So far so good despite the black clouds: store fixture manufacturers assess the potential impact of Katrina, China and rising energy costs

Wood & Wood Products, Oct, 2005 by Rich Christianson, Andy Jenkins

Nearly two-thirds of the way through 2005, U.S. store fixture manufacturers had great reason to believe their business would continue to steadily improve, much as it had over the last two years.

Unemployment levels were relatively low and consumers remained in a buying mood. The U.S. Department of Commerce reported retail sales of $280.9 billion for August, up 10.7 percent from August 2004.

Then Hurricane Katrina struck its wicked blow to the Gulf Coast on Aug. 29, leaving an estimated 1 million people without homes and catapulting gas prices to historic highs. Three weeks later, Hurricane Rita wreaked additional havoc on the Gulf, though fortunately, inflicting far less damage to life and property than originally feared.

Ever since, store fixture manufacturers and retailers alike have crossed their fingers as they wait to see how the aftershocks of Katrina, Rita and rising energy prices, on top of the continuing war in Iraq, might dampen consumer confidence heading into the crucial holiday season. How loud and long cash registers ring in the final quarter of the year will have a great impact on store fixture shipments in 2006.

"It seems that our industry is always operating with something of a black cloud on the horizon, be it rising oil prices, increased cost of raw materials or what a hurricane might do to consumer confidence," says Klein Merriman, executive director of the 50-year-old National Association of Store Fixture Manufacturers. "The holiday shopping season is always huge for the fixture industry. If that goes badly, all bets are off. Because the majority of our members do business with just two or three customers, all it takes is one customer to have a bad holiday season to hurt a fixture makers year."

Business on the Upswing

After struggling through a luckluster three-year period between the third quarter of 2000 and the third quarter of 2003, Merriman says U.S. store fixture manufacturers have enjoyed a solid business revival.

According to NASFM estimates, the U.S. store fixture manufacturing industry generated approximately $10.1 billion in revenue in 2003, with wood accounting for 41.6 percent and laminate accounting for 13.9 percent of the total.

In spite of nagging concerns over the potential drag of recent events on the economy, Merriman says, "Business for our members is good." He points to the results of the association's recently completed biannual Industry Performance Report indicating that members project 2005 store fixture revenues to finish about 10 percent ahead of last year and to grow by an additional 10 percent in 2006.

Retail Forward, a global management consulting and market research firm based in Columbus, OH, also remains optimistic, though noting in a Sept. 27 news release that "persisting high fuel prices remain the biggest threat to the outlook." According to the release, "Despite the economic side effects wrought by Hurricanes Katrina and Rita, Retail Forward expects the 2005 holiday season to be a healthy one for the key retail sectors, though growth is expected to be off last year's solid performance. Retail Forward's forecast is for 5.0 percent to 5.5 percent year-over-year growth in the fourth quarter for key measures of holiday sales."

Jack Hale, CEO of T.J. Hale Co. of Menomonee Fails, WI, and vice president of NASFM, says, "We have seen a few signs of activity that rival the boom times of the late '90s. Improved consumer confidence levels and lower unemployment have led to better business across the board for retailers and store fixture manufacturers. We're optimistic that's going to continue, barring an event that we don't even want to think of."

Hale observes that NASFM's most recent annual report on profit margins indicates that margins have improved since the start of 2004 "and we anticipate significant improvement in the 2005 report."

James Schubert, president of Showbest Fixture Corp. of Richmond, VA, and president of NASFM, says, "2005 has been a good year for the industry, one of the best in five years." Because of what he refers to as the "evil sisters," Hurricanes Katrina and Rita, Schubert says he recently downgraded his outlook for 2006 from "pure optimism" to "cautiously optimistic."

"My concerns are short term," Schubert says. "I do see inflation and continual pressure on margins. The issue on the cost side is still troublesome. But the volume and activity of the fixture industry is still good. I generally get good vibes from the members I talk to. They're busy. Energy prices could dampen the holiday season, but people still seem to be buying. If there is a reasonable Christmas season, the industry should have a good 2006."

Alan Harvill, president of EMI Industries of Tampa, FL, says his company saw business pick up in the second half of 2005 following a previously "slow" 18-month period. "We see 2006 as a good growth year for us. Our retail store customers have told us that their capital expenditure budgets are up and, therefore, they expect retail spending at the store fixture level to be up as well."