This page was printed from https://advancedtextilessource.com

The State of the U.S. and Canadian fabric industry

January 12th, 2015 / By: / Feature

The U.S. outpaces an otherwise uneven worldwide economic recovery in 2014.

Eventstar Structures Corp., Miami, Fla., received an International Achievement Award of Excellence for this enclosed structure for an entertainment event in New York City. The project met High-Velocity Hurricane Zone requirements. The market for large commercial tents and structures has shown modest growth in the past year.   Photo: Evenstar.
Eventstar Structures Corp., Miami, Fla., received an International Achievement Award of Excellence for this enclosed structure for an entertainment event in Miami, Fla. The project met High-Velocity Hurricane Zone requirements. The market for large commercial tents and structures has shown modest growth in the past year. Photo: Evenstar.

It was a recovery year, to be sure, but an uneven global rebound kept the lid on the world economy. After a slow first quarter, economic activity in the U.S. picked up in 2014, with improved consumer spending due to lower unemployment and a strong uptick in consumer confidence. Much of the slow growth in the first quarter was due to a harsh winter leading to a shortened selling season for specialty fabric markets like awnings and marine.

Economic growth in the 18-nation Eurozone was 1.2 percent in the first quarter of 2014; however, GDP for 2014 slipped to 0.8 percent and is projected to reach 1.3 percent in 2015. Entering the fourth quarter of 2014 and into 2015, economic performance in the euro area has created concern that it may slip into a triple-dip recession, and there are fears it may fall into deflation. Seven euro area countries are forecast to have public-debt-to-GDP ratios of more than 100 percent in 2015; the proportion of loans in default is rising in Portugal, Italy and Greece.

Similar to the U.S., China experienced weak economic activity in the first quarter of 2014. In response, Chinese leadership implemented measures to stimulate growth. Measures included tax relief for small to medium size companies and accelerated infrastructure spending. The measures helped support faster growth in the second quarter. Yet China’s growth, at 7.4 percent for 2014, was the slowest since 2009; growth is expected to decrease to 7.1 percent in 2015 as Chinese leadership tries to move its economy to a more sustainable path.

For the last three quarters of the year in 2013 and 2014, the U.S. has been an economic island, showing noticeable improvement in comparison to other major economies around the world. This has been proven by its steadily improving growth in GDP, the improving job market and increased consumer confidence and spending, while most other regions—China, Japan and Europe—have endured economic slowdowns. Overall, the impact of these slowdowns has constrained growth in the worldwide economy, including specialty fabrics.

KEY U.S. MARKETS

IFAI serves 11 U.S. markets in the specialty fabrics industry. Five will be covered in this article and six will be covered in Part II of this report, which will run in the February issue. This article looks at awnings and canopies, marine, tents, fabric structures and fabric graphics.

All but one of the traditional end product market segments that IFAI monitors regularly achieved single-digit sales growth in 2014. Marine fabrics top the list of market segments, growing a healthy 7 percent. Investing in state-of-the-art equipment, lean and quality improvement manufacturing practices, training staff and improved marketing efforts targeting the customer have helped many businesses increase sales and profit margins.

Many successful companies in 2014 invested substantial funds into ramping up their logistics/supply chain to find ways to improve the value they provide to their customers, while achieving cost savings. The result has been a savings in transaction costs for their customers. They’ve also experienced an enhancement in customer satisfaction because they’ve drastically reduced the time it takes to complete transactions, cutting down on paperwork and “red tape.”

Gradual growth

The world market for specialty fabrics grew about 2.6 percent in 2014 and is expected to achieve sales growth of about 2.8 percent in 2015. Constraints on global growth in the 2014 specialty fabrics market were largely attributable to a growth rate of 3.3 percent in worldwide GDP; this was down from its initial projection of 3.7 percent in April 2014.

Growth in the U.S. specialty fabrics industry was about 2.2 percent in 2014. It is expected to be 2.7 percent in 2015. The 2015 growth rate will depend on the continuation of a decreasing unemployment rate, an increase in consumer spending and a more robust GDP in the first quarter—poor first quarters in 2013 and 2014 dampened consumer demand in the U.S. and across the world.

Despite the improvements in the unemployment rate in 2014, consumers are still cautious about their spending habits. They continue to think about job security and their ability to make ends meet. Nonetheless, an increase in the release of pent-up demand in 2015 is expected, which will result in key economic figures improving:

  • U.S. GDP increasing from 2.2 percent in 2014 to 2.8 percent in 2015
  • U.S. housing market. Housing starts are projected to increase 19 percent in 2015.
  • Continued reduction in the U.S. unemployment rate. It was 6.3 percent in 2014, an improvement of 1.1 percentage points above the 2013 figure when unemployment was 7.4 percent. It is projected to decrease to 5.5 percent in 2015, but with a caveat: the decline in the unemployment rate is due to growth in lower-paying service jobs instead of traditional growth in goods-producing industries. This trend, however, is gradually declining as higher-paying jobs are created.
  • Increase in U.S. consumer spending from 2.2 percent in 2014 to 2.5 percent in 2015.

Awnings and canopies markets

In 2014, growth was up 1 percent in the U.S. end product manufacturer (EPM) market. Factors contributing to the growth included an estimated 7 percent improvement in housing starts as well as an increase of nearly 6 percent in existing home values in 2014. New home sales rose 4 percent in 2014, but they’re expected to increase 25 percent in 2015. Housing starts are expected to increase by 20 percent to 1.2 million, after an increase of 7 percent in 2014.

The modest single-digit rise in home values (and, subsequently, home equity) has many home owners delaying the sale of their homes. Some have chosen to remodel instead, hoping to capitalize on more robust housing prices in the future.

According to the National Association of Home Builders Remodeling Market Index (RMI), the RMI figure for third quarter 2014 was 57. This is the sixth consecutive quarter a RMI reading was more than 50, which indicates more remodelers reporting an increase in market activity than those reporting a decline. Most remodelers are confident the remodeling market is improving because home owners are undertaking renovations large and small. The consistency and longevity of positive RMI readings are in line with the gradual recovery of the housing industry.

Construction activity increased modestly in 2014, with total U.S. construction up 6 percent over 2013. For 2014, total fabric consumed for awnings and canopies by U.S./Canadian end product manufacturers reached 28.6 million square yards, a 1 percent increase compared to 2013. For 2015, IFAI projects about a 2 percent increase in fabric consumption by U.S./Canadian awning and canopy manufacturers. Total sales are forecast to reach 29.2 million square yards.

The unusually long, cold and wet spring in the U.S. and Canada shortened the start of the selling season for awnings and subsequently dampened awning sales in 2014. Another impediment was the accelerated growth in metal awnings sold in the U.S., representing about 18 percent of all awnings sold. Fabric awnings represented about 80 percent; the remaining 2 percent of awnings sold was from other materials.

Awnings and canopies outlook. In a survey conducted in October 2014, 75 percent of U.S. and Canadian awning suppliers expected business in 2015 to be better than in 2014. Buttressing their improved outlook is a vastly improved consumer confidence index in 2014, averaging 86.9 in 2014, almost 14 points higher than in 2013. This marks the fourth consecutive year the index has been up since IFAI began tracking it. This is expected to continue into 2015.

In 2015, a steadily growing economy, modest increases in home values, lower unemployment and hopefully an earlier start to the selling season should lead to at least a 2 percent increase in sales in the awning market in 2015.

Marine markets

Traditional power boat sales increased 6 percent in 2014. Total pre-owned boat sales increased the same percentage in 2014 over 2013. Marine aftermarket accessories sales reached $4.9 billion in 2013.

Gas prices in the U.S. dropped significantly in the second half of 2014 and consumer spending was higher—factors that will help to fuel mid to high single-digit growth for the U.S. recreational boating industry. More people are taking to the water, as well: 89 million Americans went boating in 2013 and about 90 million went in 2014. According to the National Marine Manufacturers Association, these are the highest levels of participation in recreational boating ever recorded.

Exciting innovations in new boats were noticeable in 2013 and 2014. Manufacturers introduced features such as electric retractable shades, hydraulic seats that can be moved around the deck depending on the activity, and joy-stick docking that allows boat drivers to control the boat as if they’re playing a video game.

In terms of unit sales for 2014, OEM boat manufacturers saw a 2–3 percent increase in new boat sales—excluding the sales of canoes and kayaks. For 2015, they project new boat sales will grow around 3 percent.

Marine market outlook. The 2014 U.S./Canadian marine fabric end product market grew 7 percent to 24.9 million square yards. Sales in the marine fabric market should continue to grow at 7–8 percent in 2015, reaching 26.7 million square yards. Gradual improvement in the U.S. and world economy in 2015 will propel this growth. Support will also come from a slow but steady increase in new boat sales, as well as a 2–3 percent sales increase in pre-owned boats and the re-cover market.

Tent manufacturer and rental

This is a splintered, competitive market. Thousands of companies in the market are competing for events to rent tents and tent-related equipment. The U.S. EPM market was 22.3 million square yards in 2014 and is projected to be 23.4 million square yards in 2015.

The party and event rental market grew 7 percent in 2014 and it is expected to grow by 8 percent in 2015. The corporate event market improved again in 2014. It is estimated to have grown about 2 percent in 2014 and should reach 3 percent growth in 2015. The scope of corporate events, in terms of extravagant expenses, remained scaled back. This trend has gone on for a few years now and is expected to continue in 2015.

Key trends in the tent rental market in 2014 include:

  • Event operators as full-service event professionals. Selling the entire event, offering the tent itself, flooring, lighting, table linens, chairs, tableware and more
  • More demand for enhancements. Enhancements include: elevated flooring, increased lighting (bistro), new types of linens, more liners in tents, greater use of colors in tents and more interest for decorating tents
  • Clearspan growth. In 2014, of the four types of tents that tent rental professionals sell to their customers, clearspans moved from number four in sales to second in sales behind frame tents.
  • Tighter schedules for completing and delivering tents. Lead times for providing tents to customers are getting shorter, so event professionals have had to increase labor and have the ability to provide tents and other goods ready to go.
  • Increased costs. Electricity and lighting costs have doubled or tripled, in some cases.

Tent market outlook. In 2014, tent fabric suppliers and tent manufacturers will introduce new features to the event industry to increase sales by offering tent event professionals high-end tent fabrics and structures, especially for clearspans and frame tents. In the last few years, tent event professionals have done a better job of marketing, efforts that have helped in differentiating their businesses from competitors.

In 2014, much of the sales growth did not necessarily come from renting tents but from renting add-ons, such as flooring, lighting and tables. Corporate events showed a noticeable comeback in 2014. Weddings, especially high-end weddings, showed strong growth in 2014 and should continue this pattern in 2015. Look for corporate events to attain their highest growth since the recession in 2009, mirroring U.S. economic growth.

Fabric structures

The U.S. fabric structures market experienced growth of 3 percent in 2014 and is expected to grow 4 percent in 2015. Consumer confidence and subsequent demand is expected to continue an upward climb in 2015 and beyond, propelling increased demand for fabric structures in the U.S. As of 2014, the U.S./Canadian fabric structure market was 10 million square yards at the end product level. It is expected to reach 10.2 million square yards in 2015.

Fabric structures outlook. In an October 2014 IFAI survey, respondents reported they think the U.S./Canadian fabric structures market will be somewhat better in 2015 than it was in 2014.

Trends and opportunities cited for driving improved sales in 2015 included:

  • More available credit
  • More project infrastructure development
  • More awareness among architects for fabrics as an alternative material for both indoor and outdoor structures
  • Greater awareness of retractable fabric structures
  • Increased demand for engineered structures, incorporating more engineering requirements, which has also increased the costs for projects
  • Replacement of aging structures
  • More industrial structures for manufacturing and warehousing
  • More fabric structure organizations are building a trained sales force for selling products
  • The quality of fabric continues to improve: lasting longer, retaining color longer via exposure to elements, especially the sun

Threats cited as posing an impediment to improved sales in 2015 included:

  • Unethical competitors that market and sell too many nonengineered structures
  • Companies that deliver poor quality fabric structures and poor customer service
  • U.S. building codes are much stricter than in other countries
  • Inexpensive imports of ready-made shades from Asia, particularly China
  • Not enough professional sales and marketing in the fabric structures market.

The fabric structures market continues to climb out of its market doldrums of 2008–2009. Product awareness is growing as building structure customers realize the aesthetic quality that fabric structures provides, which can’t be captured by traditional materials.

Corporations are spending more and demanding detailed engineering requirements for fabric structures that are code compliant. More U.S. fabric structure players are growing the fabric structures market by engaging in high visibility structures, such as the membrane structures used for the 2012 London Olympic Games.

Demand for structures should be high for the 2016 Rio de Janeiro Olympic Games, providing opportunities for fabric structure manufacturers worldwide.

Fabric graphics

In 2014, the U.S./Canadian fabric graphics fabricator market experienced a 4 percent increase in sales compared to 2013. In 2014, total fabric consumed by U.S. and Canadian fabric graphics fabricators reached approximately 38.1 million square yards. For 2015, the U.S./Canadian fabric graphics fabricator market is expected to grow another 4 percent, with total fabric consumption forecasted to reach 39.6 million square yards.

Trends. Low-pricing tactics among U.S. some print shop operators in 2014 resulting in more sales but narrowed profit margins. Many print shop operators, however have resisted lowering prices, but have also refrained from passing along price increases to their customers for fear they’d lose business to price-cutting competitors.

An increase in the cost of materials and the growth of low-cost printed fabrics imported from Asia, particularly China have impacted fabric graphics operations. Many EPMs and print shop operators have improved efficiency in their production processes and by investing in faster, more efficient, equipment.

Fabricators and print shops continued to balance their product offerings to their customers in 2014, diversifying into awnings, green banners, banner stands, and faster, more efficient and wider-format printing products, adding applications such as banners in airport terminals, outdoor banner advertising, banners in retail settings, corporate branding banners and soft signage. The trend toward using polyester fabric banners and away from using vinyl (PVC) banners continues.

Fabric graphics outlook. The biggest growth area for fabric graphic applications will likely continue to be in dye sublimation products. Wide format graphics will continue to grow as corporations begin to invest more in product and company promotions and advertising. Noticeable increases in wide-format graphics should also occur in soft signage, especially retail point-of-purchase (POP) signage; more wide-format graphics printing will be done on stretchy fabrics like polyester-spandex for trade shows and indoor/outdoor banners.

Trends and opportunities cited for driving improved sales in 2015 included:

  • More demand for digitally printed graphics on awnings and signage
  • More demand for HP latex substrates
  • More high-end point-of-purchase (POP) substrates
  • Greater interest in creative graphics for awning projects
  • Increase in light box illuminated signage
  • Increase in polyethylene billboard products

Impediments to improved sales in 2015 included:

  • Fabric graphics viewed as too much of a cottage industry; difficult to achieve high volume economies of scale
  • Difficult to warranty digital graphics on awnings because of exposure to outside elements
  • Increased competition in awnings and banners graphics
  • Inexpensive imports from Asia, particularly China
  • Large printing companies investing in technology with better printers that increase throughput and increase production. Smaller print houses are at a cost disadvantage.

Industry outlook

Leaders in the industry, interviewed at IFAI Expo 2014, said they are optimistic about sales prospects for 2015. They feel the economy is going to be much better, with more job growth and greater consumer confidence resulting in additional consumer spending on specialty fabrics. Many plan to increase their capital expenditures in 2015.

EPMs that focus on more proprietary, high-value products and services should achieve solid growth in 2015. High value-added market segments include safety and protection, geosynthetics, smart fabrics, medical textiles and wide-format digital textile printing.

Increased sales will be garnered by those companies that have regularly invested in resources for developing products, entering new markets and exploring ways to get closer to the customer, such as improving their logistics supply chains. Both suppliers and EPMs should experience an improved operating environment as some of the obstacles to growth in the recent past begin to ease, with consumer demand for their products and services growing, and realizing some relief from high raw material costs.

Global demand for OPEC oil in 2015 will be less with its weaker sales growth and the impact of the U.S. shale boom. The U.S. produced more oil in 2014 than it produced in any year in the previous three decades. Energy pundits expect the first half of 2015 to be weak in terms of oil prices. This is great news for fabric producers, who can look forward to lower energy prices and a healthy bump in consumer spending in markets like marine, geosynthetics, truck covers and awnings

Losing sales to foreign competition may ease a bit with a reduction in fabric imports from China, in particular. Credit is expected loosen up more in 2015. Industry participants who actively look for opportunities and exploit them will continue to separate themselves from competitors who do not. Successful companies know they must continue to commit to annual investments such as using lean manufacturing practices, developing innovative products and actively marketing to customers and prospects through trade shows, advertising and promotions.

Jeff Rasmussen is IFAI’s market research director. The full State of the Industry 2015 report will be available later in 2015. Contact him at jcrasmussen@ifai.com or +1 651 225 6967 for more information.