Tough Times

In our annual measurement of the $39.7 billion retail in-store development industry, we've found that it contracted by $1.9 billion in 2002.

That's a drop of 4.6 percent – though an improvement from a year ago, when it declined 8.8 percent from 2000 to 2001.

Looking out into 2003, we continue to defy the skeptics and remain modestly bullish, with our estimate that the industry will recover by 2.25 percent (though that's revised downward from earlier estimates of 3 percent growth). But we continue to see difficult times ahead for the store fixture manufacturing business.

For 2002, the five largest components of the retail in-store development industry did not fare well: point-of-purchase (a $13.6 billion industry) dropped 7.5 percent; store fixtures ($7.57 billion) dropped 6.5 percent; electrical and interior lighting ($4.7 billion) was up slightly under 1 percent; finishes, including walls, floors, ceilings ($3.6 billion), was essentially flat; and general conditions ($2.6 billion) – which is contractor operating costs – was also essentially flat.

In addition to intense top-line sales challenges, industry margins continue to be challenged. And this margin pressure is starting to take a serious toll on the industry. For the first quarter of 2003, six businesses either closed down completely or shut production facilities, while two others filed for Chapter 11 bankruptcy protection. This follows a difficult fourth quarter of 2002, which witnessed five businesses that either closed production facilities or shut down entirely and another one that filed for Chapter 11. We expect more of the same for the balance of 2003.

As we earlier projected, the store fixture industry has been particularly hard-hit, and at the very highest levels. RHC/Spacemaster Corp. and Oklahoma Fixture Co., two of the industry's 10 largest manufacturers, recently declared bankruptcy. OSF Inc., another of the largest players, closed its custom wood and custom metal divisions. And yet another, idX Corp., closed its Proco Wood and Target Woodworks operations.

Pan-Oston Co. and Store Kraft Manufacturing Co. closed facilities. And Entolo, Freely, Vail Wire and Steel, Hare Enterprises, Continental Store Fixture and PermaGrain Products ceased operating.

This challenging economic environment will further accelerate the ongoing industry-wide consolidation. Recently, Fasteners For Retail Inc. acquired Midwest Fixtures Group; Madix Store Fixtures acquired Spencer Products; NS Studios merged with Miller Multiplex; and Mason Corp. was acquired by Colony Display.

For the longer term, stability will return to a changing industry that is dominated by a handful of manufacturers and agencies. For retailers, I believe, the result will be larger, more diverse suppliers with more stable balance sheets.