Trex: marketing hype and unproven technology

This blog post is in reference to John Hempton’s post on Trex; the post points out that Trex’s operating margins are suspiciously high.  I haven’t uncovered enough about Trex that would suggest to me that there is some form of egregious accounting fraud occurring.  However, I can see how Trex’s margins can appear to be so high. This industry does not sell a commodity.  Rather, the industry sells marketing hype and unproven technology.

Trex was one of the companies that pioneered the use of wood-plastic composites as decking material over 2 decades ago.  Unfortunately, the composite materials did not live up to their fanfare and marketing hype (e.g. zero maintenance, lasts longer than wood, etc.).  There have been issues with composite deck materials from virtually all manufacturers that have led to recalls, expensive warranty claims, and class action lawsuits.  Some manufacturers have gone bankrupt and were not able to pay out all warranty claims, leaving homeowners holding the bag.

The current practice is for manufacturers to exclude known problems from their written warranties.  These written warranties do not obligate them to stand behind their marketing hype.

(*Disclosure:  No position.)

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