Keeping Watch on the New Year
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As far as decades go, the 2020s seem to keep serving up curveballs on an annual basis. So what about 2023? It’s tough enough to think about what’s next, even after filtering out variables such as an unprecedented worldwide peacetime lockdown, the first major disruption of the global supply chain, and wars of tariffs and bullets. And yet it’s imperative to try and get a feel for the road we’ll travel in the coming year. Stone Update Magazine sought out several industry leaders to get their views on the year ahead … along with some practical wisdom gained in 2022.
What are the two biggest things in your business that you plan to keep a close eye on in 2023, and why?
Axel Mendez, President, AMC Countertops, Fond du Lac, Wis.: Keep a closer eye on how we utilize the materials, as the bottom line is greatly impacted, and when the focus is on saving on materials, the profit starts showing. Better quality control is another thing we need to focus on in 2023. Brian Burns, Founding Partner, Cutting Edge Countertops, Perrysburg, Ohio: 2023 isn’t going to translate well with what we’ve been experiencing the last couple years. Those that use straight-line projections will come to find themselves unprepared and chasing vs. leading. The number-one factor will be controlling expenses as the market tapers off. The “no-expense-spared” mentality in ramping up capacities to satisfy a relentless demand is a thing of the past. We must make sure we are the right size for the new demand with labor, capital expenditures and overhead while keeping a healthy outlook on our long-term goals. Number two would be overall market conditions with a close eye on interest rates and consumer spending in the construction industry. We’ve already seen a decline in new home construction, with more activity in remodels and multi-family. We started adjusting about 12 months ago to be ready for the 2023/2024 market demand. Demand will vary across all of our regions. The pie will likely get smaller in some of our markets, with other markets being flat and some increasing. Keeping a close eye on this will allow us to flex and put us in a better position to take advantage where we’re able. Joan Schatz, CEO, Park Industries, St. Cloud, Minn.: Associate retention and recruitment. As labor shortages continue to be a challenge, we will be focused on retaining our associate talent, as well as expanding our skillset by adding associates to the Park Industries team. Jon Lancto, President, Artisan Group (based on a conversation with 10 of the members right before Christmas): Expenses and Revenue. As things slow down these will be important to manage. In addition, keeping an eye on receivables was mentioned. On the expense issue, Jason Brown with Architectural Surfaces indicated that their slab prices have come down recently with freight and surcharges being dropped. Other material manufacturers have recently rolled freight and surcharges into their slab prices with a price increase. Ken Williams, President and CEO, Caesarstone The Americas, Charlotte, N.C.: As the inflationary environment continues to pose challenges along with a projected slowdown in the housing market, we are focused on ensuring we can continue to deliver value to our shareholders while maintaining the superior quality and service Caesarstone is known for. We will keep a close eye on our inventory mix as project scopes evolve. As always, we’ll be watching how consumer tastes and design trends evolve. As we re-launch Caesarstone as a multi-material countertop provider, we’re confident that our quartz, new porcelain countertops, natural stone offerings, and Caesarstone Connect platform will keep pace, providing more choice and design freedom as consumers and designers alike continue to seek superior performance and quality without sacrificing on their design vision. Nancy Busch, Executive Director, International Surface Fabricators Association, Ingomar, Pa.: We will be looking to help members find ways to solve the skilled-labor shortage and continued supply-chain challenges. These have been two of the biggest hurdles for our fabricators, and unfortunately there are no quick fixes for either issue.
"Better quality control is another thing we need to focus on in 2023."
Axel Mendez AMC Countertops
"The number-one factor will be controlling expenses as the market tapers off."
Brian Burns Cutting Edge Countertops
Will the U. S. hard-surface market go: Up? Down? Stay nominally flat (+/- 5%)? Why?
Willams, Caesarstone: There is no doubt, based on the economic forecasts, that the U.S. economy, and consequently the hard-surface market, will be impacted in some form in 2023. The million-dollar question on our minds is how deep that impact will be. While we are anticipating a potential high single digit decline to the market, we will stay nimble so we can adapt to whatever outcomes the economic impact will bring. Lancto, Artisan Group: Almost everyone said either flat or down with as much as 30% (with) decreases in mostly production builder and home-center business. Commercial looks ok right now and kitchen-and-bath looks flat or slightly down. Busch, ISFA: I’m not a market analyst, so can’t really make an industry wide projection for you. In addition, feedback from our fabricators varies widely by region and by segment. Burns, Cutting Edge Countertops: This is an interesting question because it’s so dependent on different markets/regions. There are areas of the country that are still doing very well and will skate right through this dip without slowing down. We cover a three-state region in the Midwest that has a good cross-section of the economy besides the coasts. I’m predicting a mid-single digit (4%-6%) growth overall across markets. Those that want to grow more than that must gain market share at the same time. As I said in the first question, there will be a lot of markets that are flat, some that are down and some that are up. I think the up markets will outweigh the ones that are down, creating net positive growth. There is still a nationwide housing shortage, so homes still need to be built, regardless of what’s happening in the economy or with the Fed rate. There will be nominal (2%-3%) price increases that will help with the growth a bit, so the net activity (sf) should be around 2%-4% growth. While demand has been unsustainably strong through 2021/2022, much of the growth has come from inflationary price increases as an effect of raw materials, labor, and overall costs of doing business (supplies, energy, etc.). This price pressure should subside a bit, trimming artificial inflationary growth. Mendez, AMC Countertops: I would say it will stay flat because it was too high at one point and needed to come down, although in my opinion it will not go much lower than now. Schatz, Park Industries: There is currently a softening in the new home construction market primarily driven by the rise in interest rates. While there may be softening in the short-term, the long-term outlook remains very strong. There continues to be a shortage of housing and hard surface materials continue to be the preferred choice for countertop customers across the country. The long-term demand for housing and preference for hard-surface materials illustrates the strength of our industry.
"While there may be softening in the short-term, the long-term outlook remains very strong."
Joan Schatz Park Industries
"Commercial looks ok right now and kitchen-and-bath looks flat or slightly down."
Jon Lancto Artisan Group
What's the most-important thing you learned in 2022?
Burns, Cutting Edge Countertops: The most important thing revolves around creating a great team with improving recruitment initiatives, focused on training, and developing staff, ensuring the right culture and investing in process improvements to reduce non-value-added steps. The labor market isn’t getting better anytime soon, so being focused on raising the level at which we work to be more enjoyable, more efficient, safe, and smarter improves the experience of all stakeholders – customer, employees, vendors, and owners alike. It has always been about the people aspect of the business that makes success stories, and it’s more important than ever right now. Schatz, Park Industries: Agility. Our industry is experiencing rapid change, including labor and supply chain challenges. Embrace change and be agile all while focusing on your long-term strategy. Lancto, Artisan Group: Many of our members either operate with synchronous flow methodology or are currently implementing it. All said this has proven critical. Teamwork within companies, and consolidating segments served also were mentioned. Mendez, AMC Countertops: That receiving a much higher volume than your capacity can handle is hurtful. You cannot provide the same great service to your customers and your employees burn out. Quality is compromised; it is harder to control the process because everyone is rushing. Busch, ISFA: Perspective isn’t necessarily fact and alignment is critical to growing a business. Whether that means aligning with the current business climate, staff, or resources, it’s important to start measuring how these point to the goal (and iterate so that they do!). For employees, for example, consider checking the alignment among your team, rather than giving corrective feedback on specific behavior. You’ll learn where the knowledge gaps are while inspiring improvement if you adjust your management style. Williams, Caesarstone: The most critical thing learned in 2022 was the importance of being aligned as a team so we can stay nimble and respond to our market dynamics and opportunities as they present themselves to our business. This is not an easy thing in times of uncertainty but it’s imperative to swiftly mitigate challenges, capitalize on share enhancement opportunities and always approach the business with a proactive vs. reactive mindset. Whatever the economic conditions, our company will remain steadfast in driving innovation, growing our brand, and enhancing service and operations which ensure we can successfully weather the storm and be in a position of strength when inevitably the market shifts once again.
"The importance of being aligned as a team so we can stay nimble and respond to our market dynamics and opportunities."
Jon Lancto Artisan Group
