paint under the Trading Spaces banner.
So far, TruServ officials have kept close to the vest on specific details of the launch-revealing only that the agreement covers paint, stains and sundries and that it has named Fred Rahimzadeh, president of Future Market Resources, Ltd., as the sales agent.
No doubt TruServ's goal is to capitalize the show's widespread appeal. A special two-hour live episode of Trading Spaces that aired in early October drew 9.1 million viewers and was reportedly the highest-rated cable program of the year among all viewers ages 25-54 as well as women between the ages of 18 and 49.
"We're excited to be associated with Trading Spaces, especially since home improvement projects have become quite the rage during the last few years," said Michael Rosen, senior vice president of sales and manufacturing. "General Paint & Manufacturing produces one of the top lines in the paint industry, and we're proud to be offering it under the Trading Spaces label."
Survival of the Fittest
Most in the industry say the architectural and decorative coatings market will remain healthy in 2004.
"In this environment of poor or sluggish economic times, this has been the one bright spot-even for the country as a whole," said Bangert of Orr & Boss.
But even if the construction market slows and interest rates begin to rise, the flurry of activity during the past few years should be enough to keep gallons moving off shelves.
"For 2004, I'm not so optimistic that the interest rates will remain low," said Einhorn. "Quite likely, they will increase which will tend to decrease the new home construction market. I believe there will be a shift from new construction paint to repainting and a noticeable shift toward redecorating existing houses."
"People paint in the first two years of home ownership," said Bristol. "Based upon the past two years of activity, 2004 will be strong."
Yet, while industry analysts note that market conditions are ripe, only those with clear-cut strategies will succeed.
|Ace's Color Your Life program is aimed at bringing back DIY customers. The company has signed a deal with Sherwin-Williams to sell Pratt & Lambert paint at Ace retailers, giving customers more choice in the premium end of the market.|
"The industry will continue to seek improved efficiencies within its manufacturing and sales operations. That is a trend that has become particularly important in last three years," Einhorn added.
Knowing your customer and the channel they utilize is also vital.
An understanding of who your customers are and what channel is the best way to reach them is key, said Bangert. "Those who have that clear strategy and have products aligned with that will do well," he added.
Ultimately, Darwinism rules, even in the paint industry.
"The strong will get stronger; those that are weaker are going to have more difficulty," said Einhorn.
Industry insiders Coatings World spoke with acknowledged a number of regional companies that are doing things right and consequently enticing larger players in the market that want to increase their market share.
"All good regional companies are being looked at hard," said Bangert. "You can guarantee that there is not a good successful regional paint company that isn't being approached by ICI, Sherwin-Williams, Professional Paint Inc. (PPI) or PPG. "They are all being courted."
PPI's latest deal is proof of that strategy. In December, PPI's Frazee Industries subsidiary signed a deal to acquire the non-manufacturing assets of Classic Paint of Arizona, including service centers located in Prescott Valley, Prescott, Kingman and Bullhead City.
"This acquisition is consistent with our plan to enter and service growing regional markets with brands that have been developed specifically for these markets," said Kent Child, PPI's CEO.
While Child spoke of the benefits Classic brings to PPI's stable, Kevin Skelly, marketing manager at Para Paints of Brampton, Ontario, acknowledged what a similar deal has given his firm, which was recently acquired y Sico, the largest Canadian-based manufacturer.
"We will benefit in many ways, including paint manufacturing at a state-of-the-art latex paint manufacturing facility and more resources in terms of people to help grow the Para Paint brand," Skelly said. "Above all, we're now owned by a paint company�a publicly traded paint company where decision making is more strategic and longer-term. It will certainly prove to be a great home for the Para Paints brand."
As 2004 unfolds, maintaining and gaining market share will remain mission-critical. Larger players will be keeping a watchful eye on the regionals, and companies being courted will need to decide if they'll stay the course or link up with a national manufacturer.