Remodeling yields big business for industry.

Top architectural woodworkers and store fixture manufacturers earn 47 cents on the dollar for remodeling projects, according to a new Wood & Wood Products survey.

Renovation and remodeling projects represent about 47% of all architectural woodworking/store fixturing sales, according to Wood & Wood Products' 12th annual survey of those industries.

Twenty-four of the Top 25 companies in W&WP's survey do a substantial amount of business in the renovation arena (see Top 25 chart, page 84). In 1998, approximately $513 million worth of millwork and fixtures were sold to this market by the companies in the combined store fixture/millwork survey. This represented 47% of the market, up from the 42% reported in last year's survey.

Companies that say they exclusively sell store fixtures reported more than $159.15 million in sales for remodeling projects. Architectural woodworking companies report that 63.3% of their sales, totalling $117.21 million overall, went toward remodeling projects. Companies that produce both fixtures and millwork report more than $236.87 million in remodeling sales, or approximately 42% of all sales.

The renovation of the New Amsterdam Theater in New York City, depicted on this month's cover, is a prime example. The theater, located in Times square, was badly run-down, as was much of the neighborhood, before the area was revitalized through the combined efforts of government and business. Midhattan Woodworking Corp. was brought in to complete the millwork portion of the job. "I didn't make a fortune on the job, but it was high-profile," says George Greco, vice-president of the Old Bridge, NJ-based company.

Is This a Growing Market?

While remodeling business is substantial, the 1998 sales to this market may even be greater than the $500-plus million that was reported. Some companies, especially architectural [TABULAR DATA OMITTED] woodworking firms, see little distinction between the products they produce for new construction and those they make for remodeling projects. Thus, the reported remodeling portion might be understated.

NEW CONSTRUCTION VS. REMODELING PROJECTS

By type of business

               Store Fixture     Architectural     Firms that
                   Makers         Woodworkers        do both

New                 64.0%             36.0%            58.3%
Sales            ($282.0)           ($68.1)         ($330.6)
Remodeling          36.7%             63.3%            41.7%
Sales            ($159.6)          ($116.8)          ($236.9)

($ value in millions)

[TABULAR DATA OMITTED]

"I don't see a difference," says Frank Huschitt III of Imperial Woodworking Co., an architectural woodworking company in Palatine, IL. "It's always been the case for the clientele we serve that we go in and build something new. Companies go into a space, gut it out, and then have us start over."

Semantics aside, architectural woodworking and store fixture firms may need to drum up more remodeling work if construction continues to lag. Construction of retail stores had an exceptional 1998, but through the first two months of 1999 new construction was down by 13%, while hotel construction dropped by about 33% since the start of the year, according to the latest figures from F.W. Dodge, a New York-based tracker of residential and business construction nationwide.

At the same time, merger and acquisition activity has increased. The grocery and banking landscapes have been peppered with a number of recent mergers, including Kroger and Fred Meyer, Safeway and Dominicks and NationsBank and BankAmerica. In addition, Kmart has leased a number of former Venture stores and HomeLife has been divested from Sears and is trying to create its own corporate identity. When companies merge, the two firms often blend identities, operations and resources. These new entities may mean new opportunities for store fixture companies, especially in the retail arena, and millwork companies, in the hospitality and banking industries.

"Consolidation, company growth or shrinkage, that is the defining pulse on the market," says Michael Ostroff, president of Patella Woodworking of Jersey City, NJ. "More expansion means more work, just as consolidation can mean more work."

Kmart Remodeling Creates Business for Fixture Makers

Kmart is proving to be a boon for fixture companies and contractors around the country. The company is in the midst of a major remodeling project at its stores nationwide. The retailer is attempting to revamp its stores and reverse its financial woes by converting its Kmart stores to its Big K concept, which focuses on three distinct merchandise businesses: home fashions, children's products, and consumables, in what the company hopes is a more user-friendly environment. Kmart has invested in new displays, including interactive kiosks which debuted in 48 Detroit area stores last year and are being rolled out in 1,000 stores this year and next.

Kmart is spending between $600,000 and $650,000 per store to remodel some 1,800 of its stores by the year 2000. Since 1997, Kmart has spent more than $327 million to convert its stores into the Big K format.

"We're adding a huge amount of new fixturing, creating wider aisles, increasing the brightness of stores and lowering sight lines," says Floyd Hall, chairman and chief executive officer of Kmart, in a issue of GlobalShop Today. Hall was the keynote speaker at GlobalShop, the multi-trade show event that included store fixtures, which was held March 27-29 in Chicago. "We are trying to dramatically improve our look to signal that it's not the same Kmart anymore."

Two companies reaping the benefits of Kmart's remodeling program are Goer Manufacturing Co. of North Charleston, SC, and L.A. Darling Co. of Paragould, AR.

Goer recently delivered more than 500 remodel projects to Kmart stores. Working with Kmart helped Goer boost sales to $52.5 million last year, breaking its previous sales and profit records. The store fixture manufacturing company, which predicts it will have an even better year in 1999, sells exclusively to retailers; approximately 70% of its sales, or more than $36.7 million, went toward remodeling projects.

L.A. Darling, North America's third largest store fixturing company, produces fixtures for many of the nation's largest retailers. The Arkansas-based company had more than $100 million in sales in 1998, all of which were to retailers; about 40% of its sales went toward retailers rehabbing their businesses.

"Retail stores refurbish their look every five to seven years," says Evart English, president of LA. Darling Co. "The retailers want to go with a new look."

In-Store Rollouts

Another growth area is store-within-a store displays that attempt to cash in on celebrity recognition and high-profile brand names. At GlobalShop, rollouts showcasing clothing and other products bearing Ralph Lauren, Harley Davidson and other trademarks were on display in the Vendor Shop area.

"What is happening right now is that we do a lot of stores that are coming out with a private label, and they want it in every store," says Vic Romano, president of Vira Manufacturing, Perth Amboy, NJ. Vira reports that 85% of its $30 million in sales is store fixtures, and of that, more than 70%, or nearly $18 million, goes toward renovation work.

About the Survey

Wood & Wood Products mailed the 12th Annual Survey to architectural woodwork and store fixture makers believed to have posted at least $4 million in sales last year. The 42 companies participating in W&WP's survey, with total 1998 sales of $1.325 billion, are classified into one of the following three categories:

* 9 Architectural Woodworkers: $210.9 million

* 10 Store Fixture Makers: $480.2 million

* 23 Firms That do Both: $634.6 million

W&WP gratefully acknowledges the assistance of the executives who participated in this year's survey. Companies interested in taking part next year should contact Larry Adam, Senior Editor, [phone]; fax [phone].

Sam Gazdziak and John Iwanski contributed to this report.

RELATED ARTICLE: Employee Skill Levels, Finishing Regulations Lead Industry Concerns

Employee skills remains the biggest issue facing the industry with nearly 80% of industry executives saying it is one of their biggest concerns, according to Wood & Wood Products' 12th Annual Survey of Architectural Woodworkers and Store Fixture Manufacturers. (See chart below.)

Finding and keeping talented employees is a problem that runs the gamut from the largest company surveyed to the smallest. "Recruiting and retraining personnel is the most critical challenge in our business development," says one respondent, whose comments reflect those of others surveyed.

Government regulations, especially in the finishing room, [TABULAR DATA OMITTED] didn't lag far behind employee skills. In fact, a higher percentage of executives say they are extremely concerned about this issue than any other issue.

Finishing regulations are cited by 23.8% of industry executives as the issue they are "extremely" concerned about, while another 31% say they are "very concerned" about them.

Wood dust regulations also strike a nerve with industry executives. More than 17% of executives surveyed say they are extremely concerned about current and potential wood dust regulations, while another 34% say they are very concerned.

Larry Adams

RELATED ARTICLE: 1998 Good, 1999 Even Better, Survey Says

Architectural woodworkers had the best 1998, but store fixture makers are looking forward to a better 1999, according to Wood & Wood Products' 12th annual survey of these industries.

Almost three-quarters of the 42 respondents report that 1998 was a very good year or the company's best year ever. Of the nine companies who were exclusively architectural woodworkers, three had their best year ever in 1998, and five had very good years. By comparison, just one company of the 10 store fixture makers had its best year ever, to go with seven who had very good years.

Looking ahead to this year, six store fixture makers say that their expectations for 1999 are greater than 1998. Only two of the architectural woodworkers said that 1999 would be better than 1998, and three say their expectations are lower. All total, about one-third of executives surveyed say their expectations were about the same. In last year's survey, 75% expected 1998 to be greater than 1997, and only 20% expected it to be about the same.

Included in this year's survey are 23 companies who do both architectural and store fixture work, an increase from 16 in last year's survey. Seven of those companies, Ontario Store Fixtures, Rimi Woodcraft Corp., T.J. Hale Co., Environments Inc., DeLeers Millwork Inc., Millrock Inc. and Professional Installation Network Inc., were listed in last year's charts as making store fixtures or architectural woodwork exclusively. Four of those companies who do both say that 1998 was their best year ever, and 11 more say it was a very good year. Fifteen of the 23 companies said they believe that 1999 will be better than 1998.

Wood/veneer was the most common material among all companies surveyed. Architectural woodworkers used wood the most (77.3%). Store fixture makers used wood 24.3% of the time. Metal was the most commonly used material in fixtures, accounting accounted for roughly half of the materials used.

MATERIAL MIX

                  Store Fixture      Architectural      Firms that
                     Makers           Woodworkers        do both

Wood/Veneer           24.3%              77.3%             54.1%
Laminate              21.8%              18.5%             18.7%
Metal                 51.0%               2.2%             20.0%
Other                  2.9%               2.0%              7.2%

Sam Gazdziak