Strong building and construction diy sales point to positive growth for the industry

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STRONG BUILDING AND CONSTRUCTION DIY SALES POINT TO POSITIVE GROWTH FOR THE INDUSTRY

In April of this year, DuckerFrontier consultants and team of building and construction experts released ,”Covid-19’s Impact on Residential and Nonresidential Construction and Leading Segments for Growth Post Pandemic” a forecast and outlook report that identified the potential for increase in home remodeling and DIY efforts for nesting in place and upgrading spaces.  The recent earnings release by Lowes and Home Depot affirms DuckerFrontier’s prediction and provides further insights to the changing dynamics of the US construction industry.

DuckerFrontier’s Building & Construction experts have broken down our expectations and factors boosting the building and construction market post pandemic.

  • Home centers were a respite for consumers and contractors to break away from the Covid confinement.  Our data suggest not just building projects – but a variety of diverse product lines were purchased
  • Digital experiences by Home Depot and Lowes were improved in the period with easy access by contractors and DIYers to review projects, check inventory and explore potential project costs.  In fact, Lowes recently updated its pro site and consumer facing site for a more advanced digital experience
  • DuckerFrontier’s ongoing research with contractors and remodelers in May-July  indicated an increasing trends toward home center purchases and digital interaction, which combined with location depth and breadth is helping business
  • Not to be overlooked, but the single most important driver for home center demand in the next 6 months is the significant increase of existing home sales and the desire to remodel by homeowners.  – especially at the expense of urban living
    • According to NAR – existing home sales jumped by 20.7 % in June with average price increase of 3.5% and historically low interest rates.
    • DuckerFrontier’s experts in construction indicate within 6-8 months of a housing transaction – DIY and DIFM spending accelerates – and we anticipate more DIY projects given the nature of covid-related safety and contractor labor availability

DuckerFrontier’s Building & Construction team is at the forefront of key trends impacting the industry post Coivd. Visit our Market Insights page for the latest insights and implications for global business, or contact us to connect with a team member.

Global supply chain reshoring – the manufacturing industry’s return to north america

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GLOBAL SUPPLY CHAIN RESHORING – THE MANUFACTURING INDUSTRY’S RETURN TO NORTH AMERICA

DuckerFrontier has been analyzing the impact of COVID-19 across all industry sectors, evident in its numerous industry-specific reports that can be found in its Market Insights. Several industry sectors have expressed interest in the reshoring of manufacturing and supply chains back to North America for many reasons including:

  • Supply chain security
  • Reduction in transportation and distribution costs
  • Improved and consistent quality of products
  • Increased control over the manufacturing process
  • Impact of COVID-19
  • Impact of US/China trade tensions

Supply Chain Impact

Post COVID-19, many U.S. companies are focused on shifting to domestic production. Manufacturers are particularly focused on materials that are critical to national security or may be difficult to source should another crisis occur. According to a recent survey conducted by SME Media, one-third of respondents indicated that their company will be shifting to more U.S.-based suppliers or localizing their supply chain. Stockpiling, multi-sourcing and creation of disaster-readiness plans with supply chains are just a few of the avenue’s companies are turning to as they look to reshoring.

The ability to adjust manufacturing or supply chain operations quickly and in real-time provides operational leaders the flexibility and confidence to respond appropriately should a global threat or emergency occur.

A key factor driving reshoring efforts is the reduced transportation and distribution costs. Moving to a domestic production and supply chain model, if even for more vulnerable goods, typically has a positive impact to product margins. And reducing raw material imports provides more control over the manufacturing process ensuring higher ‘First Time Prime’ runs and decreased scrap rates.

Also, U.S./China trade tensions have continued to rise as the current Administration’s policies are focused on decreasing reliance on goods produced in China. The increased focus on stimulus funds for U.S. companies, as well as, tariffs on goods imported from China continues to escalate trade concerns.

Reshoring Headwinds

When considering reshoring activities, some manufacturers need to evaluate the trade-off between local performance metrics while maximizing global profits. And companies will remain focused on the benefits of importing from low-cost countries within Asia.  Other factors weighing against reshoring efforts include:

  • Cost savings for products that are labor-intensive
  • Manageable overseas freight costs
  • Reduced global oil prices
  • S. labor shortages
  • Reluctance to surrender large offshore capital investments

Top Industries Rethinking Supply Chain Strategy

However, even with these obstacles mentioned above, certain industries remain attractive to reshoring activity including aerospace, automotive, pharmaceutical, and semiconductor production. Each of these industries relies upon raw material or intermediates that are critical to national security and vulnerable to global threats. And, while the trade war may have started reshoring considerations, the COVID-19 pandemic further solidified U.S. companies’ strategies surrounding supply chains.

In the automotive sector, the global supply chain experienced significant disruptions due to lack of parts coming from China resulting in plant closures and downstream industry disruption.

Trends within aerospace manufacturing and are driving manufacturers to invest in domestic/localized production sources. Companies like GE Aviation, Boeing and Airbus have already invested in new production facilities, reopened closed plants, or added additional capacity to further support domestic sourcing.

U.S. semiconductor manufacturers will continue to benefit from industry association and government funding. Semiconductors make up America’s fifth-largest export, however, only represent approximately 12% of the global semiconductor manufacturing capacity to-date. Several bills including the CHIPS Act (Creating Helpful Incentives to Produce Semiconductors) have been introduced to support income tax credits, research and design funding, and state-level incentive programs.

For the pharmaceutical industry, the COVID pandemic highlighted the issue of America’s reliance on outsourcing critical ingredients when pharmaceutical supply chains in China and India were disrupted. The U.S. has increasingly relied on China and India as its major sources of Active Pharmaceutical Ingredient (API) given fewer regulations in these Asian markets.  In efforts to reshore critical medical products, the Department of Defense and the U.S. International Development Finance Corp. announced that it will dedicate $100 million to boost MedTech and pharmaceutical manufacturing in the U.S.

DuckerFrontier continues to be at the forefront of key trends impacting all key industries affected by COVID-19 disruptions. Visit our COVID-19 Resource Hub  or our Market Insights page for the latest insights and implications for global business, or contact us to connect with a team member.

Fenestration and glazing industry alliance releases 2019/2020 market study, forecast of fenestration industry trends

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FENESTRATION AND GLAZING INDUSTRY ALLIANCE RELEASES 2019/2020 MARKET STUDY, FORECAST OF FENESTRATION INDUSTRY TRENDS

As the world continues to change, particularly in response to Covid-19, so do relevant trends and relationships for both residential and non-residential building fenestration products. Prepared by DuckerFrontier, the Fenestration and Glazing Industry Alliance (FGIA), formerly American Architectural Manufacturers Association (AAMA), 2019/2020 Study of the U.S. Market for Windows, Doors and Skylights provides a timely update and forecast on construction activity in an ever-changing environment.

Residential Construction Market

After a sustained period of growth over the past decade following the 2009 recession, a steady growth in the construction market began, particularly in residential construction. After growing ~4% in 2018, new housing starts were up 3% in 2019 driven by multi-family construction – 8% as compared to single-family housing starts experiencing an increase of 1% – the highest the market has seen since 2007.While single-family homes remain the largest part of the housing market, it remains approximately 40% below pre-recession levels (2005). The market has begun experiencing a shift to multi-family housing, which can be linked to growing urbanization and strong rental demand.

Demand for prime windows in decreased in 2019, with the demand in new housing windows anticipated to decline to ~10% for 2020; however, the industry is expected to recover and experience growths for 2021 and 2022. The remodeling and replacement markets experienced a moderate decline of 0.5%, which will continue to fall even further in 2020, before a recovery in the following two years of approximately 2-4%. Vinyl windows continue to be favored over other materials, with a decline in aluminum based on regional factors and trends.

The patio door market experienced a mild decline in shipments from 2018 to 2019, despite a solid 5% increase from 2017 to 2018. As with residential window, vinyl patio doors continue to grow in popularity, while wood and steel patio doors continue to decline year-over-year.

Residential entry door demand fell by ~2% from 2018 to 2019. New construction continued to see growth from 2017 to 2019, however, remodel and replacement demand caused a negative impact on overall market demand. A significant decline in the entry door market is anticipated for 2020 and, like windows, will begin recovering with strong growth in 2021 and 2022.

Finally, skylights have grown in use over the last three years. Shipments increased 4% from 2017 to 2018, followed by just under 4% growth from 2018 to 2019. This growth was driven primarily by remodeling and replacement skylight demand. Glass skylights continue to be most popular as compared to its competitive material, plastic.

Non-Residential Market

Moderate growth is anticipated for non-residential construction activity; put-in-place construction has, contrary to residential construction, surpassed its pre-recession peak spending. Based on strong growth in public non-residential buildings, the U.S. Census predicts a 1% increase, however, contract awards have been flat. Based on historical lag time of one year between contract awarding to purchase of building materials (including fenestration products) and construction, demand is anticipated to soften in the near term before recovering.

The most volatile sector has been and is anticipated to remain lodging with major upward and downward swings since 2005; this will continue as it has been viewed as one of the hardest hit as a result of Covid-19.

Non-residential window shipments have been up slightly year-over-year since 2017, the majority occurring in new construction and major building additions. Storefront windows continue to be the largest segment, followed closely by site fabricated windows.

Window and Door Distribution

Residential windows, patio doors and entry doors continue to be sold through multiple distribution channels. Channels include wholesalers, big box retailers, lumberyards, distributors and, in some more limited cases, direct to the end customer. For windows specifically, these distribution channels have remained relatively constant since 2011. Millwork wholesalers prefer to distribute residential entry doors over windows, holding almost 50% of the total distribution share for this product type.

The Impact of Covid-19

Prior to Covid-19, expectations for the construction industry were positive heading into 2020. A strong uptick in activity began in December 2019, and construction activity as measured by the U.S. Census grew by ~8% from December 2019 to February 2020, residential experiencing double-digit growth. Housing starts followed, experiencing an almost 40% growth during the same time period.

The rapid escalation of Covid-19, and subsequent impact on construction activity restrictions, workplace and soon-thereafter state-mandated shutdowns caused an immediate impact on both the residential and non-residential sectors. The most immediate impact on new construction starts activity was experienced in non-residential construction, down 37% from March to April 2020.

Construction After Covid-19

Covid-19 has already established and/or accelerated a new normal, including within the construction industry. Post-Covid-19, there are five aspects likely to drive this new normal:

  • Back to Basics – Conservative economics, refocus on protection, maintenance of both living and workspace
  • Design Reigns – Acceleration in digitalization in design and construction processes, upgraded communication systems, network bandwidth expansions
  • New Layouts/Longer Cycles – More prefabricated construction, increased square footage requirements
  • Increased Spending – Spending will increase in specific verticals such as storage, warehousing, distribution and healthcare
  • Reversal of Urbanization – growth in lower density construction areas, increase in renting, reduction in ownership

To purchase a copy of the FGIA 2019/2020 U.S. Industry Market Study (Published May 2020) click here.

DuckerFrontier’s Building & Construction team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

China’s construction equipment market recovers from the covid-19 pandemic

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CHINA’S CONSTRUCTION EQUIPMENT MARKET RECOVERS FROM THE COVID-19 PANDEMIC

The construction equipment industry in China experienced a decline in the first quarter of the year due to the impact of COVID-19; however, market conditions began to improve quickly thereafter.

In January 2020, the China Construction Machinery Association indicated that truck cranes, truck-mounted cranes, lifting work platforms, aerial work platforms, and zero-growth motor graders would experience growth; yet, in February, only graders increased by 3.7%. It wasn’t until the following month when a rebound was realized, with growth in heavy equipment categories including excavators, truck-mounted cranes, industrial vehicles, lifting work platforms, and aerial work platforms. By the end of March 2020, excavators increased by 11.6%, and lifting work platforms increased by 12.7%. In general, however, broad heavy equipment sales fell by an average of 14.1% year-over-year in this first quarter.

As a result of increasing efforts from the national and local governments to resume production of enterprise and construction projects, the overall situation in the second quarter is much better than the first. Sales in the first half of the year resulted in an initial decline, then a recovery. Domestic demand has relentlessly driven an increase in sales for China, while neutralizing the impact of the pandemic overseas. On the other hand, the export market for excavators is sluggish. Since March, the export of excavators dropped to approximately 5%, as compared to March 2019 when excavator exports reached 11.3%.

With the gradual improvement of the nationwide COVID-19 pandemic coupled with the implementation of a series of policies, regulations and systems issued by the relevant departments of the state and local governments, the majority of enterprises in the construction machinery industry chain are anticipating business stability and growth in the 2nd half of this year. In addition, it is estimated that domestic market demand will further increase in the second half. Industry experts predict China’s construction machinery industry revenue for 2020 to increase slightly as compared to 2019; the growth rate will decline by approximately 5 percentage points based on the original forecast of 7-8%, landing around 2-3% for the year.

The growth for specific segments (e.g., excavators) will be more robust than others. From observations in the market, the momentum of industrial output has sustained in part due to an increase in fiscal expenditures and investments tilted to the infrastructure construction. The growth rate of infrastructure investment is expected to accelerate, signaling opportunities in the last half of the year for excavators and other construction machinery.

DuckerFrontier recommends that Chinese market participants closely monitor industry dynamics and move to capture growth opportunities. This can be achieved through both understanding and reacting to shifts in customer needs/ unmet needs, competitive dynamics, and distribution network optimization. Finally, pricing should be considered as the market rebounds, and businesses should develop a pricing strategy in order to track competitors and ensure quick response.

Major domestic players forecast growth in the second quarter 2020

Chinese domestic OEMs enjoyed remarkable growth in recent years. According to CCMA, in 2019, domestic brands have 60% market share in the excavator market; through May 2020, companies like Sany and XCMG experienced top sales, ranking them first and the second with market shares of 24% and 17% respectively.

Many off-highway equipment OEMs announced price increases from April amidst rebounding domestic demand and the rising cost of imported components; an increase of 5-10%. However, due to the strong buying power and price negotiation during the pandemic, as well as increase sales pressure, many manufacturers have continue to offer preferential discounts to customers despite competitive pricing policy changes. Dealers continue to implement pricing increases; low-price competition leads to a distortion and prevents a sustainable development of the industry. Nevertheless, it’s challenging to carry-through with this philosophy due to the economic slowdown.

Domestic equipment OEMs are also investing in new product R&D to penetrate the mid-to-high end markets. Sany has announced an expanded product portfolio with a new series of models in the ultra-large excavator segment. The release of these models marks a new company milestone in delivering technological breakthroughs, which will further strengthen its market competitiveness and brand reputation in the large size machine product segment. Western brands used to have absolute advantage in this segment, however, are currently tracking the movements of domestic brands in order to develop market strategies accordingly.

Shortage of components provided by western suppliers during the COVID-19 lock-down has significantly impacted the production plan of OEMs in China and accelerated local sourcing. To fill the gap, more domestic parts suppliers are playing an active role in the supply chain, attempting to offer product substitutes to win business. In turn, this appears to have impacted investment within the industry; as of June 2020, more than 2,800 new companies entered the excavator industry, of which 851 were new entrants in April, an increase of 26.3% from March.

Other SOE OEMs, like XCMG, will reform its shareholder structure by attracting more capital from private sector and possibly foreign investment in a mixed ownership. The plan is to raise about CNY 15.7 billion in late June 2020. Should this occur, XCMG will obtain new and competitive resources from the market, and strategic investors will benefit from sustainable business growth. These investors with brand assets, technology, supply chain, and digitalization expertise will enhance the expansion of XCMG; currently the framework of state-owned enterprises restricts the company from further upgrading and optimizing.

International players in the market are recommended to track and understand the nuances of those reforms incurring in domestic OEM giants to be well prepared for current and future competition.

DuckerFrontier’s Heavy Equipment team continues to follow and analyze the key trends and impacting the industry, both during and post Covid-19 disruptions. Visit our Covid-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

North america – commercial truck production and continued technology advancement

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NORTH AMERICA – COMMERCIAL TRUCK PRODUCTION AND CONTINUED TECHNOLOGY ADVANCEMENT

With its over 60 years of professional expertise in the automotive and transportation industry, DuckerFrontier has made heavy duty truck and related products a core segment. The onset of Covid-19 provided no distraction from DuckerFrontier’s focus, first analyzing the impact of the pandemic on the automotive industry in its March 2020 report Covid-19 and Global Automotive Supply Chain Disruptions. The DuckerFrontier Automotive and Transportation team has continued to analyze the impact on the commercial truck market to assist suppliers, manufacturers and other industry participants understand current production forecasts, sales and market trend impacts to determine how to best operate.

Pandemic Impact to Commercial Truck Production

As history demonstrates, medium and heavy-duty commercial vehicle production cycles average eight to ten years. The next expected production decline has begun, with a continuation into 2021; return to growth is anticipated for 2022 and thereafter.

As a result of Covid-19, the impact specifically on Class 8 commercial vehicle sales and production forecasts continues to be analyzed. A stronger recovery is expected in 2021 than originally projected; production is not anticipated to be as disrupted and commercial vehicle operators will continue to replace older models and/or expand fleet capacity to meet increased logistic demand. Further, continued maintenance schedules for vehicles in operation will demand suppliers providing service and aftermarket parts including wheel-end-systems to operate at pre-Covid levels. 

Leading Industry Trends Utilizing Advanced Technology

The commercial vehicle industry is observing five predominant trends utilizing advanced technologies to enhance logistics and comply with regulations, while aiming to optimize cost per mile traveled.

  • The trucking industry is facing an increased demand for goods delivery in a timely manner with a high pressure on costs and fuel-economy being a critical concern. Class 8 trucks cover about 63,000 miles per year with an average fuel economy of 5.3mpg representing average diesel costs of $36,000 per year. Lightweighting is a relevant concern to maximize efficiency and achieving emissions targets set by the federal government
  • Connectivity is the key to telematics and digitized solutions, as well as cost optimization of vehicle and fleet ownership needs. OEMs and maintenance solution providers tend to offer added connectivity options to ensure decreased down-time and sustainable dealer service revenue
  • Safety analytics, such as driver monitoring and ADAS technologies, are in high-growth positions as compared to other fleet telematics and technology adoption. Additionally, the driver shortage gap is projected to continue widening into the foreseeable future and measures to retain and recruit are more important now than ever
  • Digitized trucking is the key to enhanced fleet management through cloud-based solutions that offer freight management, invoicing and shared transportation solutions. The optimization of the value chain helps avoiding empty returns after a delivery and enhance revenues due to higher utilization rates
  • While the launch of Class 8 electric vehicles has occurred (e.g. Freightliner e-Cascadia), end user adoption is expected to be limited as a result of restricted driving ranges (250-500 miles) and infrastructure requirements; however the California Air Resources Board (CARB) and fifteen other state agencies have outlined initiatives to convert a significant portion of the commercial truck fleet to ‘zero emissions’ and may be a catalyst to see wider interest and faster adoption

Electrification Trends

There is growing interest for electrification coming from Class 8 brands, models such as Freightliner’s e-Cascadia, and upcoming programs, such as Navistar’s NEXT eMobility Solutions initiative and Volvo’s Lights projects. Additionally, newcomers are creating hype in the heavy-duty truck segment with Tesla teasing about its Semi electric truck and Nikola Motors coming up with fuel cell technology for faster charge and longer range.

In the meantime, regulations are indicating a strong inclination for adoption of electrified trucks. Following an initiative from California, 15 states and the District of Columbia have signed a Memorandum of Understanding (MOU) to accelerate the adoption of medium and heavy-duty truck electrification. The intention is to reach 30% penetration of electric vehicles in the new truck market by 2030, a goal of 100% by the year 2050.

The combination of the industry initiative and the MOU are increasing investor’s interests with major investments benefiting all market participants from light commercial vehicles to heavy-duty class 8 trucks:

  • Rivian raised USD $2.7B in 2019 ($700 million from Amazon, $500 million from Ford, $350 million from Cox Automotive for a total of $1.3B) and an additional $2.5B was raised in 2020 towards its R1T
  • Nikola Motor’s market capitalization reached over USD $20B days after the IPO
  • Tesla claimed over 2,000 orders received for its semi semi-truck, the Cybertruck, and announced the future production of the motors and batteries in U.S. factories
  • In addition to the Tesla Cybertruck, the Rivian R1T and the Nikola Badger, other companies are entering the light truck market such as Lordstown (a subsidiary of Workhorse), and Beringer

DuckerFrontier’s Automotive and Transportation team continues to follow and analyze the key trends and impacting the automotive and transportation industry, both during and post Covid-19 disruptions. Visit our Covid-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.

Before the autonomous car: the growing use of the internet of things (iot) in the automotive sector, and related challenges

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BEFORE THE AUTONOMOUS CAR: THE GROWING USE OF THE INTERNET OF THINGS (IOT) IN THE AUTOMOTIVE SECTOR, AND RELATED CHALLENGES

Forecasting us industrial production recovery

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FORECASTING US INDUSTRIAL PRODUCTION RECOVERY

Segmenting Industrial Recovery and Growth

The Industrial Production Index is the economic indicator that measures real output for all facilities located in the US including the key categories of manufacturing, mining, and utilities.  Q2 predictions for recovery have been stifled by the drastic cuts in mining production and dip in utility output.  However, the manufacturing sector, which represents approximately 78% of the total production in the US, is expected to continue a strong recovery across the remainder of 2020 with the index approaching pre-COVID levels near the end of 2021.  Nevertheless, manufacturers will continue to struggle through supply chain disruptions, labor force challenges, and difficult financial working capital constraints to reach expected growth rates.

Industrial Production Growth Areas

  • Recovery of US automotive production levels after industry-wide shutdowns will fuel production rates supported by strong consumer incentive programs.
  • Specialty chemical manufacturers will continue to benefit from demands for cleaning chemicals and personal care products while demand for existing product lines recover.
  • US manufacturers will invest and support reshoring of critical raw materials to ensure security of supply.
  • Manufacturing automation and advancements in automation technology are attracting more focus than ever before and implementation of advanced automation will increase.

Whether you are looking to understand market trends, get a granular analysis of competitor positioning, or profile and map opportunities in an adjacent segment or, technology, you can trust DuckerFrontier to be the credible partner you need. We are constantly connected to leaders on the ground and have access to key industry decision makers. Our ready wealth of knowledge can expedite your growth strategy and help you navigate the turbulent factors impacting your industry today. Contact a member of our industrial team today at info@duckerfrontier.com.

Customer segmentation in b2b: a great marketing tool for customer centricity

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CUSTOMER SEGMENTATION IN B2B: A GREAT MARKETING TOOL FOR CUSTOMER CENTRICITY

In B2B, and even more in industrial sectors, marketing segmentations are often poorly understood – and underutilized. The “PUSH” culture still thrives, usually driven by a product or service, rather than by the customer.

This way of thinking is understandable: B2B purchasing decisions tend to be more rational and technical, and often involve different departments within the purchasing company. In this context, internal teams may not understand that putting market participants’ attitudes and behaviors first will provide significant benefits. In fact, segmentation can bring a lot to industrial and B2B companies, placing the customer back at the center of their strategy.

Why Use Marketing Segmentation in B2B?

Segmenting your prospects and customers will allow you to expand your knowledge of their specific needs. It will also help identify the segments of your business that you can add value to, especially in the context of open and global competition.

Let’s take the example of flat glass, which may elicit very different expectations from a variety of customers. One group looking for windows or façades could be seeking high-performance systems, while another set could want the lowest price, and a third group might be expecting a good balance between price and performance. If so, each of these groups should receive their own marketing answer. For the first group, a premium offer with electrochromic glass and other performance options such as additional acoustic qualities may be offered. For the second, a simple marketing configuration answering basic norms might be appropriate; and for the third, marketing could focus on energy/solar performance and acoustic features, but with fewer options than the first group.

Accordingly, developing a marketing segmentation strategy is a way to encourage your company to raise the following questions:

  • What are the major categories of needs – segments – we can address?
  • What is the business potential and profitability opportunity in each segment?
  • Which segments should we address first, and which ones should we leave to our competitors?
  • What are the key ingredients for success on priority segments?

Segmenting an existing customer base is a good starting point, and will provide an initial understanding of the most interesting variables to factor in. However, it’s important to then expand the understanding to the overall market base by including prospects.

How to Conduct a Good Segmentation in B2B

From a methodological standpoint, B2B segmenting techniques differ little from B2C. The purpose of the work remains the same: identify the most differentiating criteria related to customers’ needs and behaviors. The combinations of these criteria will then define each customer segment. These criteria should be the ones showing the highest heterogeneity between the different customer segments, and simultaneously the greatest homogeneity within each segment.

At Ducker Worldwide, we implement a three-phase process:

  • Observation
  • Modeling
  • Validation

The segmentation process usually starts with an exploratory phase, during which our qualitative interviewers collect insights and develop a preliminary segmentation. Next, a quantitative questionnaire is conducted on sufficiently large samples by phone or online, incorporating questions around attitudes and behaviors. Finally, statisticians perform the data processing and statistical analysis, and identify the most relevant segmentation criteria and segments. Interviewing individuals from a B2B context requires a specific expertise, but when the approach is right, interviewees are happy to share their experiences, concerns and expectations, and find value in the exchange.

To learn how Ducker can support your organization in becoming more customer centric via marketing segmentations, development of persona, customer journey analysis, and other marketing strategies, contact us at:

Ducker North America: info@ducker.com, +1.248.644.0086 or +1.800.929.0086

Ducker Europe: info@duckereurope.com, or +33 1 46 99 59 60

Industrial automation outlook

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INDUSTRIAL AUTOMATION OUTLOOK

Automation in the manufacturing process has already established a strong foothold across most industry segments and has excelled in many sectors.  For some manufacturing processes, industrial automation is the justification of investing in a piece of equipment to supplement or replace a manual process.  According to a recent survey DuckerFrontier conducted of North American industrial automation companies, approximately 75% of participants believe the impact of COVID-19 will prompt manufacturers to increase their investment in automation technology.  Respondents cite several reasons for increased investment, including:

  • Increased health and safety protocols requiring minimum distances between employees
  • Minimized downtime in the manufacturing process
  • Reduction in workforce liability
  • Optimization of manufacturing floor space

According to a recent survey DuckerFrontier conducted of North American industrial automation companies, approximately 75% of participants believe the impact of COVID-19 will prompt manufacturers to increase their investment in automation technology.

However, while there may be slowdown in the investment in automation technology, most companies still view the implementation of manufacturing automation as a method to both increase productivity and to reduce labor costs.  Which, up until the recent shutdowns due to COVID-19, a key variable for implementing automation was to offset the increasing cost of labor during a period of low unemployment.  In a post-COVID-19 environment, we may still see a delay in investment until unemployment rates are near pre-pandemic levels, regardless of industry sentiment.

Evolution and Trends in Industrial Automation

For many other manufacturing companies, industrial automation has pushed the boundaries into the current era of “big data”.  In a post-COVID-19 environment, companies focused on the next era of industrial automation should see a big advantage across the segment.  Below are several trends leading the industry that are likely to see successful growth patterns.

  • Component Integration – Manufacturers with multi-stage processes continue to look for ways to integrate components across their system with the ability to control units separately through a standardized user interface. Trends continue to push software designers and equipment manufacturers down a path of incorporating a common language or open architecture formats.
  • Remote Monitoring – Currently adopted and implemented by larger manufacturers to reduce equipment downtime and maintain consistent throughput. However, mid-sized organizations are increasing their investment in equipment with remote monitoring capabilities to optimize operating costs and reduce service costs as well.
  • Predictive Maintenance – Asset-rich organizations continue to focus on ways to mitigate risk of equipment downtime that can cripple manufacturing lines, reduce delivery times and back up inventory. Predictive maintenance focuses on analyzing data collected from real-time operation of equipment to provide owners with an optimized maintenance schedule to prevent disruption in the manufacturing process.
  • Augmented Reality – While most consumers will identify this category as a type of entertainment, manufacturers are beginning to utilize augmented reality equipment to reduce maintenance and repair costs. In order to reduce equipment downtime, companies are implementing this next level technology to allow technicians to guide on-site staff through maintenance or repair actions in real time.
  • Cobots – Formally known as collaborative robots, “cobots” are robots that work in a shared physical space with humans, helping improve efficiency and consistent quality. Cobots typically require lower capital investments making them more accessible to small and medium-sized business.  Additionally, they are also known to be easier to program than typical industrial robots.  Cobots are becoming popular across a variety of industries including automotive, aerospace, and some medical device manufacturers.

Whether you are looking to understand market trends, get a granular analysis of competitor positioning, or profile and map opportunities in an adjacent segment or, technology, you can trust DuckerFrontier to be the credible partner you need. We are constantly connected to leaders on the ground and have access to key industry decision makers. Our ready wealth of knowledge can expedite your growth strategy and help you navigate the turbulent factors impacting your industry today. Contact a member of our industrial team today at info@duckerfrontier.com.

Covid-19’s impact on the automotive aftermarket, post-covid growth drivers and market shifts

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COVID-19’S IMPACT ON THE AUTOMOTIVE AFTERMARKET, POST-COVID GROWTH DRIVERS AND MARKET SHIFTS

The pre-COVID automotive aftermarket trajectory was a steady upward trend post-Great Recession in line with the growing number of vehicles in operation, aging car parc and increased annual miles driven per vehicle. Regardless of automotive OEM production levels, U.S. vehicles in operation (VIO) have continued to increase, largely due to increased average age of vehicles over the last ten years, increased vehicle ownership rates and general population growth dynamics. The average age of vehicles in the U.S. is anticipated to continue to grow based on increasing integration of passive and active collision mitigation systems and improved powertrain performance and longevity.

While the population of all vehicle segments have continued to increase (except for domestic cars), the mix of vehicles will continue to favor both domestic and imported SUVs/trucks in the U.S. car parc.

  • Light truck segment (e.g., SUV, CUV, Pick-up, etc.): accelerated growth in recent years relative to total vehicle population and sales levels, which has been primarily driven by decreasing fuel prices and stabilization of previous volatility, new model introductions and consumer preference shifts toward CUVs over traditional sedans/cars
    • Aftermarket sales growth in the light truck segment is somewhat offset by recent consumer prevalence to opt for higher trim levels that are equipped with high-end audio, infotainment, and advanced driver assistance systems (ADAS)
  • Import vehicles: recent growth can be attributed to substantial share gain and adoption of Japanese CUVs and pick-ups
    • Consumer research outlets (e.g., Autotrader, CarGurus, etc.) has shifted demand away from the historically strong domestic SUV/truck segment, as imports provide higher residual values, lower cost of ownership (e.g., higher quality powertrain, chassis, etc.) and higher durability/lifetime

Post-Pandemic Automotive Aftermarket Environment

The automotive aftermarket is a relatively recession resilient industry, however, an unprecedented decrease in total mileage driven have caused revenue declines of more than 50% in most segments; revenue will likely return to previous levels by year end, but the landscape may shift significantly.

DuckerFrontier’s post-COVID market outlook anticipates a shifting market landscape in terms of market consolidation within the supply chain and sales channels, as well as an increasing presence of e-commerce sales.

  • There will be decreased independent repair/sales channel presence as some locations will likely go out of business, providing opportunity for consolidation as scaled participants with more liquidity look to acquire distressed entities or convert debt
  • Low-cost country parts, which account for ~25% of the market will likely face further trade barriers, offering more opportunities for domestic suppliers to regain lost share
  • The e-Commerce segment has largely outperformed the rest of the aftermarket in recent months as some retail locations remain closed and consumers opt for online delivery to limit exposure

When the COVID pandemic reached its peak in the U.S. in March, much of the automotive aftermarket was deemed essential; however, the market took some heavy losses as consumer miles driven declined sharply and part replacement went stagnant. Total miles traveled are down ~50%; critical wear and tear replacements have declined as a result. In addition, specialty products and vehicle/performance upgrades have been impacted most (e.g. vintage vehicle products, spoilers, etc.).

Leading Segments for Growth

All areas of the automotive aftermarket have been impacted through COVID over the past two months; however, segments are beginning to show signs of growth. Valuations across segments remain largely in-line with pre-COVID trajectories, except for Automotive OEMs that experienced broad sweeping shutdowns and production declines. Below are segments that DuckerFrontier has identified as potential growth areas post-COVID for the automotive aftermarket.

  • Automotive production: light vehicle production estimates are down anywhere from 15%-20% as OEMs are forced to shutdown production
    • Once production resumes, OEMs plan to meet previous production levels and output to account for lost time; the market is unlikely to normalize until the 4th quarter 2020 or first quarter 2021
  • Automotive sales: some dealerships have stayed open; however, annual sales will be impacted at 10%-20% on average
    • Potential pent-up demand post-crisis for pick-up trucks and SUVs
    • Outlook largely dependent on larger economic health
    • Pre-owned market will come back faster based upon relative pricing and the surplus of returned lease vehicles
  • Aftermarket product manufacturing: Production operations remain open for ‘vehicle critical products’, but participants cite actual production of parts changes day by day
    • Recovery will vary by vehicle segment as manufacturing returns to pre-crisis levels, with additional upside attributed to domestic manufacturers taking share from imported products that will face additional barriers
  • E-Commerce: Online retailers have traditionally focused on specialty parts, which has been somewhat offset by an increase in demand for necessary part replacement that brick and mortar stores have been unable to fulfill given current market conditions
    • Expect continued increase in online ordering to mitigate exposure concerns
    • Companies will likely shift focus to online sales models in reaction to consumer demand preference shifts
  • Brick and mortar retail: storefronts are opting for “curbside pick-up” with lower support staff and services offered
    • Continued e-Commerce growth and lack of cash-at-hand for smaller brick and mortar participants, will likely result in further bankruptcy claims
  • Installers: installers have largely remained open, with state by state variance that has created some disparity in business performance on a regional basis (e., Northeast and Midwest businesses hit harder than the Smile states)

DuckerFrontier’s Transaction Advisory and Automotive & Transportation team is at the forefront of key trends impacting the industry amid COVID-19 disruptions. Visit our COVID-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.