CHARLOTTE, N.C. (Nov. 29, 12:35 p.m. ET) — With the number of decks being built on an annual basis down 37 percent down from 2006, manufacturers of alternative decking think they can stimulate demand in the replacement market by concentrating on two areas: deck safety, and the development of partnerships with homeowner associations.
“This is a huge market for the industry if we could capture [and replace] even a small percentage” of the decks that exist in the 24.8 million units across the U.S. in association-governed communities, said Michael Beaudry, founder and executive vice president of the North American Decking and Railing Assn.
“If we go after homeowner associations, we can give you a quick kick in 1-2 years,” Beaudry said at the Principia Wood-Plastic and Fiber Composites Decking conference in Charlotte in mid-October. “If we embrace the opportunity to rebuild decks, we have an enormous opportunity. It represents a huge potential for our industry.”
One company that has taken that route and prospered is DecksbyJoe Inc. in Oakdale, Minn., which has gone from building 23 decks/year and annual revenues of $138,000 in 2006 to building more than 500 decks and pulling in an estimated $3.5 million in revenues in 2011.
“They offered free inspections to associations and found code compliance issues at about 95 percent” of the associations and groups that managed communities in the nearby town of Coon Rapids, said Beaudry who gave a presentation for the company at the Principia conference. “They gained the interest and trust of these associations and it helped them gain new business.”
Speaking in his role as executive vice president of NADRA, Beaudry also urged contractors, builders and the industry to use the issue of deck safety as a tool to build residential deck sales in North America, which were an estimated 2.7 million in 2010, according to Principia Consulting.
NADRA estimates that only half of the existing 40 million decks are code compliant, and that some 20 million decks in North America are more than 20 years old and could have some safety issues because of advances that have been made in technologies, and the need to modify them to meet new building code regulations in communities.
“Decks are old and we have an opportunity to seize that opportunity,” Beaudry said. “We need to bring the value chain together to stress deck safety, but do it in a positive way and explain to people why it is important to check your deck. As an industry, we have to get consumers to embrace the idea of checking their decks for safety.”
But not everyone is comfortable about addressing that issue.
“We have to be very careful about how we approach deck safety or it could rebound into something negative, instead of enforcing the positive,” said Ray Steward, president of the Maryland chapter of NADRA and president of deck builder RWS Decks Inc. in Towson, Md.
“I think this needs to be done through code officials” in communities, he said.
However, Beaudry thinks the industry needs to capitalize on that opportunity now.
“This is an opportunity to turn a negative into a positive,” he said. “We need to push that message and do it quickly and do it effectively.”
A boost in demand—and growth—would be welcome to manufacturers of WPC, cellular PVC and other types of non-wood decking as industry sales have flattened, said Steve Van Kouteren, principal with Principia Consulting, which is based in Malvern, Pa.
“I expect 2011 sales of decking and railing (in the amount of linear feet) to be flat or maybe a little down” from the 2.5 billion linear feet sold in 2010, Van Kouteren said. “The industry had a second quarter that was terrible and everything plunged in June and July.”
In dollar volume, Principia sees deck and railing sales, growing by eight percent a year through 2013 to $4 billion. Synthetic decks account for 20 percent of the volume and 40 percent of revenues, and wood decks 80 percent of the volume and 60 percent of the revenues
Decking drives total sales, and accounts for 94 percent of the industry's volume by linear feet but only 57 percent of dollar volume. Railings account for 43 percent of industry dollar volume because they have a much higher profit margin than decking boards, as rail's price per linear foot is higher. Railing's value and price is typically based on the linear feet of assembled rail, including posts, caps, collars, balusters, top and bottom rails.
The flat sales, when measured by linear feet, is a reflection of a trend toward smaller decks, continuing new home construction woes, the inventory glut of existing and underwater homes, and high unemployment.
“The economy has caused the decking industry to contract,” said Bill Ross, vice president of sales at WPC and cellular PVC decking and rail manufacturer Fiberon LLC, which is headquartered in New London, N.C. “There are fewer decks being built and those are smaller.”
Unfortunately, the decline in the number of decks built and the flat amount of sales, when measured in linear feet, come at a time when manufacturers are beset with raw material cost increases, continuing concerns about product performance, and an inability to pass prices on to consumers.
“Higher raw material costs and product performance are the biggest challenges to the synthetic decking and railing industry,” said Principia in a report it released earlier this year. “Material costs and performance will ultimately affect synthetic decking's ability to take market share from wood decking,”
Right now, the cost of synthetic decking is typically three to four higher than wood, as the selling price of decks, both wood and synthetic are driven by the price of raw materials.
“If you look at the cost of manufacturing alternative decking, 70 percent of that cost is on the raw material side,” Van Kouteren said.
That's driving investments by alternative decking manufacturers that are designed to lower the cost of raw materials.
Advanced Environmental Technologies Inc., is in the second phase of its investment at its PE recycling plant in Watts, Okla., that opened 18 months.
In addition, Fiberon is “looking at investing in new raw materials sources” in order to gain more control over the price of the raw materials it uses to make decking, Ross said in an interview at Deck Expo in Chicago in mid-October.
“We are actively in the development” of an investment related to raw materials, Ross said. He declined to elaborate further in the interview. But at the Principia conference a week earlier he said there is more of a problem with prices of PVC than PE currently. “There have been horrendous increases in prices the last few years in PVC,” Ross said.
The current raw material price situation is that the price of pressure-treated wood is nearly 15 percent lower than in 2002, prices of PVC for cellular PVC products have been rapidly rising for the past few years, and the price of polyethylene, while higher, has been more manageable because of the availability of recycled resins.
“Prolonged high oil prices will significantly affect decking and railing prices and suppliers' profitability as selling prices do not increase proportionally as raw material prices and the cost of production go up,” Van Kouteren said.
“The PE guys are in better position because they have more of a supply of recycled resins, but the PVC guys are at the mercy of resin pricing,” he said.
Van Kouteren expects capped wood-plastic capped composites to continue to capture more and more of the alternative decking market. “They will probably overtake cellular PVC in sales this year or early next year,” he said. “The boards are easier to work with [and] lighter."
Currently, Principia estimates that ultra low maintenance products—that is, capped WPC composites and cellular PVC—together account for 45 percent of all alternative decking, up from 15 percent in 2008, with that gap expected to widen.
In an interactive poll at the Principia conference, attendees said that they expect capped WPC composites, in the long-term, to account for 71 percent of alternative decking sales, and cellular PVC 29 percent of sales.
“If these boards do perform well, the opportunity to grow to new levels of demand is very positive,” Van Kouteren said. “But to take market share, you have to make the board really well and keep the boards performing well. I think there is more market share to be taken from wood, but you don't want consumers to have to maintain that deck.”
There is also a need for the industry to develop products that simplify things for contractors and homeowners, said Jim Daniels, vice president of market development for distributor Parksite Inc., which has 10 locations, mostly in the Midwest and Northeast.
“Today's manufacturer must install simplicity into their product without sacrificing beauty, safety and aesthetics,” Daniels said. “And they must sure that their product has been tested and meets all codes.”
Where sales are headed next year is unclear.
Those attending the Principia conference were optimistic. In an interactive poll conducted at the conference, 76 percent said they expected sales of capped WPC and cellular PVC decking to be up at least 10 percent when 2011 results are tabulated, and 49 percent expected sales to be up 5 percent or more in 2012.
Van Kouteren said he agrees that sales of ultra-low maintenance decking—-both capped composites and cellular PVC—-will be up in both 2011 and 2012, at about the same levels as those polled believe. But overall, he believes that total 2011 decking and railing volume, in terms of linear feet, will not reach the five percent or more increase that 49 percent of those polled believe. " Quite frankly, I don't see that happening. At best, [overall] sales will be flat this year,” as measured by linear feet.