Squeeze, saturation, confusion, and opportunity proved to be more than buzzwords at Principia’s Composite Decking & Railing Conference in Atlanta Oct. 22-23. Decking contractors, product manufacturers, and a handful of dealers gathered to discuss the state of the decking market at a time when homeowners are beginning to invest again in their homes.
“The evolution of this industry is based on innovation,” Principia principal and event keynoter Steve Van Kouteren told attendees. “The lifeblood of this industry is innovation.” However, that same innovation is also driving the product differentiation, particularly in capped composite products, that many say is bolstering competition and diminishing margins for dealers.
As investors gain confidence in the housing market, the entire supply chain should expect sales to grow for more new and replacement decks. A survey by Principia of dealers nationwide found that eight in 10 dealers expect composite decking sales increase in 2012 by an average of 5%. Looking ahead to 2013, nine in 10 expect sales to increase by an average of 7%. Van Kouteren says the industry could stand to gain 5% market share from wood (or, $320 million) by replacing homeowner’s wood decks with synthetic versions.
But a squeezed distribution channel could hinder dealers from realizing this growth. Dealers continue to keep inventory levels low and a saturated market is driving competition that’s diminishing profitable margins—although that could soon change as more than 60% of dealers surveyed by Principia said they plan to stock more product in the near-term
According to Principia’s figures, the top five composite decking suppliers account for 87% of the market in 2012, up from 65% in 2004; the top 20 suppliers make up 99.5% of the market. Wood still leads the $3.5-billion decking market with 59% market share. Composites take 24% while “other plastics” such as PVC have 10%. Add in the value of railings, fasteners, accessories, and the substructure and the market’s total retail value is nearly $10 billion.
Still, manufacturers trying to enter the market and dealers looking to pick up a new product line should heed Van Kouteren’s warning: “Everybody is partnered up,” he said. “Suppliers are with distributors who are with dealers, and they’re all at the dance. Getting to the dance is very difficult if you’re a new supplier or they are trying to get your product to market. The big guys are partnered and they are moving the most composite decking and railing in North America.”
Big boxes in particular move about one-third of the volume of composite decking and railing through five or six suppliers, he said, adding that the recent combination of industry PVC- and composite-makers AZEK and TimberTech should help drive industry-wide competitive growth.
"There’s one thing we don’t need in this industry and that’s a race to the bottom,” Van Kouteren said. “Margins must be maintained in this business and the way to do it is driving the channel, working with suppliers, working with customers—educating, educating.”
Correction: A previous version of this story said Principia's survey found that eight in 10 dealers saw composite decking sales increase in 2012 with margins at approximately 5%. That is incorrect. The survey found that dealers expect composite decking sales to increase in 2012 by an average of 5%. The story also has been corrected to show that the top five composite decking suppliers account for 87% of the decking market in 2012, not 80% as previously stated. We regret the errors.