Royal Group Technologies Ltd. is focusing on windows in several ways.
The Woodbridge, Ontario, building products manufacturer will stop offering custom special-order window covering services to Big Box home improvement retailers in the United States. That decision also affects the company's related stock-size window coverings business. Officials said the exit would be complete in 90 days, at the latest.
``After an extensive review of our U.S. window coverings business, we have embarked upon a strategy to simplify the business,'' President Douglas Dunsmuir told analysts during a May 6 conference call. ``Our decision to exit these programs recognizes the high overhead costs associated with these programs, unacceptable margins on stock-size portions of the programs and custom-order volumes not increasing at the projected and necessary pace.''
The firm has been trying to stop the bleeding in the U.S. window coverings division, which posted a loss of C$22 million (US$14 million) in fiscal 2002. Officials said the decision would result in a sales decline of about C$45 million (US$32 million) annually. The move will allow Royal to achieve break-even performance by its 2003 fiscal year end, which is Sept. 30.
Royal will refocus its efforts on the dealer-fabricator network, said Kevin Fields, vice president of operations for U.S. window coverings.
``That is our core competency,'' Fields said in a telephone interview May 7. ``That's what we're very good at and we need to be able to return to those areas. We recognize that.''
However, this does not mean Royal will be entirely absent from retail segments in the U.S. market.
``We have a number of national accounts that we're still going to be maintaining,'' Fields said. ``We also have several regional retailers that we will be doing business with. We still have a strong presence in retail in general.''
The customized window blind services and related stock-size programs require costly merchandising and selling expenses. In addition, the traditional dealer-fabricator network doesn't face the same degree of overseas competition.
``This [dealer-fabricator] channel requires rapid delivery response, which our network provides,'' Dunsmuir told shareholders and analysts. ``There is a far lower level of labor involved in components manufactured for this channel, diminishing China's labor advantage.''
Officials said they have not made final decisions on how they will soak up the excess capacity resulting from the move, although they did hint that much of the capacity would be focused on the dealer-fabricator network. In addition, Royal also has started producing pipe at its facility in Houston.
In related news, the company plans to re-enter the window market for new construction in North America. Royal exited the market several years ago, focusing on the higher-margin renovation sector.
``We're currently in the design phase of developing a lineal system for the new-home sector of the market,'' said spokesman Mark Badger. ``Over time, we're intending to develop systems that will be appropriate for all regions of North America. We recognize the industry statistics that show over 40 percent of windows in new construction applications are now vinyl.''
The firm is targeting debut for the 2004 International Builders Show in Las Vegas.
For its second quarter, Royal reported sales of C$412 million (US$280 million).