Volume 41, Issue 2 February 2006
Mirror Manufacturers May Not Like What They See in the Mirror, But They’re Adapting
by Charles Cumpston
The North American mirror market continues to be a difficult place in which to operate. Foreign competition (primarily from China) grows stiffer and domestic markets continue to shrink. When the producers in this market segment look in the mirror, metaphorically speaking, it’s not a pretty sight they see.
Drew Mayberry, president and chief executive officer of Lenoir Mirror Co. in Lenoir, N.C., says he does not think the demand for mirror in North America has declined. He says it is steady, and with home building being strong, it actually may have gone up some. However, he adds, “The amount of that market being served by domestic producers has declined and it continues to decline.”
The big factor? According to Mayberry, it’s China. He says the OEM portion of the market, in which the mirror comes into the distribution chain through another product such as furniture or a bathroom cabinet, has moved offshore. “The products are being built in China and the mirror is being put in over there,” he states. “So that’s created some of the shrinkage that the domestic manufacturers have seen.”
Chris Beeler, chairperson, president and chief operating officer of Virginia Mirror in Martinsville, Va., describes the market as “tough,” but says it has picked up from last year, though it is still soft in spots.
“There’s way too much capacity relative to demand,” Beeler says.
Leon Silverstein, president and chief executive officer of Arch Aluminum & Glass Co. Inc. in Tamarac, Fla., describes the market as “improving.”
“It’s shrinking, but there’s less competitors and there’s going to be even less competition in the future,” he explains. “We’re not negative about mirror. It’s just a product line for us, but it’s the least profitable product line we have. Our mirror business grew last year, but it has become a smaller percentage (10 to 15 percent, he estimates) of our sales.”
Getting to Know You
Mayberry thinks the competition may be keener because Chinese manufacturers have become more knowledgeable about the U.S. market, and “as they improve their logistics, they figure out how to capture more of the business.”
The advantage they [the Chinese] have is cost, he notes. “When you look at the pricing of Chinese mirror products, just on plain, clean cut mirror, once you add the freight costs, there’s not such a big advantage. But with the addition of each type of value-added fabrication, whether it’s beveling or edging or tape, with their labor advantage that’s where you see the cost differential become greater.”
Beeler agrees that the big issue is with the labor-intensive products that are coming into the United States.
“I don’t see a lot of raw glass coming in,” he says.
Marc Deschamps, business development manager for Walker Glass Co. Ltd. in Montreal concurs that markets (OEM and trade) consuming a high volume of standard products tend to favor the low costs of imports over the just-in-time service offered by domestic suppliers.
But all may not be lost. A logical question comes to Mayberry’s mind: Is there a limit as to how much of the North American market they can take? That limit is determined by logistics and service, he points out. There are certain instances (types of jobs that are specified: hotel/motel contract jobs; installation of mirror in new residential construction) that cannot be treated as standard products and have a short time period between when they are let and when they are installed so they cannot be stocked in warehouses. They are bought and sold on shorter notice.
“It also becomes more difficult when you get into less-than-truckload limits,” Mayberry adds. “We don’t know that much about the Chinese domestic market and if it absorbs production then that takes pressure off the North American producers.” It’s all a matter of logistics, Mayberry says. “It’s really the only advantage we have.”
Beeler agrees that it will be interesting to see if the local market will absorb capacity in China. However, he thinks the Chinese will take more market share in the United States because of closures in the furniture market.
“Maybe it won’t be the Chinese but the Vietnamese or some other Southeast Asian country,” says Beeler.
“The market that we lost is gone forever,” Silverstein says matter-of-factly. The importation of mirror from China and the Far East probably is not going to get worse though, in his opinion, because container costs are increasing. He agrees that adding value levels the competitive situation. Silverstein also points out that “the Chinese government won’t prop up the domestic mirror manufacturers like it has in the past.”
In discussing how much market share North American producers have lost and how much shrinkage there has been in the market, Mayberry makes the point that it’s an illusive figure because there are companies that have gone out of business, there are others that continue to silver their own mirror, but also buy from foreign suppliers and there are those that have stopped doing their own silvering and now just buy from other suppliers, both domestic and international.
Fred Wallin, vice president of marketing for AFG Industries Inc. in Kingsport, Tenn., says that factory utilization for the mirror manufacturers has gone from 60 percent a few years ago to 40 percent today.
“I think that’s a good guess,” Mayberry says, explaining that any such statement would be a guess and would depend on a variety of factors, such as how many worker shifts are being counted. He is certain, though, that the amount of mirror being produced in North America and the United States has dropped steadily in the last four or five years.
Beeler agrees. “Foreign competition has impacted capacity. The industry has always had overcapacity. I’ve seen prices for truckloads of mirror today that are cheaper than they were in the 1970s,” he says. “I don’t think mirrors are used like they were five or ten years ago. They’re just not in vogue,” he states. “Demand is not what it was.”
Deschamps makes the point that the architect and design community constantly look for new products to meet current trends or set new ones and because mirror products are currently not “trendy” they lose market share in interior decoration projects.
“Consequently, the growth in the overall mirror demand in North America is non-existent and the import competition continues to be predominant. This creates a strong pressure on sales prices and profit margins.”
Silverstein says there will always be some domestic mirror production. However, he explains, “if a company has a lot of cost associated with producing mirror, then the situation is worse for the company. The cost-versus-selling price for mirror means that there is no money in this market segment, although the buyers of mirror won’t believe it.”
Silverstein adds, “What a company wants to do is maximize productivity at high prices and that’s hard to do in the mirror market today.”
Which Way to Turn
Faced with increased competition from abroad and a shrinking market share, one way companies have responded is by downsizing.
“The situation has forced us to look harder at all the available opportunities and to be flexible,” says Mayberry. “We are now looking at things that we would not even have considered ten years ago … maybe some business that would have been considered undesirable [then] we can [now] take another look at and be creative.” He adds that his company has put a huge effort into providing information and service for customers.
“We have taken lead time for less-than-truckload orders that ten years ago would have been three weeks and we now do it in one week. And this is not just for standard product but specific as well.” The company is doing some of this through systems and some through inventory retainage, he explains. “We continue to try to find new markets and compatible products that can be sold along with existing products. Another thing we try to do is find new paths to get to the marketplace. We’re selling more to new residential construction and we’re using a new path, what I call after-paint subcontractors. They’ve evolved in a lot of places, particularly large cities. They work for the builder and go in after the builder and install ventilated shelving, mirrors, shower doors, etc. … things that maybe the traditional glass shop used to do.”
Beeler and Mayberry agree that companies are trying to stay in the glass business because they know the industry and are looking for other areas into which they can expand.
“No one has found the silver bullet yet,” Beeler states. He points out that there is a natural migration from one glass fabrication area to another (insulating, tempering, laminating) as these areas take off. But he says he is not sure it’s natural to shift from mirror to these areas, particularly if the company has been supplying the furniture market. Some companies, he says, have moved into stone and granite.
Deschamps advises North American manufacturers to do three things to make up for market lost to imported product:
• Focus on market niches and value-added applications where customization, flexibility and service is important to customers;
• Diversify into new products meeting current and upcoming trends; and
• Promote the advantages of domestic sources of supply (timely deliveries, lower quantities, size availability, customization, specialties, etc.).
A Last Look in the Mirror
What does the mirror on the wall say about the future?
“Unfortunately, the outlook for the near future is not much different from the present,” says Deschamps. “Mirror manufacturers will need to consolidate their market share by being more cost efficient, by intensifying the promotion of their products and services and by offering additional sourcing alternatives to their customers.”
“In looking ahead, the one word I use is rationalization,” says Mayberry. “What I mean is capacity coming more in line with demand. Some of the smaller, weaker companies will depart or they will find something else to do. Those that survive will continue to find other ways to supplement their businesses with other activities,” he adds.
“The companies in the best situation are those large enough to downsize and still be a viable business,” he states.
Mayberry does not see a change in the basic dynamic of the market. “We’ve erected a great barrier to entry in our market. There is no money to be made. There’s great capital investment that has to be made and no return.”
Beeler agrees that there will not be a change in the basic dynamic of the market. “We’ve been predicting changes in this market (demise of competition, rationalization) for years,” Beeler says. “I think there will always be a place for the smaller mirror producer. It’ll be tougher, but there’ll always be a place.”
He ponders the question, though, “Would I go into this market today? I don’t think anyone in the industry would,” Beeler says. “We’re our own worst enemy.”
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