Complex $3 Billion Residential Fence Industry Made Simple from Latest Principia Study.

EXTON, Pa. -- The fragmented fence industry has generally been a building product category that has received less monitoring than many other segments like siding, roofing, and fenestration products. Over the past nine months, Principia Partners has evaluated the complex supply-distribution-demand fence industry structure through its just-released RESIDENTIAL FENCE 2006 multi-client study.

The total North American demand for commercial and residential fence is estimated to be over 1 billion LF of installed fence valued at $6 billion in 2006. Commercial fence demand is the largest sector both on a volume and value basis. Demand in the commercial market is dominated by chain link used as perimeter security fence in industrial and infrastructure markets as well as post and rail and wire mesh fence used in agricultural markets.

Demand for residential fence is estimated to be nearly $3 billion of the total fence market value in 2006. Steve Van Kouteren, a Principal at Principia Partners explains, "The residential fence market consists of five major fence styles including privacy, post and rail, chain link, ornamental, and post and wire/wire mesh. The market can also be segmented by the four distinct material segments including wood, metal, plastic and mineral-based or masonry materials. Wood and metal are the dominant materials used, accounting for over 70% of the total value."

Plastics are relatively new materials in the fence industry. The dominant plastic material is PVC or vinyl, which was introduced in the market in the late 1970s. Vinyl reached its product growth stage in the early 1990s, and since this time, the demand for vinyl fence has steadily grown. Market acceptance of vinyl fence varies by region from over 30% penetration to less than 5% penetration. For example, vinyl has significant penetration in Utah and the Long Island region of New York, while its penetration in Texas is negligible.

In addition to vinyl fence, polystyrene, wood-plastic composites (WPC), and polyethylene are the other plastic-based fence materials. Mr. Van Kouteren says that the recent study estimates demand for plastic fence materials in the North American residential market to be over $600 million or nearly 25% of the total market in 2006.

Privacy fence is the most popular type of fence style installed in the residential market, accounting for over 50% of the total value. Chain link fence remains to be a popular choice for homeowners due to its low cost and effectiveness for security. Even though chain link has been losing market share to other fence styles, and it is one of the lowest priced fence styles, it still accounts for over 10% of the total value in 2006.

Principia's study shows the housing downturn has affected the overall demand for residential fence and will continue to do so over the next few years. However, the mix of products is shifting significantly. Chain link fence is forecast to have the largest decrease of all fence styles. In contrast, ornamental fence is forecast to increase more than any other style from $635 million in 2006 to over $690 million in 2010.

The growth in demand for ornamental fence is due to upgrade trends at the low end as well as the high end of the market. At the low end, the availability of low price point metal ornamental fence panels from Asia is giving consumers an option to upgrade from chain link to a more aesthetically pleasing ornamental metal fence. At the premium end of the market, ornamental fence demand benefits from the trend to fancy, decorative metal ornamental fence and entrance gates along the front of large estate homes, and more ornamental fence used as perimeter fence of high-end developments.

Plastic fence will continue to grow its market share over the next five years. Most demand growth will be for vinyl and for new wood-plastic composite privacy fence. Both materials will be replacing wood. Plastic fence manufacturers have developed new privacy fence products with embossed wood grain and earth tone colors as well as low gloss to mimic wood. The new WPC fence products have an edge over vinyl in regards to availability of a wide range of darker colors. Both vinyl and WPC suppliers are looking to take advantage of the growing consumer demand for low maintenance, non-shiny, white plastic fence by tapping into the huge portion of the wood privacy market that will not consider white vinyl as an option.

Compared to vinyl post-and-rail fence, which has successfully penetrated and displaced as much as 50% of wood in many regional markets, vinyl only has about a 16% share of the North American privacy fence market. The large wood privacy market is also a target for the foamed polystyrene and 100% polyethylene-based fence products.

Hundreds of companies produce residential fence products, components or systems in North America. The North American fence distribution channel is quite complex compared to other building products, and the best way to understand the structure of the channel is to dissect it one layer at a time.

The Principia study has classified fence distribution channels into six segments including:

* Direct sales to fence dealers/installers

* Fence wholesalers/distributors

* Fence fabricators/distributors

* Traditional 2-step or wholesale distributors and wood brokers

* Retail (big box, home centers)

* Specialty retailers (hardware stores, farm supply stores, pool supply stores, brick and block yards)

The fence wholesaler/distributor and fabricator/distributor channels are the largest supply channels in North America. In essence this channel is 1-step distribution, where a manufacturer sells finished fence product to a distributor, and the distributor in turn sells the product to the trade customer, not consumer. The retail home center channel is the fastest growing outlet for fence manufacturers. This category represents manufacturer sales directly to retail stores or distribution centers.

Principia's study analyzes the drivers and trends of the residential fence industry by region, distribution channel, market segment and material type, and provides a five-year forecast. Key issues that have been addressed include:

* Changing trends in product substitution

* Channels of distribution to key markets and regions

* Shifts in market share among producers

* Supplier strategies and approaches to market

Results of the report assists companies with critical market data and analyses essential for planning purposes by providing:

* Up-to-date assessment of the residential fence market

* Assessment of the major fence products

* Identified product development needs and channel opportunities

* Market share review for fence producers

* Profiles of leading companies active in the business

* Strategic insights into this dynamic industry

Principia Partners is a leading international business consulting firm, and has extensive experience in building products and plastics industries. In particular, the Firm has closely monitored the market for a wide range of building products over the past 10 years through various research efforts. For more information, visit the Industry Reports section of the Publishing portion of the company's web site at www.PrincipiaConsulting.com. A prospectus of this study is also available by calling John Pruett at 800/378-8330, extension 247.