Staying Strong

By definition those remodelers listed in Qualified Remodeler’s Top 500 are not typical remodelers; they’re at the top of their profession. And, yet, even these high performers have felt the impact of the recent economic downturn.

Most have experienced decreases in revenue. There are fewer jobs and those are taking longer to sell. Many remodelers have been forced to make difficult cuts to control costs, particularly in personnel. They’ve survived by knowing their numbers and keeping a tight rein on them.

Most of them have heard enough talk about difficult economic times and are more than ready to think about what’s next. They’re guardedly optimistic about the future, but few expect an abrupt turnaround without challenges.

For many remodelers, most of whom have weathered previous economic slowdowns, the current state of affairs is perceived as more severe than previous downturns. Iris Harrell of Harrell Remodeling Inc. in Mountain View, Calif., (No. 80 on the list) predicts a 35 percent drop in volume in 2009 revenues compared to 2008 figures and says she knows of firms who likely will experience drops as high as 50 percent. “We’ve had downturns before, and we’ve gone down 15 percent, maybe 18 percent,” she says, “but we haven’t had that kind of drop in volume [35 percent] ever.”

Geno Benvenuti, owner of Benvenuti and Stein in Evanston, Ill., (No. 61 on the list) reports a similar downturn. “Our client base is mostly affluent, but they too suffered from the uncertainty and fear that controlled everyone’s thinking,” he says. “It’s difficult when your net worth is halved in a couple of months to consider investing money in your home, an asset that may turn into a financial black hole if you get transferred or lose your job. Indulgence spending was replaced by necessity spending, except for the very well off, which we have been fortunate to have as a major part of our client base.”

“Our problem is diminished opportunities,” says David Amundson, owner and president of TreHus Architects+Interior Designers+Builders in Minneapolis (No. 203 on the list). “We have some work going on, and it’s good work. We’re still able to charge what we need to charge, but everything is harder this year. It’s a much tighter market,” he relates.

Downturn is relative for some

For some remodelers the downturn is relative. Joseph Kupstas, co-owner and co-founder of GoodFellas Construction Management, LLC, in Worcester, Mass. (No. 416 on the list), has been in business just over five years and in some ways hasn’t seen the flush times experienced by those who have been in the business longer. “We didn’t own a business during a boom. I think we’re going to be very strong because we experienced a down market; it’s really all we know. Other companies might be trying to change and adapt to what’s happening right now; we don’t know any different,” he says.

Kupstas says his company is looking forward to its best fall ever, with multiple projects, many of them self-funded by homeowners. Indeed, bank financing is often a sticking point. “I think there may be one project out of 20 or 30 that might have a bank involved,” he says.

“I can definitely see that there’s a major downturn in our area,” Kupstas acknowledges. “There are companies we competed against when we started and which had been in business 20 years, and they’re gone. But we have more work than we can handle. We’re doing something different. We’re making the phone ring and not waiting for it to ring. A lot of people just seem to be sitting and waiting,” he says.

Perception, in addition to economic reality, has a lot to do with homeowner decisions to remodel or not to remodel, according to several remodelers who spoke with Qualified Remodeler. Neal Hendy of Neal’s Design-Remodel in Cincinnati (No. 229 on the list) points out that among his professional and entrepreneurial clients who might otherwise have the means to undertake a project, there is a reluctance to do so because of the out-of-touch impression it might leave. “They’ve had to lay people off and they don’t want to be seen as poor leaders,” he explains.

Hard decisions

Retaining staff is a major worry for most remodelers. “My most expensive overhead item is people, and my most valued asset is the people that took me years to find, train and make into the kind of team that I have,” says Amundson.
“You try to hang on to those people for as long as possible, and the fear is if you let those people go, who are you going to get onboard to do a good job when the economy turns around?” he asks. “I’ve hung on to good people, I’ve sacrificed this year to keep them, and I still have a core group of good people. I’m hoping and praying that I can keep the core of good people I have now,” he says.

Harrell has worked hard to keep staff cuts to a minimum. “We need this core group because as soon this turns around we’re all going to be busy.” To retain as many staff as possible, the company has taken measures such as dropping salaries 5 percent and instituting several unpaid holidays.

“We’re not asking people to come in and work for nothing,” Harrell says. “When they aren’t getting paid, we want them to go home. I think some companies are taking advantage. They cut their pay and then they expect them to stay there and work, but we’re not going to allow that,” she adds.

Benvenuti, likewise, has made management and operational changes. In 2008 the firm instituted “open book” management. “Essentially, everyone in the company gets to see where we stand on a weekly basis,” he explains. “They see numbers for each department for income, direct costs, overhead expenses, and net profit. If we hit certain goals, everyone shares a bonus.”

For 2009, the company slashed expenses, cutting paid holidays, company 401k contributions and even the company picnic and Christmas party. In May, everyone took a 10 percent cut in pay. “We cut our overhead budget for 2009 by 12 percent and currently we are 16 percent below last year through July, Benvenuti says.

“This year the bonus goal has been job security,” says Benvenuti. “However, if we continue on our current track, there will also be a cash bonus. This management tool has everyone on the same page and focused on the numbers.”

Marketing goes on

Harrell says her firm’s drop in revenue hasn’t been greater partly because she has kept her marketing budget at the same levels as during higher grossing years. “We did not cut the marketing budget when we cut everything else,” she says.

One area where Harrell has been creative is in posting jobsite signs. The company has asked former clients in high-traffic areas if they can put up a sign for 30 days in exchange for a donation of $25 to their favorite charity or non-profit. Eight percent of our work in the first six months of the year was from jobsite signs, she reports.

Harrell also notes that her company is doing more networking and face-to-face marketing. Harrell employees regularly participate in local organizations such as chamber of commerce groups and service clubs. Consumer workshops on remodeling are another avenue that Harrell uses. The workshops are something the company had done previously, but like most remodelers who are looking for ways to make existing marketing efforts more effective, Harrell is putting renewed effort into them and looking to present them in fresh ways to increase their impact. Where the events used to be held at Harrell’s design center, they are now held at additional venues in the community, including a bookstore, a restaurant and a community center.

With large-scale remodeling jobs becoming harder to come by, many remodelers have created “handyman” divisions, though many are not using the “handyman” moniker. At Harrell Remodeling it’s called Harrell CARE, which stands for construction and repair experts.

“We are heavily branded as a design/build company,” Harrell explains. In the past the company did repair work just for past clients. “Now we have a division for repair work and that division is going really strong.” Harrell CARE not only accepts repair and maintenance work from new and past clients, but it will also take on smaller jobs such as a face-lift in a kitchen or a bathroom. She sees the division as a permanent change that will continue even when the economy improves.

Benvenuti prefers to think of his company’s repair and maintenance work as more of a concierge service. The service, founded several years ago, is a means for the company to stay in touch with its previous clients. “We set the same level of service,” Benvenuti says, “whether it’s a $2,000 job or a $2 million project.”

Neal’s Design-Remodel added a handyman division for similar reasons but has not expanded it beyond the company’s client base at present, says company president Neal Hendy, CR. “We have a lot of repeat and referral work, and this gives us one more avenue to keep clients in the network,” he says.

Signs of improvement

Harrell does see signs of improvement. “I think there’s already some pent-up demand. Americans aren’t very good at deferred gratification, so at some point they’re going to come out of their bunkers if they feel their jobs are secure,” Harrell says. She reports more leads in July than she’s ever had in a single month.

“But,” she cautions, “it’s going to take more of those [leads] to turn into work because the close ratio will be down. I think it’s going to be a long time before it feels like 1999 again.”

Benvenuti has also noted an uptick in inquiries. “The phones went silent through most of 2008 and stayed that way until February/March of 2009, when we received more inquiries than all of 2008,” he says. “We were fortunate to have a substantial backlog of work that carried us through the second half of 2007 and 2008 and into 2009,” he adds.

“I believe the downturn will continue for some time. While there has been a positive bump in calls and projects moving forward, which interestingly has mirrored the stock market’s moves, I expect this cloud to hang over remodeling and well into and through 2010 and perhaps beyond,” he continues.

“At this point it would be difficult to imagine the return to the levels of spending that we saw from 2003-2006 or even 1987-1991 when ‘more was more.’ What we are going through is a sobering experience and will force everyone in our industry to work much harder and leaner. Clients will expect a great deal and scrutinize every dollar they spend, no matter how affluent they may be,” Benvenuti says.