Changing tides

Changing tides
With the economy in a downswing and material costs rising, the store fixture industry rides out the economic storm

By Alison Embrey Medina, Senior Editor
July 01, 2008

Gasoline and energy are not the only costs skyrocketing out of control at the moment. For the store fixture industry, increased costs have spread to several crucial manufacturing materials, including steel wire, MDF, particleboard, aluminum, glass, plastics, acrylic and packaging materials. According to the Association for Retail Environments (A.R.E.), its member companies have experienced cost increases of 10 percent to 15 percent for glass and 5 percent to 15 percent for composite board products. Hardwood prices are rising in some parts of the country due to fewer sources of dimensional lumber, and the rising cost of nickel has made both nickel- and chrome-plated finishes more expensive to produce.

"Growing global demand for raw materials, spiraling fuel prices and a weaker dollar have together created what some of our member manufacturing companies are calling a 'perfect storm,'" says Klein Merriman, executive director of A.R.E. Rising prices in petroleum and natural gas fuels have contributed to increased energy costs in the making of and transporting of a wide variety of raw materials and finished goods.

Additionally, fixture manufacturers have to be tuned in to the current retail landscape, as chains continue to struggle with the pressures of flattening consumer spending. "[The economic slowdown] certainly is beginning to have an impact," says Ron Mayer, vice president of sales for Hicksville, N.Y.-based Econoco Corp. "There is no question that new store openings are being scaled back, remodels postponed and budgets in general are under pressure." Mayer adds that he expects more consolidation and more retail firms to vanish over the next five years. "Changes in the economic climate always affect relationships," he continues. "Where relationships are strong, clients rely on us to assist them through difficult times and look for ways to reduce costs to maximize what budgets they have."

Mark Badhwar, North American sales representative for Toronto-based Umdasch Shop Concept, believes that the slowdown is more prevalent in the U.S. market than in others, and says his company's business based on global clientele is much less affected. "Generally clients are really trying to reduce costs, which is getting harder and harder as Asian sourcing opportunities diminish, material costs rise and factories willing to sell at a loss or at cost either stop the practice or go out of business."

While global sourcing had, over the last several years, offered a solution for low-cost manufacturing, soaring transportation costs and increased cost of importing goods from China have squelched that advantage. "We're seeing challenges right now in the soaring costs of oil and materials caused in part by growing demand from China, India and other emerging economies," says says Dave Mueller, president of Chicago-based Leggett & Platt Store Fixtures Group. "Add in fluctuating global currencies, and the greatest challenge facing fixturing manufacturers is finding the optimum balance between the costs of labor, materials and transportation in order to deliver the lowest prices to retailers."

While in-stock fixture manufacturers do still make up a good bit of the industry, manufacturers more and more are being asked to produce custom products with relevant design for individual retail clients. "With the buying habits of today's consumer changing so rapidly, it is imperative that the display and fixture designs adapt just as quickly," says Neil Thomas, vice president sales and marketing, Midwest Store Fixtures Inc., University Park, Ill. Thomas explains that 100 percent of Midwest's products are designed around the specific needs and performance criteria of its clients, and adds that supply chain compatibility is becoming more common as vendors and suppliers are asked to work together to meet the overall needs of the customer.

While the fixture industry is not inherently a "green" industry, many things are being done to improve not only the eco-friendliness of the final product, but also to improve the manufacturing process. A.R.E. has formed the Green 100, a green member task force—headed by Robert Reeve Frackelton of Reeve Store Equipment Co.—whose mission it is to identify the challenges and opportunities of green retail environments and develop initiatives to address those needs. Manufacturers have jumped on the bandwagon, with many taking their own initiatives toward improving their environmental footprints.

"Over the years great strides have been made with ensuring that the manufacturing process does as little damage to ecology as possible," Mayer says. "Years ago, chrome plating operations were oblivious to the environment. Now our factory and many others can take the run-off water that is used in the process and show that it is basically able to be put back into the water systems with no pollutants—a tremendous achievement. Many retailers are asking for these efforts to continue, and I believe that we will see this movement accelerate in the near future."

Cost, however, is always a factor when implementing new green strategies. "The public isn't only demanding that their retailers demonstrate their commitment to ecology, but that their suppliers do, too," Mueller explains. "That said, at Leggett, we don't look at the cost of green initiatives as a burden, but as an investment that will create long-term efficiencies and economies for our operations." The company has begun using renewable, sustainable energy—hydropower, wind and landfill gas—at a number of its plants; taken full advantage of the new energy-efficient lighting technologies; and implemented recycling programs for everything from metal scrap, waste oil and sawdust from manufacturing operations to paper from offices and the aluminum soda cans from lunchrooms.

As retailers experience the effects of a slowing economy, there will be a consolidation of companies to leverage costs and maintain margins, and this directly impacts suppliers, Mayer says. New innovations and establishing positive client-partner relationships can only add to a company's chance of success. "The next year or so will be very challenging—service, quality and price will be more meaningful than ever," Mayer says.

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