Down is Good (Really)

   These are the people that, but for polite manners and books full of inconvenient statutes, I’d opt to strangle with my bare hands. There’s a difference between optimism and automatic wishful thinking, and problems like the ones we’re facing in the stone industry today can’t be wished away with a perky voice and a big smile.
   So, I’ll step away from the closest mirror and keep my hands away from my throat as I offer this: Today’s downturn may be one of the best things that could happen to the stone trade.
   This isn’t said as a joke, either. It’s tough out there for plenty of people, including some readers who may wonder if they’ll have jobs when Memorial Day rolls around. Almost every indicator shows that business in general, as well as stone sales and fabrication, is slow in the United States.
   Every day, some news item reveals another leak springing from the credit bubble. We’ve gone from foreclosed homeowners to Wall Street investment houses to mortgage brokers to bond insurers on the list of casualties and, hopefully, there aren’t many more surprises left.
   We’re just about through on arguing about applying the term of recession on all of this, and now face whether it’s going to be a speedy or slow recovery. Consumers and businesses continue to alter their plans and watch all the nickels being spent, and that’s going to affect the demand for fabricated stone products.
   More than a few among us wonder if the faint light at the end of the tunnel is the hint of daylight or a fast-approaching freight coming to finish everyone off. I opt for the former, because I believe things will get better sooner rather than later.
   So where’s the good news in all of this? Right now, you’re still here, and you can work hard to survive – and that may be a better position than a few years ago, when everyone rode high in the stone trade.
   Back then, I saw a problem – the industry seemed to be running too good. Maybe you wish you had that kind of problem now – but let me put in context.
   In the grand scheme of American business, dimensional stone is a nice, comfortable bit of organized anarchy. Semi-raw materials (such as slabs and tiles) come streaming into the country from all over the globe to be finished by thousands of mainly small- to middle-sized companies.
   Nearly all those companies, as well as the suppliers, are privately owned, making the production and sales incredibly vexing to track. Followers of the Star Trek science-fiction series will remember the hypercapitalist alien race of the Ferengi, who would’ve looked at the stone trade and recognized one of their founding tenets: In chaos there is profit.
   Unfortunately, the days of flying under the radar in the economy were fast coming to an end. With the price of stone continuing to decline and fabrication technology getting faster, opportunities arose to take dimensional stone from the craft-and-service level to outright commodity manufacturing. It created the possibilities of consolidating (or rolling up) bunches of shops, or building a network of huge factories, to create regional and national producers.
   The first result would be a slash in profit margins, as mass producers enjoy economies of scale to fuel price wars. The second – and possibly harrowing – result is that small and medium shops would face the decision to focus on smaller customer bases for high-profit work, or ramp up their own facilities to capture more and more work with margins that get smaller and smaller.
   It wasn’t a tantalizing future, literally in the best of times.
   The hard brakes applied to housing and other sectors of the economy effectively narrowed, if not closed, the window on this scenario. We’ll still see some supershops, but the age of easy pickings is somewhere out in a half-filled subdivision in Houston or Modesto.
   The result is a reprieve for many fabricators; sure, it doesn’t feel easier in a thin atmosphere of slower orders, but it’s breathing room nonetheless. Inhale deeply and, with some effort, think about the future.
   This is no time to stand still, but it’s a period for making some long-term decisions. You’ll still need to plan for growth, but you can do it with an eye on more-realistic supply-and-demand, instead of the megashop across the city.
   You also need to increase efficiency, and it’s important to keep looking – and buying – large capital assets such as bridge saws, edgers and CNC machines. Maybe you’ve shelved the idea of an extra production line, but you still need to improve and replace the current equipment. Keep that trip to Coverings or StonExpo in the budget, because you can’t afford to fall behind.
   Conditions will be murky at best for the next few months, and possibly for the rest of the year. We’ll see a few friends and competitors go to the wayside, and you’ll need to be smart to remain on track.
   We all have hard work ahead, but it’s for a solid, sure future instead of the frenzy of flat-out production and diminishing returns. We’re in for a few tough lessons, but they’re good ones.
   Maybe there aren’t any silver linings here. But, the clouds will move on.
   Emerson Schwartzkopf can be reached at emerson@stonebusiness.net.

This article first appeared in the March 2008 print edition of Stone Business. ©2008 Western Business Media