Deck Maker’s $450 Million Bet on America’s Renovation Boom
Home-improvement spending is forecast to fall, but Trex is expanding
WINCHESTER, Va.—High-interest rates have squeezed the housing market, but a leading maker of weatherproof decking is betting $450 million that Americans will add on to their homes rather than try to move to new ones.
Trex TREX -1.13%decrease; red down pointing triangle, which makes composite boards with sawdust and old plastic bags, is building a factory in Little Rock, Ark., that will greatly boost its manufacturing capacity and give the firm a foothold in the South. It is also rolling out new lines of premium decking. One mimics hardwoods, like redwood and ipe. Another, for the Sunbelt expansion, is cooler on the feet.
It might seem like an untimely wager for a massive expansion given that renovation spending is forecast to sputter and home-improvement stores are reporting declining sales. Few expected deck-building to boom during the pandemic lockdown, though, and Trex could hardly keep up with demand that summer four years ago.
“The biggest risk is doing nothing,” said Trex Chief Executive Bryan Fairbanks. “If we have a recession in between now and when we launch it, or even a year after, fine.”
Trex sits at crosscurrents in the economy. Wall Street has been fearing recession since the Federal Reserve began raising interest rates in 2022. Yet the highest borrowing costs in a generation have hardly fazed consumers, whose spending has kept inflation up and delayed interest-rate cuts.
The construction and remodeling sectors have been especially resilient, given that they are usually among the first to decline and suffer job loss when borrowing costs are high.
Lately, however, cracks are beginning to show, particularly around the house.
A widely cited barometer of the remodeling market is pointing to the first annual decline in home-improvement spending since the housing bust of the late 2000s. That would follow a run up to last year’s record $481 billion, threatening a reliable source of economic growth and stock-market gains.
Companies usually try to avoid expanding into economic downturns. But if growth continues, or if Americans renovate through recession, firms like Trex risk not meeting demand and being replaced on store shelves and in blueprints. That is where the Arkansas plant comes in.
“The long-term value will be having that asset on the ground so that we can build into growth,” Fairbanks said.
Trex’s inventor is Roger Wittenberg, a Tampa, Fla., tinkerer who piled up plastic bags making animal feed with stale bread. Mobil, the oil company now part of Exxon Mobil, bought the business hoping to offset criticism of its plastic production by owning a recycler. The oil company lost interest, though, and executives running Trex bought the business and sold shares a few years later, in 1999.
Trex is betting it can win market share from wood and that homeowners locked into cheap mortgages will add outdoor living space rather than move.
“You see couches, pergolas, TVs, kitchens, all being built on these decks,” Fairbanks said. “It’s an efficient way for people to build on to their existing homes.”
Trex competes with Southern yellow pine, which is pressure-treated with chemicals to improve durability. Pine boards have tumbled from their pandemic highs to trade this spring at some of the lowest prices in nearly a decade. Sawmills are curtailing production.
At current prices, entry-level Trex boards cost about 50% more than pressure-treated pine. Customers interested in the company’s highest-level offerings aren’t very price sensitive, Fairbanks said.
A problem for the overall remodeling market is low turnover in the housing market. Much is spent sprucing up houses before they are listed for sale. Buyers practically run to the hardware store once they get keys. Millions of Americans are locked into some of the lowest home-loan rates ever. They might have to pay twice the rate of their current note for a mortgage these days.
Another issue is that a lot of people have just built decks and renovated their kitchens.
At Home Depot, business is down from contractors and do-it-yourselfers alike.
First-quarter sales declined 2.3%, and executives said there were 6.5% fewer big-ticket sales, or those of more than $1,000.
The prospect of the Fed cutting rates has customers putting off projects that they would have to finance or borrow against their home to pay for, said finance chief Richard McPhail.
“It’s not the inability to fund projects, it’s a deferral mindset,” he told investors this month.
What used to be a month of back and forth with drawings and emails has stretched to two or three with customers, said Ed Pacylowski, owner of ProBuilt Construction, which uses Trex’s composite boards to build elaborate decks around Baltimore and Washington, D.C. Still, business is steady for projects that usually cost between $80,000 and $100,000 and often involve swimming pools and outdoor kitchens.
“There’s a huge hesitation on the customers’ end,” Pacylowski said. “I’m having to go back to work a lot more as far as meeting the customers, answering their questions, trying to convince them to do it now rather than later.”
Yet there are powerful forces in favor of remodeling. Rising property values have given Americans $31.8 trillion of home equity. That mountain of money has become more expensive to tap, but it is viewed in C-suites and on Wall Street as dry powder to reignite the remodeling boom once rates decline.
Meanwhile, the American home, on average, keeps getting older. Many are in need of upkeep and upgrades. A lot of wood decks are worn out.
Wesley Brawner, in Kennesaw, Ga., said his company’s five decking crews are booked up for summer, though it took a little longer than usual. Clients rarely finance or borrow against their homes to pay for the decks, which can cost six figures.
It was a tough pitch when he started selling Trex deep in the pine belt, with its cheap and abundant wood. But composite lumber, which never needs staining or sealing, has caught on. Buyers who tend to be in their 50s or older and retired want decks without much maintenance. High rates typically don’t factor into their spending decisions—except in the sense that investment returns have yielded cash to pay for their dream decks.
“They’ve made their money,” Brawner said. “They’re on deck No. 2 or 3.”
At Trex’s plant in Winchester, Va., bales of pallet wrap and recycled grocery bags are piled onto conveyor belts that feed the polyethylene into grinders. The plastic is melted and mixed with wood dust made from scraps Trex gets from flooring and furniture makers.
A Trex board is roughly half wood, half plastic. A 400-square-foot deck contains more than 1,500 pounds of recycled material. Beyond that, Trex guards details of its manufacturing process like the recipe for Coca-Cola, prohibiting photography in its plants and rarely filing patents to protect its methods or machinery.
“Most of what we do, we don’t want on a piece of paper,” said Adam Zambanini, chief operating officer.
The Little Rock facility, being built on 300 acres with room to expand, probably won’t be producing decking until 2026. Until then, Trex is filling shelves east of the Rockies from Winchester.
Originally a record-pressing plant, the factory was expanded during the pandemic along with the company’s facility in Nevada, which supplies the West Coast. All together, the work cost about $200 million and boosted Trex’s manufacturing capacity by about 70%. That too was a big bet made amid economic uncertainty that has paid off, Fairbanks said.
“In 2020 we basically sold out,” he said. “I can’t imagine what the story about Trex would have been if we didn’t have this building coming online.”