Feeble optimism in construction market doesn’t help building-related sectors

  • 2011-03-30
  • By Linas Jegelevicius

UNFURNISHED: Though the furniture industry was hit hard during the crisis, a slow recovery is attracting new companies to the business.

KLAIPEDA - Gripped in a dead-lock by the credit-crunch for over one-and-a-half years, the surviving construction companies today are off to a cautious but undeniable scramble upward, as one can see construction cranes turning again. Laimutis Pinkevicius, owner of the famed construction empire Ranga Group, exhausted by numerous lawsuits to settle mounting bills, is set to take on new business projects – not all of them as previously, only those that will certainly pay off. “Today in Lithuania only residential construction is necessary, not other kinds,” Pinkevicius says, matter-of-factly. Only a few years ago, with the credit-crunch already strangling every builder, he seemed unsinkable, capable of sailing through the turbulent economic waters unscathed. However, unlike some contractors, the crisis did not give into cajoling, instead tearing away a chunk of the mega-entrepreneur’s assets. It may become even more painful as the known businessman still tries to shake off lengthy and costly litigation with the most gnarled clients. Nevertheless, all the worst may be dwindling away, as the construction market treads ahead, sparking cautious optimism to such sector-related fields as furnishings, plastic windows and electrical appliance sales.

“It is too early to speak of a clear-cut recovery, but we are moving there. No doubt,” Raimundas Vaiciunas, director of Fornestas, an enterprise specializing in the manufacture of oak furniture, said recently. Thus, in 2010, following a 20 percent plummet in sales in 2009 versus 2008, a 15 percent output growth was reported. However, the gain is still quite far away from the best results in the booming economy, throughout 2006-2008. “Furniture manufacturers were flourishing when the real estate market was prospering. With its shake-up, we suffered as well. We were fortunate to find a quick way out, moving in to foreign markets substantively. Though orders there, as a rule, are fewer, they are of bigger value. We have managed to increase our exports up to 90 percent of all output. It does level off all the drastic fluctuations in the domestic market,” Vaiciunas admitted.

He says that even during the peak of the crisis, through the end of 2008 and the first half-year of 2009, Fornestas managed to keep its most devoted customers. “There are always furniture buyers who need high quality natural furniture,” the entrepreneur maintains. Notwithstanding the decreased purchasing power of the clientele, the man did not give in to the universal trend of price-slashing, leaving the prices for most pieces of his furniture unaltered. “The bulk of the price is made up by the cost of raw materials. The price of oak-timber did not get cheaper at all throughout these several years, so we had to stick with the pre-crisis prices. For example, Fornestas’ dining table, one of the most sought-after pieces of furniture we deliver, is price-pegged at 1,000-1,500 litas (roughly 300-428 euros).

However, this does not deter our most devoted clients,” Vaiciunas said. While Lithuanians may not be as picky as Western clients, Fornestas strives to renew it furniture assortment as often as possible. “We pursue the preparation of samples of new furniture for every exhibition. We have been seeing much interest in our selection lately, particularly in the German market,” the entrepreneur said.

According to statistics, there were 803 furniture manufacturers in 2010, a meager slip from 2009, reporting 821 manufacturers. However, it is down by 33 compared to 2008. Though the past crisis has hit the industry hard, it has not staved off business-minded furniture people willing to try their entrepreneurship… and luck. Thus, 64 new furniture-manufacturing undertakings were established in 2009, and 42 last year. Other statistics on furniture output also show that the market is slightly recovering. For example, over last year’s eleven months, 1.2 million chairs and other pieces of furniture aimed for sitting were manufactured. It was a slight increase from 2009, however, a significant drop from 2008, with 1.7 million pieces of these kinds of furniture made. As for kitchen furniture output, according to the Statistics Department, it is still decreasing, however, not so drastically.

Throughout January to November of 2008, 90,000 sets of kitchen furniture were manufactured, followed with more than 50 percent drop in 2009, reporting only 42,000 sets, and still going down in 2010, with a mere 35,000 sets of furniture.
In the troubled times, local furniture manufacturers found the only solution to stay afloat – switching gears from the cumbersome domestic market to more crisis-proof export markets. Throughout January to November of 2008, 1.1 million pieces of office furniture were sold in the Lithuanian market, versus 323,000 pieces of furniture for export. In the same period of 2009, the furniture exports sliced off a bigger bulk of the output – 186,000 pieces of Lithuanian furniture went abroad, compared to 104,000 pieces left in the domestic market. The difference is even more staggering in last year’s nine-month stretch – 481,000 pieces were exported, while a meager 78,000 pieces of the furniture were sold to Lithuanian customers.

The declining trend marked sales of other kinds of furniture as well. However, after the whopping fall throughout the end of 2008 and all of 2009, sales of bedroom, dining room and sitting-room furniture picked up in numbers last year, even surpassing the 2009 level.

Topo Grupe, operating one of the biggest chains of electrical appliances and electronics in the country, Topo Centras, signals that the sector has ultimately bounced back. “Our sales have started to grow. It shows that expectations of local customers are improving, and people tend to spend money again. We expect to see a 10 percent rise in sales this year. That is inspiring,” Aurelijus Rusteika maintained to the business daily Verslo zinios recently. He said that electric appliance sales had hit a snag a year before – customers were weary, and that corresponded with the results. “With a 44 percent sales shrinkage in 2009, Lithuania crept along the very bottom of all European countries, breaking all-time record lows,” Rusteika noted. A survey by GfK Retail and Technology Baltic, a market research company, showed more optimism last year, reporting a six percent rise in electric appliance and electronics sales. Rusteika predicts TV set sales to rise 30 percent this year, overtaking computer sales, presumably up 15 percent in 2011. Topo Grupe runs Topo Centras stores and four stores under the trademark known as “Euronics.” The group plans to open up 15 new “Euronics” stores over two years.

SKP Stiklas, a manufacturer of glass packets, “layer-cake” sheets of glass and air chambers, in a vernacular known as plastic windows, asserts that the downturn is swiftly receding and the market is recovering. Hence, output of the company last year grew 44 percent, up to 18.2 million litas. “Most importantly, the venture has gotten rid of the accumulated loss,” Zydrunas Mockevicius, SKP Stiklas director, rejoiced to The Baltic Times. The entrepreneur says that 2010 was a turning point in the troubled market. “While in 2009 many glass packet-producing undertakings went into bankruptcy and measured their loss not as much by percent as much by volume, in 2010, the entrepreneurs took on a more pro-active stance, even establishing several new undertakings. Though the volume of orders was significantly less than in the pre-crisis years, some optimism, nevertheless, showed up,” the businessman related.

He says that the times of a decrease in staple prices and salaries is definitely in the past. “Many glass packet makers that stayed afloat have adapted to the new conditions, found new markets and optimized their output capacities while minimizing their expenses. Therefore, for future-oriented investors, it is high time to assume new unchartered projects as, being already late, they risk dealing with the growing dearness of construction materials,” Mockevicius admonishes. He maintains that this year, most of these kinds of enterprises having bottomed out, will gradually increase their output, especially that aimed at export. “Actually, for SKP Stiklas, he says the recovery started in 2010, when the venture connected with several similar Danish undertakings. “We directly supply two Danish ventures with glass packets. We have been working with one of them for over one year now, while we only started to work with the other last year. Thus, our export production grew 56 percent last year, up to 350,000 units,” the businessman revealed.

He emphasized that proper management of money flows during the crisis was of utmost importance. “We got rid of the practice of giving large credits for our goods and services, even with signed agreements. Instead, our enterprise started to offer the lowest prices in the segment, but we demanded fast bill-payment. With current assets flowing smoothly, the new approach allowed us to not experience production disruptions – to settle timely with our staple providers, workers and the state. We are going to stick to the practice for now,” Mockevicius said. He predicts a 10-20 percent output growth in his company this year. “If we succeed in implementing all our plans, the rise will be even more significant, which would let us create new work places and hire from 10 to 20 new workers,” the entrepreneur sounded optimistic. SKP Stiklas’ glass packets and other production go not only to Scandinavian countries, but also the UK, Azerbaijan, Kazakhstan and the United States.

Arvydas Klimkevicius, executive director of Lithuania’s Window and Door Manufacturer Association, asserts that only those entrepreneurs that have successfully switched to export and considerably increased production can breathe easier. “Alas, all that upbeat information that I see in our media that construction is in ‘a full swing’ is, mildly speaking, slightly exaggerated. There may be certain signs of recovery in certain construction sectors, but I do not see them in window and door sales,” Klimkevicius said to The Baltic Times. He emphasizes that lately, the market is glutted with poor-quality and uncertified production. “Those undertakings that have invested in production technologies, quality certificates and other quality-assuring measures, due to 40-50 percent of the production being of ‘doubtful’ quality, do experience serious financial difficulties. Alas, unlike in Scandinavia, we do not have any state agency in charge of quality checks of the production,” Klimkevicius lamented.
According to him, one-third of shoddy window and door production is brought in from Poland. “It slashes the prices and distorts the market,” the association’s director stressed. There are roughly 150 window and door makers in the country. Approximately 30 percent of all output goes for private clients. “We have counted on the state apartment building renovation program and state orders for our production. However, it is not something that will happen any time soon. With new construction off to a cautious start, we do not feel any improvement in the market yet,” Klimkevicius inferred to The Baltic Times.

Ceslovas Kovera is the former president of Lithuania’s Construction Material Trade Association and an ex-owner of an individual enterprise specializing in sales of construction materials. “I am the one that has been drowned by the crisis. As I provided the stuff only for one client, after he went bankrupt, he dragged me to the bottom too. While the construction sector is still very sluggish, all relevant sectors are dealing with considerable difficulties. Therefore, I have taken on what is something more stable and robust today – logistics and haulage,” Kovera acknowledged.

He hopefully expects a rewarding outcome from a negotiation with a Greek company, intending to open up several construction material chain stores in the Baltics. “If they pick me up as their representative, it will be, in a way, my comeback to the business. However, it will be in a slightly different position,” the businessman admitted. He asserts that the ventures that specialized in both construction material sales and construction have suffered the most from the downturn. “While the economy was booming, a sheer majority of the business people would invest all their current assets in new construction, land or luxury goods. With the crisis strangling them, all went into disarray. So now we see a good deal of businessmen driving luxury Mercedes, but borrowing cash to fill up their tanks,” Kovera admitted.