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Outlook 2003

Surviving the Year Ahead
There are rewards to be had, but they won't come easy.


All indications are the window coverings and interior fashions industries have a rough road ahead—but it’s not impassable. The U.S. economy is expected to grow, although it’s expected to be slow to moderate at best. There is a renewed interest in comfort and style for the home, but a surplus of products means more competition for every sale.

Top industry leaders seem to agree that differentiation is the key to success in the year ahead. In some cases, that means technological innovations are giving some products an edge in the marketplace. In other cases it means offering exclusive products or services that customers will want but can’t find everywhere.

There are rewards to be earned in 2003, they say, for companies that plan ahead, stay innovative and concentrate on customer service.

PLANNING AN ABSOLUTE MUST
Jim Mathews
Vice President of Corporate Marketing
Hunter Douglas

Have a plan and work the plan in 2003! This applies as much to retail dealers and decorators as to fabricators and manufacturers because 2003 promises to be no less challenging than 2002. Those who are the best trained and best prepared will prosper, regardless of the economic climate.

To help our dealers take advantage of opportunities for growth in a tough economy, Hunter Douglas has prepared earlier, and we believe better, for the year ahead. We have streamlined the number of program offerings and strengthened those that are most rewarding and popular with our dealers, like the Windows To The World dealer travel incentive program and the Business Planner. Helping dealers help themselves is the guiding principle of this year’s Business Planner, which provides them with the necessary tools to define the strengths of their businesses as well as the areas that need improvement, so that they can build their own targeted action plans with their fabricators.

In the months ahead, we also hope to strengthen the alliance program offerings for our growing network of Priority Dealers and Window Fashions Gallery® Dealers. We’ll be giving them the opportunity to participate in a customized direct-mail/freestanding insert program and providing them with hundreds of thousands of consumer referrals through leads generated by our extensive consumer advertising campaign and the Hunter Douglas Web site.

We’ll also be training dealers and providing incentives for them to sell more of our high-end, proprietary “ette” products through a promotional program called Ettesclusively™ Hunter Douglas. Our Duette®, Luminette®, Silhouette® and Vignette® products provide our dealers with far greater profit potential on each sale than do than many of the more common window coverings, and they offer a number of important and unique benefits to the consumer, as well.

To sum it up, Hunter Douglas is more committed than ever to supporting the independent specialty dealer; however, to take advantage of the many programs Hunter Douglas is offering, each dealer will have to fully develop a specific plan of attack with his or her full-line fabricator.

PRODUCT INNOVATIONS KEY TO
CONSUMERS
Mike Landau
Vice President, Marketing and Sales
Brewster Wallcovering Co.

Many signs indicate that wall covering is making a resurgence in the decorating product mix. According to industry sources, fabric and pattern appear to be growing in popularity with the design community, which bodes well for wallpaper. We also continue to see increased visibility for wallpaper in consumer home shelter publications, interior design trades, in print ads, in newspapers and on television.

The wall covering industry continues to make great strides in product innovations, most especially improved strippability characteristics, which go a long way with winning back consumer confidence in wallpaper. Manufacturing wallpaper products that go on and off easily goes a long way with consumers. On the technology front, Brewster will become more involved with digital printing for murals and borders.

New, attractive in-store displays for the Brewster Home Fashions program have been produced to feature our coordinating accessories such as window treatments, shower curtains, chair pads and throw pillows. These Brewster Home Fashion displays will appear in dealers’ stores in the early part of the first quarter of the year and are a great resource for consumers as a one-stop decorating center.

REDISCOVERING WARMTH, COMFORT, SECURITY
Tom Perkowitz
Director of Marketing
B & W. Mfg.

The world has changed a lot in the last few years. What does all this have to do with window fashions? Let me tell you: it’s impacting what type of treatments people are buying. Think about what you were selling in the previous decade or two. Modern-looking treatments like vertical blinds, mini-blinds and pleated shades were everywhere. Even the names, like “cellular shades,” sounded modern and electronic. If that trend continued, we would have a very different outlook for 2003. I would be telling you about the hot new computer-controlled hologram shades.

The strange events of the last few years have changed everything. There is an increased need for warmth, comfort and security. This need is reflected in what people are putting on their windows. Customers are moving away from cold metal and hard plastic window treatments. They want the warmth that comes from natural materials like wood and fabric.

The big secret is out: natural shades, also known as woven woods, are red hot. They are the fastest growing segment in the window coverings industry. The weaves in all of the exotic materials like ramen, jute, reeds, grasses and arakaria are strange and new while simultaneously nostalgic and familiar. Natural shades are everywhere.

It’s difficult to watch a contemporary movie or evening of television and not see a natural shade in the background. Even in The Sopranos, the most popular television series today, Meadow Soprano’s ultra-cool apartment features natural shades on the windows.

Which came first? Is Hollywood merely reflecting the current trend in window fashions or are they causing it? Maybe it’s a little of both. Either way, they are giving us all plenty of free advertising.

In 2003 and beyond, I cannot imagine the desire for warmth, comfort and security going away. You don’t have to be Nostradamus to predict that the astounding growth in natural shades will continue, but what other products will shine? All of my indicators point to traditional shades, but not the sheets of thin plastic on cardboard rollers that you get at the hardware store. My money is on custom roller shades, flat Roman shades and hobbled shades. With all of the elegant and imaginative shade fabrics coming from all over the world combined with the familiarity of the design, Americans are already rediscovering this product.

FIGHT PRICE WARS WITH BETTER TECHNOLOGY, IMPROVED PRODUCTS
Jon Vrielink
President
BTX Window Automation

In recent times of economic and political uncertainty, unfortunately, many industries in North America have suffered a slowdown. Thus far the housing industry, however, has held up nicely and, as a consequence, the window coverings industry overall has been able to hold its own. But, as more products start chasing the same dollar, the pressure will be on pricing.

One way to combat the trend is by offering better technology and improved product. Technology in automation is continuing its advance. In 2003, we expect that an increasing proportion of window coverings customers will start demanding the modern conveniences of motorization.

This is especially true for the more demanding applications. Whereas customers may be inclined to save money on regular-sized lift and roller systems by going manual, the somewhat larger and more demanding applications are strongly moving in the direction of automation.

Decorators and designers, ever more recognizing the need to satisfy their customers’ demands for maximum comfort and reliability, are increasingly consulting our technical staff for automation solutions. As the leader in large automated traversing, roller and lift systems, BTX experienced an overall growth level of 15 percent in 2002. We expect to substantially increase that percentage in 2003.

EXPAND PRODUCT LINES, OFFER EXCLUSIVITY
Moe Rouzati
President and CEO
Aveno Window Fashions, Inc.

Part of Aveno’s ongoing commitment to creating a culture of innovation is tempering rapid corporate growth with customer service and quality control. In 2002, Aveno launched an organization-wide quality control program that proved highly successful. We plan on continuing our quality control program in 2003 and beyond, because we believe the program is integral to creating the type of intimate, steadfast partnerships with our dealers that lead to greater success in the marketplace.

Shutters, woven woods and bamboo shades are very hot trends in the marketplace right now, representing the fastest growing product categories for the window treatments industry. Expecting their popularity to increase, Aveno has expanded the Tropical Wovens™ product line to include even more exclusive patterns for 2003. Updated sampling will be available early in 2003 to highlight these exclusive additions to the Aveno Tropical Wovens collection. We are additionally excited to be premiering two innovative new shutter models at the 2003 International Window Coverings Expo in Baltimore, MD.

To meet the growing needs of our valued interior designers, decorators and homeowners, Aveno will also be launching several new and expanded product collections in 2003 to include: new pleated shades, roller shades and vertical sheer collections, as well as expanded cellular shades, horizontal blinds and shutter collections. Always at the forefront of product development, look for Aveno to revolutionize the window coverings industry again in 2003. We welcome your comments and ideas.

FOCUS ON DESIGN
Lisa Altman
Director of Marketing
Caldwell/VSR, Inc.

Simple. Serene. Stress-free. The same adjectives used to describe the ideal evening at home also can be used when talking about this year's trends in interior design.

More so than ever, consumers are viewing their homes as a much-needed retreat from the busy, hostile world around them as well as a reflection of their personal tastes and preferences. Gone are the formal, sterile living rooms of the past. In their place are very comfortable, livable family areas that exude warmth and encourage relaxation.

Consumers are listening to their deep-seated desires to get back to nature and back to basics. At the end of a busy day, people want to come home to a place that is warm, inviting and soothing.

At Caldwell/VSR we are experiencing significant and steady growth in our stain and specialty finish categories. Finishes that are warm, rich and deep in color. We believe consumers have grown tired of the stark white walls and window coverings. At one time this look was in great demand. Now customers are stepping out, trying bolder colors, textures and patterns and are discovering that decorating really can be reflective of their own tastes and lifestyles.

With so much decorating know-how out there in the mass media, cable TV, books and magazines, consumers now are well educated. They know what they want and they shop around based on price as well as convenience.

I believe for commodity products we will continue to see the Internet/dealer business as strong as ever. Consumers enjoy the ease of ordering coupled with the fast delivery. These types of products are easy to visualize and are low cost thus becoming convenient for the consumer. I believe the market cannot survive on commodity products alone. The low margins have become too small and too many companies are fighting over the same dollar. To overcome the price wars, companies must develop, market and sell unique, differentiated products. At Caldwell/VSR we have created some beautiful, specialty finishes that compliment the higher end furniture finishes.

Unique differentiated looks may take more sales finesse and time in selling, but the ultimate look is one of uniqueness, quality and good design. It creates a look for a customer that is uniquely theirs and, in addition, the dealer and fabricator can increase their margins along the way.

GET BACK TO BASICS
Daron Hopkins
Partner
Timber Blind & Shutter

In 2002 the two-inch products had the largest growth by far. Looking ahead through the end of 2003, we expect to see high growth in 2 1/2-inch products, which are now available in faux wood, composite and wood. With shutters, in the recent months we have seen steady growth in wood and record growth in PVC.

The key to thriving and staying competitive is focusing on the basics of superior service, higher quality, quicker delivery and competitive pricing. If we do these basic things, we will keep our customers loyal and win over new customers.

As a consumer gets more knowledgeable and educated about our industry, Internet businesses will grow and compete more with the Big Box stores. We have new merchandising tools available in 2003 that will be customized for each individual store. This format will enable storefront dealers to spend less money out of pocket to update their stores efficiently and grow profits.

INTEGRATE TECHNOLOGY
Tom Robinson
Vice President Sales and Marketing
Lafayette Interior Fashions

In my opinion, the independent retailer is still the major force in the window coverings industry. The most significant threat to that is the lack of computer aptitude and merchandising expertise. In order to maintain that position of prominence, the independent dealer must evolve with the industry. Otherwise, the channels of distribution will change dramatically in the next few years.

Those independent retailers that add a lot of value, present a full range of products and exhibit extensive product knowledge will be most successful in influencing buyers’ decisions. They also must consider creating an environment in their stores that demonstrates with a compelling statement the variety of choices available to the consumer. In other words, you can’t just slap some blinds up on the walls and expect to make a statement to the consumer. Planning and a well thought out display will make an incredible difference.

Regarding shop-at-home, it is my opinion that the shop-at-home salesperson should do significant research on the best window coverings Web sites and, in fact, encourage their customers to visit those sites before even going to their homes. This process will give the consumers the ability to narrow down their choices thereby making the entire selling process much easier. The key to this is to insure the Web sites you recommend are constructed to support the independent retailer.

On the subject of products, I think the growth in 2003 will come from sheer looks, shutters and faux wood products. Aluminum and vertical blinds continue to decline and the growth in honeycomb/cellular products is modest at best. There seems to be a slight resurgence of interest in soft window coverings for pinch pleated draperies, although at this point it is in its early stages and difficult to forecast.

The most significant thing the independent dealer can do is to figure out who they are, put together a simple business plan, stick with it and be ready for a challenging year.

FILL AND EXPLOIT NICHE POSITIONS
Viken Ohanesian
Vice President of Marketing
US Polymers

What lies ahead? What can the window coverings industry expect to see in the 12 months ahead? There continues to be a growing demand in the shutter category. While many dealers and fabricators are getting into the shutter business, demand continues to outstrip supply.

In the year ahead, the greatest success will be among those who carve out a distinct niche for themselves. What does this mean? Dealers and fabricators should offer their customers a shutter package that is different than what everyone else has. For example, with the recent introduction of inexpensive shutters partially coated in a polyethylene skin from China, many dealers and fabricators are suddenly selling the same exact product with the same production time. Eventually, who’s the winner? The one who sells at the lowest price.

Smart dealers and fabricators should pursue unique and different offerings. Some examples include: vinyl-clad wood shutters that are distinct, high-quality and amazingly affordable or the polyfoam shutter, although this shutter tends to be a little pricey.

In addition, there remains a great opportunity for quick delivery of shutters—in days, not months. This easily can be accomplished with vinyl-clad wood or other vinyl shutters. The opportunities are there and, as always, success awaits those who recognize a niche position and exploit it.

THREE AREAS OF CONCENTRATION
John Fitzgerald
Executive Vice President
Comfortex Window Fashions

Our forecast is that 2003 will be a year of moderate U.S. economic growth in the beginning of the year and stronger growth in the later part of the year. This will be fueled by continued low interest rates and a federal economic stimulus package that should be in place in mid-2003. We do not expect to see the explosive home value appreciation that occurred in 2002, yet the new housing market should remain strong due to low interest rates.

The International marketplace is also expected to experience moderate to low growth. Major countries such as Brazil, Germany and Japan are expected to have moderate growth, with the exception of Canada, which is expected to experience stronger than average economic expansion.

Given these factors, the marketplace will require that U.S. custom window fashion companies focus on three areas in 2003: customer service, product innovation and expense control.

Given that the custom window fashions category in total will experience moderate growth, there will continue to be excess capacity at the fabricator level. This excessive capacity will provide the independent dealer with numerous choices to source more of our industry’s “commodity” type products, which represent a major share of the custom hard window treatment industry. These product categories include wood blinds, faux wood blinds, verticals and mini-blinds and, in some markets, standard pleated and cellular shades.

This range of product selection for the window fashions dealer will require that fabricators deliver product at highly competitively prices, on time and mistake-free. In this environment, the customer service delivered through the Internet—including easy-to-access information and online ordering—will become more prevalent.

Given the emphasis on commodity products and pricing in our industry, the demand for new innovations in product and marketing will become more essential. To accelerate growth and provide our dealers with a greater competitive advantage, we expect to launch a number of new innovative product extensions and new product categories that will fuel growth for years to come. Product innovation in existing industry categories utilizing new technologies for shutters and blinds are expected to generate significant new demand for us. In addition, re-inventing major stagnant categories such as verticals will provide our company with an opportunity for substantial growth.

Consumers will increasingly expect products to do more, last longer and be available at a lower price. Therefore, product innovation also will be needed in smaller areas such as operating system upgrades, new designer options, and new styles and colors to differentiate products in the marketplace.

The third area of focus for our industry will need to be on operating efficiency. The cost of hiring and maintaining quality employees, health and medical insurance costs, shipping and delivering costs, plastic costs and transportation costs are all expected to rise faster than overall industry sales in 2003. So dealers and fabricators must become more efficient in order processing, logistics, inventory management and delivery to avoid suffering profit margin erosion.

In summary, 2003 should be a good year for our industry, yet one that will not come easy. The need to focus on fundamentals and on integrating new innovations into every company’s product and service offering will separate the winners from the less profitable companies. Our long-term strategic focus on partnerships, product innovations and employee development will provide our company with the platform for sustained profitable growth for our customers.