Look for More Decline in 2003

The store fixture industry has undergone contraction in each of the past two years. And we see further decline in 2003.

In 2001, by our estimates, the industry contracted by 11 percent, to $8.1 billion.

For 2002, our preliminary estimate is that the industry will contract a further 7 to 9 percent. Sales are declining and price pressures remain extreme. For example, the National Association of Store Fixture Manufacturers (NASFM) found that the average fixture firm's operating profits declined by 37 percent in 2001.

Many in the industry foresee 2003 as “flat to slightly improved.” They cite, among other things, an economy bound to rebound. And the pent-up demand by retailers should result in the industry returning to its historic equilibrium.

We disagree. The store fixture industry suffers from a variety of challenges, both internal to the industry and from external influences resulting from changing demand in the retail customer base.

The internal issues:

* Excess capacity continues to be a problem. The negative impact of this is multiplied by enhancements in productivity, on the one hand, and increased foreign competition, on the other.

* The industry has, for the most part, allowed its products to become viewed as interchangeable commodities in the minds of its customers.

* The fact that most of these manufacturing companies are privately owned – and therefore have no public shareholder pressure on them – removes the element of financial discipline from the equation.

External issues are also challenging the store fixture industry. While it is commonly understood that the retail industry is almost always in a state of flux, fixture vendors tend to see this as a mere shift in demand from one retailer to another. Today, however, the retail industry is changing in fundamental ways that will have a profound impact on the industry.

As mass, warehouse and dollar stores continue to gain market share at the expense of the traditional retailer, demand for customized store fixtures decreases; these retailers spend less per square foot on store development than other types of retailers. In addition, as a handful of chains continue to dominate nationally in their particular retail segments, buying leverage is increasingly being shifted to the retailer. Best Buy and Circuit City are good examples of this in the consumer electronics area. Finally, there are simply fewer retailers, which also contributes to this changing landscape.

The result: increased supply and reduced demand. For those fixture firms that have successfully positioned themselves in the market as value-added suppliers or are fortunate enough to work with an expanding retailer, the prospects for financial success remain good. For the majority of firms, big and small, we see reduced margins and an increase in industry consolidation and plant closings.

What does this mean for retailers? That they'd better be more conscious of whom they're doing business with, and assessing the financial viability of vendors to make sure jobs will be completed. A manufacturer's balance sheet will become yet another evaluative criterion in choosing a supplier.

Steven Keith Platt is managing director of S.K. Platt and Co., Hinsdale, Ill., the retail in-store development consulting and merchant bank. He can be contacted at skplattco@yahoo.com.