Strong Building, Remodeling Markets Boost Demand for Sanitaryware Products

Low mortgage rates in the U.S., which fueled record sales of both new and existing homes in 2002, helped boost demand for sanitaryware and other building products. For all of 2002, housing starts totaled 1.71 million units, up 6.4% from 1.60 million units started in 2001 and the highest level of housing construction since 1986. Remodeling and renovation spending was also higher as many U.S. consumers used low-interest-rate home equity loans to increase the value of their existing homes.

American Standard Companies Inc. said that sales for its Bathroom and Kitchen division rose 15% over 2001 levels in the Americas, led by strong growth in North America from continued strong demand in the replacement and home improvement markets. Sales to the retail channel increased 28%, while sales to wholesalers increased 3%. The company said that the commercial new construction markets were depressed, but most of its sales (78%) are to the residential sector.

Regionally, the company said that its sales to Canada grew by 20% from higher volume as markets there also improved. In Europe, sales were up 6% (2% excluding favorable foreign exchange effects) as the company gained market share in an otherwise difficult environment. And in Asia, American Standard¿s sales increased 15% (21% in local currencies) off a small but growing base.

According to the Finland-based Sanitec Corp., sales were also strong to eastern European countries -particularly Russia - as well as to the UK. However, the depressed economic conditions in Germany held sales to just 1.5% over the previous year's levels. Excluding Germany, Sanitec's bathroom ceramics business segment saw a net sales growth of 4% in 2002.

Sales of sanitaryware in Germany in general have declined over the past several years, dropping from an estimated 9.5 million units in 1999 to 7.1 million units in 2002. This has particularly hurt German suppliers such as Villeroy & Boch. Although the company saw a 5.3% increase in foreign markets in 2002, this was insufficient to compensate for the 14.3% decline recorded in its domestic market.

New housing starts in Japan also declined in 2002 compared to the previous year, but an increase in remodeling, along with the introduction of several new product lines, helped Japanese manufacturers such as Toto Ltd. increase their sales over 2001 levels.

Today's bathrooms are increasingly becoming more about the overall experience and less about individual products. Photo courtesy of Sanitec Corp.

Smart Strategies Help Companies Expand Market Share

While strong construction and remodeling markets have helped increase demand in many regions, these same trends are also increasing rivalry among global competitors. As a result, many manufacturers are being forced to find new ways to position their products to gain the maximum amount of market share.

For most companies, this means developing product innovations focused on brand awareness and consumer trends. According to Petra Bischof, corporate marketing manager for Private Bathrooms at Sanitec, manufacturers need to move away from a needs-based thinking toward experiences. "We must understand people's desires in order to develop the bathrooms of the future," she said. "It is increasingly about experiences and not just products, needs and routines."

To accommodate this change, companies have begun offering "total bathroom concepts," - integrated suites of products, including sinks, toilets, faucets, tubs, showers, bathroom furniture and accessories - under a single, highly valued brand. Marketing efforts are being increased to promote brand awareness, and companies are also adding bathroom suites designed by internationally known designers, electronically controlled products, and new colors and styles in an effort to further increase sales. Toto, for instance, introduced its NEOREXT EX and SD series in 2002 - reportedly the first toilet in the world without the inner lip of the bowl, which makes it easy to clean. More than 25,000 units were sold within the first two months of the product's release. The product was expected to be launched in the U.S. and China in fall 2003.

In the replacement and remodeling market, consumers make model selections and are more responsive to quality and design than price, making it the principal market for higher-margin luxury products. In the new construction market, however, builders or contractors make the product selection, and price and volume are the key factors that determine success. As a result, companies serving this sector have had to reduce their manufacturing costs and increase productivity - largely through the expansion of manufacturing in low-cost locations such as Mexico and China. American Standard's Bath and Kitchen division, for example, now operates only one vitreous china manufacturing facility in the U.S., located in Tiffin, Ohio. The company reported that moving many of its manufacturing operations to low-cost locations has enabled the division to increase sales of products in the lower and middle segments of both the remodeling and new construction markets.

Potential for Further Growth Remains

American Standard saw sales in its Bathroom and Kitchen division increase 13% in the first half of 2003 compared to the same period in 2002 as the U.S. housing market remained strong and interest rates remained low. The company also continues to see increased sales in Asia -particularly in China, where 20 retail dealers have renovated or opened new showrooms that exclusively feature American Standard brands.

Although the brisk pace in the U.S. housing market will be hard to sustain if the "jobless recovery" continues, most economists believe that a wide-spread bursting of a "housing market bubble" is unlikely. In fact, many analysts say that a low inventory of available homes and the prospect of continuing low mortgage rates support a strong housing market for months to come.

In other regions, growth is not quite so certain. Demand continues to be sluggish in central Europe - especially Germany - and Poland's economy is also experiencing a downturn. A decline in the level of overall construction activity has also become noticeable in France and Holland, which had previously been strong. New housing starts in Japan are also expected to be flat to slightly lower into early 2004. However, improved economic conditions and increased brand awareness could offer the potential for higher sales in the months ahead.

Editor's note:

The foregoing information was compiled from publicly available information in annual reports and news releases, as well as from interviews with companies listed in the 2003 Whitewares Giants (see,1067,,00.html).

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