dynamics and trends in u.s. value- added wood product …demographics-baby boomers z76 million baby...
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Dynamics and Trends in U.S. Value-Added Wood Product Markets
Richard Vlosky, Ph.D.Richard Vlosky, Ph.D.
Director, Louisiana Forest Products Development CenterDirector, Louisiana Forest Products Development CenterSchool of Renewable Natural ResourcesSchool of Renewable Natural Resources
Louisiana State University Agricultural CenterLouisiana State University Agricultural CenterBaton Rouge, Louisiana, USABaton Rouge, Louisiana, USA
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Presentation OutlineDemographics/Demand DriversDemographics/Demand DriversThe U.S. Furniture IndustryThe U.S. Furniture IndustryU.S. Market TrendsU.S. Market TrendsHousehold FurnitureHousehold FurnitureOffice FurnitureOffice FurnitureMillwork, Molding, FlooringMillwork, Molding, FlooringThe BalkansThe BalkansRecommendationsRecommendations
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Demographics/Demand Drivers
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U.S. Home Improvement Sales$ Billion 1999-2005
$143 $153
$203
$174 $178 $184 $192
Source: Home Channel News
2000 2001 2002 2003 2004 20050
50
100
150
200
250$
Bill
ion
1999
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Demographics-Baby Boomers76 Million Baby Boomers76 Million Baby Boomers
Highly influentialHighly influential
Reaching peak spending years of 45Reaching peak spending years of 45--54. Boomers are now 54. Boomers are now 3939--5757
NearNear--peak earnings (value on job, inheritances, accumulated peak earnings (value on job, inheritances, accumulated assets, repaid debts) and are buying with a longer time assets, repaid debts) and are buying with a longer time horizonhorizon
Wave of inheritances: coming in our 50’s because boomers’ Wave of inheritances: coming in our 50’s because boomers’ parents are living longer; $10+ trillion; biggest generational parents are living longer; $10+ trillion; biggest generational shift of wealth evershift of wealth ever
This spending trend is being reinforced by wealthiest group of This spending trend is being reinforced by wealthiest group of immigrants ever to come to Americaimmigrants ever to come to America
Source: Mann, Armistead & Epperson, Ltd., Investment Bankers & Advisors
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Demographics-Echo Boomers
Up to 80 Million “Echo Boomers” (Generation Y)Up to 80 Million “Echo Boomers” (Generation Y)
These are the children of the “Baby Boomers”These are the children of the “Baby Boomers”
Wealthiest young generation everWealthiest young generation ever
entrepreneurial, globalentrepreneurial, global
truly mixed ethnicallytruly mixed ethnically
best educated; both men and womenbest educated; both men and women
computers are a primary languagecomputers are a primary language
parents are giving this group more moneyparents are giving this group more money
Starting in 1998 growing to 2022 (peak: 2016 or so)Starting in 1998 growing to 2022 (peak: 2016 or so)
Source: Mann, Armistead & Epperson, Ltd., Investment Bankers & Advisors
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SOFTWOOD LUMBEROSB/WAFERBOARD
OTHER WOOD PRODUCTSBUILDERS CARPENTRYHARDWOOD PLYWOOD
HARDBOARDHARDWOOD LUMBERSOFTWOOD MOLDING
SOFTWOOD PLYWOODOTHER PANEL PRODUCTS
MEDIUM DENSITY FIBERBOARDHARDWOOD FLOORINGHARDWOOD VENEERSHARDWOOD MOLDING
PARTICLEBOARDSOFTWOOD VENEERS
0 1 2 3 4 5 6 7 8 9US $ Billions
Top 16 U.S. Wood Product Imports 2005
Total for ALL productsIncluding the top 16= US $30 Billion
U.S. Department of Agriculture-Foreign Agricultural Service
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The “Value-Added” Industry is Diverse
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Household Furniture
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The U.S. Furniture IndustryThe species of lumber used: oak, cherry, yellow poplar, The species of lumber used: oak, cherry, yellow poplar, maple, and pine. maple, and pine.
Processes vary widely from customized work requiring Processes vary widely from customized work requiring skilled workers to mass production performed by highskilled workers to mass production performed by high--speed machines.speed machines.
U.S. producers consist primarily of:U.S. producers consist primarily of:
Integrated manufacturers of either household or office Integrated manufacturers of either household or office furniturefurniture
Assemblers of preAssemblers of pre--cut wood household or cut wood household or upholstered furnitureupholstered furniture
Niche producersNiche producers
US International Trade Commission 2004
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FragmentedFragmented
No firms controlling large market shareNo firms controlling large market share
Limited brand recognition in the marketLimited brand recognition in the market
Products perceived as relatively homogeneousProducts perceived as relatively homogeneous
Strong price competitionStrong price competition
Technology available for all firmsTechnology available for all firms
No sustainable competitive advantageNo sustainable competitive advantage
The U.S. Furniture Industry
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Source: Mann, Armistead & Epperson, Ltd., Investment Bankers & Advisors
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U.S. Furniture Industry TrendsManufacturers have overcome initial resistance Manufacturers have overcome initial resistance to eBusiness to avoid losing business to to eBusiness to avoid losing business to competing virtual retailers.competing virtual retailers.
East Asian producers have opened assembly East Asian producers have opened assembly /production facilities in the United States for mid/production facilities in the United States for mid--toto--upper priced, fullyupper priced, fully--assembled wood assembled wood household furniture. household furniture.
Higher profit margins in this segment are driving Higher profit margins in this segment are driving this strategy, although the lowerthis strategy, although the lower--priced segment priced segment remains dominated by imports from East Asian remains dominated by imports from East Asian manufacturers.manufacturers.
US International Trade Commission 2004
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U.S Furniture Industry Trends
High transportation costs for fullyHigh transportation costs for fully--assembled assembled furniture greatly reduces the cost furniture greatly reduces the cost competitiveness of U.S. furniture in other competitiveness of U.S. furniture in other markets.markets.
To service more distant markets, several U.S. To service more distant markets, several U.S. producers of office furniture and a few U.S. producers of office furniture and a few U.S. household furniture manufacturers have household furniture manufacturers have established fabrication facilities in Europe and established fabrication facilities in Europe and Asia.Asia.
US International Trade Commission 2004
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U.S. Furniture Industry Trends
Impacted by a relatively weak U.S. dollarImpacted by a relatively weak U.S. dollar
A decade ago, 26% of all residential wood furniture A decade ago, 26% of all residential wood furniture sold in the U.S. was importedsold in the U.S. was imported
#1 Taiwan #1 Taiwan
#2 Canada#2 Canada
Imports now represent ~60% of wood household Imports now represent ~60% of wood household furniture sold to U.S. consumersfurniture sold to U.S. consumers
Source: Mann, Armistead & Epperson, Ltd., Investment Bankers & Advisors
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Sources: U.S. Commerce, Bur. Census, Intl. Trade Div., Wash., DC
Household furniture markets aredominated by imports
0%
10%
20%
30%
40%
50%
60%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
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U.S. Wood Household Furniture Trade Deficit Escalated since the early 90’s
Billions of U.S. dollars$0 $2 $4 $6 $8 $10
$1.82$1.68$1.69
$2.06$2.49$2.64
$3.07$3.50
$4.64$5.67
$6.77$6.99
$8.53
1990199119921993199419951996199719981999200020012002
Source: Buehlmann and Schuler 2004
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Tremendous impact…North Carolina Furniture Industry Employment Trend
1980-2003
Source: U. Nwagbare, NC Dept. of Commerce, NC Employment Security Commission
82,000
58,000
Loss of 24,000 jobs
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Source: Buehlmann and Schuler 2004
Typical North Carolina Furniture Manufacturing Facility
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U.S. Lumber Exports
Source: U.S.D.C. and Bumgardner
MMBF
0
2040
6080
100
120
140
160
180
200
81 83 85 87 89 91 93 95 97 99 01
Japan Taiwan China/HK
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Lacquercraft Shanghai is world’slargest furniture plant—4.5 Million Square Feet
Source: Morgan Keegan, January 2004
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Molding, Millwork, Flooring
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Molding, Millwork, Flooring
Windows, window parts, doors, door parts, Windows, window parts, doors, door parts, wood moldingswood moldings
Higher grades of lumberHigher grades of lumber
Threats:Threats:ImportsImportsSubstitute materialsSubstitute materials
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Domestic molding markets are being attacked by imports and substitutes
0%
20%
40%
60%
80%
100%89 90 91 92 93 94 95 96 97 98 99
2000 1 2 3
US Produced Wood Moldings Imported Wood Moldings
MDF/Plastic MoldingsSource: R. Taylor, WMM, 2004
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U.S. Hardwood Molding ImportsMillion $
Source: R. Taylor, WMM, 2004
•Import market share currently about 30%, up from 22% in late 90’s.
•U.S. now imports 14X as much as it exports
$0
$50
$100
$150
$200
$250
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Total South America China Canada
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U.S. Hardwood Flooring ImportsMillion $
- Flooring Import market share now about 13% - Up from 7% in late 90’s. - U.S. now imports 3X as much as it exports
$0
$50
$100
$150
$200
$250
$300
$350
$400
1990
1992
1994
1996
1998
2000
2002
2004
Total Europe ChinaSource: R. Taylor, WMM, 2004
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Office Furniture
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Labor-A Competitive AdvantageU.S. : $20.00 /hr
Source : Morgan Keegan, Janvier 2004
Vietnam: $0.25 /hrChina: $0.32 /hr
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Challenges and Opportunities for The Balkan Countries
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• Albania• Bosnia and Herzegovina• Bulgaria• Croatia• Former Yugoslav Republic of Macedonia• Romania• Serbia and Montenegro• Slovenia
Challenges and Opportunitiesfor Participating Balkan Countries
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Romania52.5%Slovenia
26.4%
Bulgaria16.0%
Croatia2.7%
Bosnia and Herzegovina1.2% Serbia and Montenegro
0.7%Albania
0.4%
Balkan CountriesWood Products Exports to the U.S.
(2001-2005)Total = US $36.4 Million
U.S. Department of Agriculture-Foreign Agricultural Service
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Romania
Slovenia
Bulgaria
Croatia
Bosnia and Herzegovina
Serbia and MontenegroAlbania
0
2
4
6
8
10
12$U
S M
illion
20012002200320042005
Balkan Countries Wood Products Exports to the U.S. (2001-2005)
U.S. Department of Agriculture-Foreign Agricultural Service
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Albania
Balkan Countries Wood Products Exports to the U.S. (2001-2005)
U.S. Department of Agriculture-Foreign Agricultural Service
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Bosnia and Herzegovina
Balkan Countries Wood Products Exports to the U.S. (2001-2005)
U.S. Department of Agriculture-Foreign Agricultural Service
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Balkan Countries Wood Products Exports to the U.S. (2001-2005)
Bulgaria
U.S. Department of Agriculture-Foreign Agricultural Service
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Balkan Countries Wood Products Exports to the U.S. (2001-2005)
Croatia
U.S. Department of Agriculture-Foreign Agricultural Service
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Balkan Countries Wood Products Exports to the U.S. (2001-2005)
Romania
U.S. Department of Agriculture-Foreign Agricultural Service
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Balkan Countries Wood Products Exports to the U.S. (2001-2005)
Serbia and Montenegro
U.S. Department of Agriculture-Foreign Agricultural Service
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Balkan Countries Wood Products Exports to the U.S. (2001-2005)
Slovenia
U.S. Department of Agriculture-Foreign Agricultural Service
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Common Challenges
Exploitation of forestsExploitation of forestsIllegal logging and tradeIllegal logging and tradeExport of commodity forest productsExport of commodity forest productsOverdependence on popular speciesOverdependence on popular speciesInefficient utilization of wood raw materialInefficient utilization of wood raw materialLack of marketing expertiseLack of marketing expertise
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Recommendations
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From the forest….
A Integrated Approach
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A Integrated Approach
Or from plantations….
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A Integrated Approach
To the mill….
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A Integrated Approach
To primary products….
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A Integrated Approach
To value-added products.
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Potential competitive advantage for certified wood Potential competitive advantage for certified wood products.products.Focus on key target markets Focus on key target markets Develop formal organizational structures to Develop formal organizational structures to coordinate export activities.coordinate export activities.Conduct national SWOT analysis to identify Conduct national SWOT analysis to identify specific weaknesses and strengths.specific weaknesses and strengths.
valuevalue--chainchainproduction processesproduction processesexport mechanismsexport mechanismsPoliciesPoliciescompetitive environmentcompetitive environment
Recommendations
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Gazo and Quesada 2005
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Questions?
LouisianaForestProductsDevelopmentCenter
LouisianaForestProductsDevelopmentCenter
Richard P. Vlosky, Ph.D., FIWSc.Director, Louisiana Forest Products Development Center
Professor, Forest Products MarketingSchool of Renewable Natural Resources
Louisiana State University Agricultural CenterBaton Rouge, LA 70803Phone: (225) 578-4527
Fax: (225) 578-4251Email: [email protected]
URL: www.rnr.lsu.edu/lfpdc