February, 2008

How to Sell to Remodelers

Tap this lucrative category by understanding the challenges they face. 

By Rob Fanjoy

Ed. Note: As new home sales slow or even stall out in parts of the country, many LBM dealers are refocusing their efforts on serving the remodeling community, where business tends to grow as homeowners elect to remodel their current house rather than to move.

But as with homebuilders, where your customers fall into subcategories such as production- or custom-, not all remodeling firms are created equal. Understanding your remodeler customers—and the unique or similar challenges they face—requires knowing a bit more about their day-to-day concerns.

Qualified Remodeler magazine, a national publication that serves professional remodelers across the country, recently issued its annual Top 500 list, a yearly survey of the biggest remodelers in the country and their categories. QR also asked these remodelers to share their outlook for their area of the country, and to explain what they plan to do to secure business in the coming months. LBM Journal is pleased to bring you some of the highlights of those interviews. 

With new building at a standstill across most of the country, LBM dealers are rediscovering that their smaller volume customers are more and more important to their bottom line.

Some dealers neglect remodeling contractors because their smaller orders are dwarfed by even small to medium-sized production building firms. In economic times like these, however, dealers who don’t take very good care of remodelers and smaller firms do so at their own peril.

Production builders with a backlog of homes won’t be buying many new materials, but smaller construction firms of all types—from specialty remodelers to design/build firms to full service contractors—are finding the renovation market stronger than new construction in most areas. After all, when new homes become riskier in the eyes of consumers, many look to invest in their current homes.

It takes a bit of finesse to serve many of these smaller firms; they often can’t order all their materials up front because they may not know they need something until they tear apart a few walls. They also may not be as concerned with a set construction schedule as they are on matching some existing material that may be hard to find.

But these firms also present a significant profit potential. These smaller clients will often consolidate their purchases with dealers and buy higher-margin materials. They are often more flexible on price and are willing to pay a little more for spot deliveries and rush orders, but they expect a certain level of service for those premiums.

Principals from the following remodeling firms shared their experiences with the current construction climate, explaining what has worked for them and what hasn’t.

A little insight into their current situation could serve an attentive LBM dealer well, keeping both sides not only competitive, but profitable as well.

Anyone who is paying attention to national forecasts for the construction industry may be understandably confused by the mixed signals. New home sales might jump in one month, prompting optimistic quotes from some industry experts, while in the same month, prices may drop drastically and then the news is all about the poor overall health of the market. The fact is (and it’s no secret), national numbers are skewed right now because some markets are really suffering, while other parts of the country are going great guns.

Below is a snapshot of remodeling activity across the country, from a variety of firms who specialize in varied work.

Specialty Firms

For specialty remodeling firms, including those who focus on exterior work or other single-line contracting firms, the outlook for jobs in coming months depends largely on the area in which the firm works.

Anthony Wizner, president of ABA Home Remodelers in Clifton, N.J., is one of those unfortunate construction souls stuck in a slow market. “It’s pretty crappy right now, but it’s what it’s supposed to be. We had a good ride for awhile and it was just a matter of time before we had a correction,” says Wizner.

With 35 years of experience, Wizner says he and his team at ABA (No. 316 on the Top 500 list)—anticipated this downturn. They prepared by paying down debt, increasing lines of credit, and keeping cash reserves on hand.

“I know how these slowdowns can hurt,” says Wizner. “I’ve been through three or four of these over the years and this is the first one we prepared well for and it hasn’t hurt.”

Like many remodelers who are working in slow markets, Wizner says the work is still there to a large extent, but clients are more cautious and hesitant to commit to large remodeling jobs. “It’s a lot harder to sign clients and get your numbers right now. We’re in a high-end market and we have to work harder to get clients. Plus, they want to scale down their jobs, so we might get a $500,000 addition where three years ago, it would have been $750,000,” Wizner says.

In some areas, the market has simply returned to normal—which can be a good thing. “After Hurricane Ivan in 2004, remodeling around here was very strong,” says Brandon Irwin, marketing director for 1st Choice Home Improvement in Pensacola, Fla., which comes in at No. 322 on this year’s list. “But now it’s back down to normal pre-hurricane levels. It may seem slow to some, but it’s really just normal.”

And in the Northwest, especially parts of Washington and Oregon, there are no signs of a slowdown at all. “[2006] was great, and we’re tracking [for 2007] to be a little better,” says Mark Tiffee, president of A Cut Above Exteriors in Portland, Ore. “We had our big downturn just after the terrorist attacks on Sept. 11 and our corrections occurred then,” says Tiffee, whose company ranks No. 72 this year.

“New construction has slowed a bit in places, but with a steady influx of new residents, our overall market is now very strong.”

On the Florida Panhandle, Irwin sees some of the negative effects of the post-hurricane boom as now presenting opportunities. “We had a lot of remodeling companies pop up after the storms—in fact, a lot of us call them ‘storm chasers.’ And they would engage in unethical or downright illegal practices such as lowball pricing or building without permits,” says Irwin. “We had to really compete with them for jobs there for awhile, but now we’re getting a lot of calls to fix their shoddy work.”

Irwin also sees the Gulf Coast market, even though it is one where new construction has slowed, as a very strong remodeling market. “As the market balances, we see the remodeling industry as wide open for us. We predict a lot of work,” he says.

Wizner, while not so optimistic in his assessment of the northern New Jersey market, still sees potential—and a light at the end of the tunnel. “We’ll continue to mine our architect, trade contractor, and previous client lists and secure business,” he says. “And we’ll still be here when the dust settles.”

Design-Build Remodelers

The design/build segment of the remodeling market has no special immunity from the same market forces that are shaping—for better or for worse—the national construction industry as a whole. Currently, the national construction outlook is murky, with pockets of strong and weak activity scattered among a largely tepid country. And so it goes for design/build firms in this country. Some are logging strong numbers; others are struggling.

H. Dale Contant, president of Atlanta Design & Build of Marietta, Ga., is president of his local NARI chapter, and as such, he says he hears a lot of different stories, both good and bad. “Home sales are way off around our region, so a lot of builders are trying to move into remodeling,” says Contant, whose firm is ranked No. 453 this year. “That has hurt a lot of the smaller guys around here, but most of the mid-sized to larger companies are doing fair to quite well—and I’m happy to count myself among them.”

Dennis Gehman of Gehman Custom Remodeling in Harleysville, Pa., says his market shows all the potential of being quite strong, but clients are just not signing on the dotted line. “Calls are up, but jobs are down,” says Gehman, president of the No. 359 firm on this year’s list.

Gehman says bathroom projects remain strong in his company, and he attributes that to a new showroom with a strong bathroom component. But larger additions and whole house remodels are tailing off fairly heavily. “I think people just aren’t feeling as confident or secure in their finances as they did a short time ago,” he says.

Case Design/Remodeling, No. 10 this year, is a large company with a national presence, so it experiences what the national building market experiences. “It’s dropped off a bit over the last 12 to 18 months, but the jobs are still there in most places,” says Mark Richardson, president of the Bethesda, Md.-based company. “We used to be able to pick the apples up off the ground, but now we have to go up the tree to get them.”                                  

Aside from a generally overall healthy construction climate in his area—new home sales notwithstanding—Contant cites his firm’s marketing as a big factor in it being able to maintain a strong presence in the market. “We have a good Web presence, and we get exposure when we contribute to local and national magazines, but most of it is keeping in touch with past clients,” says Contant. “We send out a newsletter and postcards to them, but what we’re really focusing on now is training our people every day in how to better deal with our customers to give them a great experience. That could end up being our most effective marketing tool.”

One thing that Contant has noticed in his region of slowing new home sales is that new opportunities are popping up for remodelers, sometimes at the expense of new homebuilders’ misfortune. “There has been an influx of trade contractors and builders getting into remodeling, and that provides a measure of stiff competition,” he says. “But that also means that there has been an influx of qualified labor into the market, and we in this industry are always worried about finding good people.”

Contant also says that with the hard times a lot of the national builders are having, vendors and suppliers are starting to shift away from offering special services to them and opting instead to deal with remodelers. “They’re starting to recognize us as good sources of revenue,” says Contant.

Like many in the construction industry as a whole, Richardson is starting to look at offering additional and specialized services to potential clients. “We’re looking at green remodeling, aging-in-place services and other special design aspects that would not only further diversify our portfolio, but also as another way to deliver more value to the client—which is exactly what they’re looking for these days.”

Gehman says his firm could have been better prepared for the current slowdown, but it will be stronger once the upturn comes. “We’ve cut back a lot on overhead, and a lot of that means we’re just more efficient. But we should have cut back a little sooner because we also had to let a few good people go,” he says.

Despite that and the fact that he’s hearing more interested calls than seeing contracts signed, Gehman remains optimistic about the future for his market north of Philadelphia. “I’m hoping that things will pick up [this] spring because a lot of people have been planning remodeling projects for awhile.”

Full-Service, Diversified Remodelers

Diversification is often seen as a growth strategy: When times are great and remodeling firms are looking for a way to exponentially increase volume, offering more services and adding employees is a natural choice. But remodeling companies who are already diverse in their offerings seem poised to better weather the current downturn.

“Remodeling activity has been strong in our area for those companies who already are or are becoming more diverse,” says Allan Terhune Sr., president and owner of ATCO ENT Inc. in Beechwood, N.J., No. 474 on this year’s list. “It’s definitely been better than new construction in our area.”                                        

Terhune says that with the drop-off in new home sales and construction throughout the Northeast, customers want to stay in their homes longer and are often undertaking larger, more complex jobs such as room additions and even whole-house remodels. “The specialty firms in our area have to compete on price only. Companies that offer soup-to-nuts service are poised for a stronger presence.”

Terhune says the strongest segment of his business has been with higher-end clients. “They usually want more than just their siding redone. They usually add a few other things to the job as well.”

In markets suffering through slower sales and lowered prices, many remodelers say they still have plenty of potential jobs out there, but those jobs may be harder to get. “People are looking more carefully at remodeling jobs, and price is not the only factor like it may have been a couple years ago. Value is the big word now—both in terms of what the job will bring to the home and what kind of experience you can provide to the customer,” says Terhune.

Josh Baker, president of Bowa Builders (No. 22) in McLean, Va., agrees. “The jobs are still there, but clients are always becoming better educated and more value-focused. Clients are just more careful with their money in times like this.”

Baker also sees an opportunity in the current downturn: “It’s always a challenge to find and keep the right people, but now’s the time to be aligning teams of the best suppliers, trades, engineers, designers, and whoever else you can to deliver an enjoyable experience for the client and add value to a home. It’s what times like these are all about.”

The slowdown has also begun to affect the normally robust California construction market. Dennis Allen, LEED AP and president of Allen Associates (No. 66) of Santa Barbara, says things have slowed down a bit in his region. “It held strong until the beginning of [2007]. We [didn’t] hit our projected numbers, but we should still hold to what we did [in 2006]—which was our best year ever,” he says.

Allen says what has helped his company remain strong when others are faltering are his green offerings. As a LEED-accredited professional, Allen incorporates a lot of ecological and energy-saving features into his remodels and has occupied the green niche in his market for 30 years.

“Green has helped us weather the storm better than some other companies,” says Allen. “It really helps in our marketing efforts as we get called upon to help with public presentations about green building, as sources for magazine articles and as members of some pretty high-profile projects. It gives us tremendous credibility with the community and is far less expensive than traditional marketing.”

Terhune agrees that green is an increasingly important aspect of remodeling, and contractors can capitalize on public demand for earth-friendly and money-saving building products and strategies. “There’s definitely an opportunity in offering energy-saving upgrades like low-E windows and upgraded insulation. Even if the client isn’t necessarily looking at their remodel from an ecological perspective, almost everyone loves the economical benefits of lower energy bills,” says Terhune.

Allen also sees further opportunities in growing the green component of his business. Even now, as many companies are cutting back on marketing budgets or outside training for their employees, Allen is investing in overhauling his entire sales program. “We’re working with outside consultants and investing a lot of time and resources in setting up a more proactive sales program,” he says. “We’re learning new skills, training new people, and trying to set up a more streamlined, systematic approach in order to incorporate green into our sales processes.”

Allen is also among the first group of remodelers to become active in the new LEED (Leadership in Energy and Environmental Design) for Homes program, which provides a roadmap for incorporating green features into building renovations. He says it not only helps his company plan and implement cost-effective green strategies into his projects, but garners his firm a lot of attention and public goodwill. “I’d encourage every remodeler to move as rapidly and responsibly toward green as they can. It’s just a great opportunity today,” says Terhune.

Terhune sees the challenges of the past months as really just another set of opportunities. While he says that every good remodeler is always striving to keep overhead and materials costs under control, and finding and retaining good employees is always difficult, times like these have forced his company to truly focus on these aspects.

“We’ve been working hard to forge good relationships with vendors, suppliers, financiers, and our trades, and we’ve expanded our benefits packages to attract and keep the best of the available workforce,” says Terhune. “More than just shoring our business up for hard times, it’s those things that will really help us grow and remain even stronger when things turn around.”

Rob Fanjoy is a full-time freelancer contributing to various trade and consumer publications related to the construction industry.