The crystal ball for 2003 shows a less than clear picture for the cookware and bakeware industry. The challenges are numerous, but opportunities exist as well.
First there's the dismal retail climate. Analysts are beginning to question retailer K-Mart's viability going forward considering the continual losses racked up since it entered reorganization in 2002. That 2002 bankruptcy affected a number of manufacturers, even triggering some reorganization within the industry. Producers are holding their breath to see if the firm's much promised turn around will really happen. "Big-Box" successes such as Linens 'n Things and Bed Bath & Beyond have reduced both share and margin in the department store channel. The consequence is fewer retail holdings controlling the lion's share of the market for both top-of-stove and oven wares. Additionally, retailers seize every opportunity to utilize unilaterally imposed invoice deductions, whether justified or not.
Relentless competition means lower prices for consumers, and margin erosion has begun to affect product quality. Fewer manufacturers can afford extensive product research and development and consequently, long-term new-product introductions may be reduced. Product innovation has, in some cases, given way to product imitation. Industry consolidation is a distinct possibility given the current environment.
Raw materials prices have an obvious effect on manufacturers as well. While aluminum prices have been relatively soft, steel and steel-based product materials have increased, partly due to punitive tariffs against off-shore producers allowing higher prices. Prices of phenolic and plastic feedstocks-derived from petroleum-remain elevated due to Middle East unrest. Most other commodities' prices have remained stable through last year and are expected to remain that way through 2003.
Worldwide competition continues to impact the industry with most manufacturers turning to off-shore producers to hit at least entry-level and mid-range price points demanded by retailers. Not satisfied with supplying branded producers, many foreign factories are shopping private label goods to retailers in hopes of improving their margins and reducing their reliance on third party marketers. Unit shipments have increased by a larger percentage than sales, showing a deflationary trend in at least the mid-range offerings.
On the opportunity side, 2003 looks like a positive growth year, at least in the second half as the excess capacity within the economy comes more in line with demand. The cookware and bakeware industry are partially dependent on new household formation and growth in this area should provide needed demand for the basic goods of every home. Manufacturers are increasingly able to manage existing retail space to maximize in-stocks through technology and logistics management, reducing dependence on retailers knowing when and how much to order.
Interest rates remain low, which could assist manufacturers in updating capital equipment in order to improve productivity. Employment recruitment, a persistent difficulty through the past decade has become easier with the softened general economy.