Cause for Optimism

Despite a stream of troubling economic news, a surprisingly large number of remodelers surveyed by Qualified Remodeler remain relatively optimistic about business in 2009. Nearly 60 percent expect revenues to be the same or better than 2008. A quarter of those surveyed expect business to be flat, while 18.5 percent expect business to be up 5to10 percent, and 13 percent expect increases of more than that.

Asked what option best describes their 2009 focus, remodelers responded similarly. Nearly two-thirds (64 percent) expect to hold the line on revenue or increase it. Slightly over 10 percent expect to downsize their companies, and another 23 percent describe their business stance as survival mode.

Less than 20 percent surveyed described remodeling activity in their local markets as “vastly declining,” while a slightly smaller number (17 percent) forecast an increase in activity.

That isn’t to say, however, that there aren’t numbers of remodeling firms facing difficult times and wrenching decisions that may include downsizing and laying off valued employees to survive.

Excitement is Back

While acknowledging remodeling activity in the Atlanta area has declined drastically in the last quarter of 2008, Bernie Smith of MasterWorks Design/Build says the economic conditions have brought back the excitement of closing a sale. “Now, closing a sale is just as exciting as it was 10 years ago,” he says.

He notes that competition has grown stiffer. Instead of competing against two or three firms for a job, he’s now competing against 10. “Five of them are builders who are giving extremely low prices. I think they are just trying to stay alive for another few weeks,” he says.

Smith relates that he embarked on a “heavy-duty” marketing campaign when everyone else was putting on the brakes. “We find ourselves spending a lot more to make a lot less. Our margins are down, and our cost of doing business is up,” he says. Nevertheless, Smith is pleased with the results of the marketing push and feels it has given him an advantage.

“Batten the hatches down and be prepared to do whatever you can do to make money” is Smith’s philosophy these days. Adapting to the new economic reality, he’s setting up a division of his company to handle maintenance and handyman work, the sort of essentials he feels homeowners will continue to spend on.

Further, he’s getting set to offer economy kitchen and bathroom remodeling packages with limited options to control costs. That concept may be attractive not only to homeowners who want to upgrade the appearance of their homes at a reduced cost but to the new owners of foreclosed properties who need to upgrade the homes before putting them back on the market.

Yet another option Smith is exploring is buying foreclosed homes in higher end communities — places where Smith has done previous work — and turning them into “green” remodels and giving them a new home warranty.

Canary in the Coal Mine

Doug Walter of Doug Walter Architects in Denver, as a residential architect, perhaps saw the downturn coming sooner than some. “I’m a canary in the coal mine,” he says. “I see work [in the planning stages] months ahead of the contractors.” He notes there wasn’t much work “on the boards” in late 2008, meaning that there won’t be a lot to hit contractors’ desks in the new year.

Nevertheless, he says this is a great time for consumers to remodel, given increased competition and lower interest rates. He’s cautiously optimistic that 2009 will see a modest recovery. “It’s just a question of when people will feel comfortable to start spending on major capital improvements again,” he says.

Gary Collins of Windows and Beyond, a full-service remodeler in Concord, Calif., says the market is as cold and ugly as the weather outside his window when he talked to Qualified Remodeler.

The windows side of Collins’ business, which has been about half of his revenue since he picked it up as a sideline, has seen a big decline. He tells, by contrast, of a client who began work on a kitchen and has expanded the scope to include all three bathrooms in the house.

But those kinds of jobs are the exception. Collins relates that he’s had to downsize, eliminating one of two facilities and office staff, which meant a return to full management on his own.

Has Market Hit Bottom?

In Phoenix, hard hit by the downturn, the market may have bottomed out, says Jack Niner of TNC Remodeling Solutions. He points out the downturn started as far back as two years ago. Remodelers whom he’s talked to report on average a 10 percent decrease in sales for each of the two years. Those contractors have adjusted by decreasing their markup.

“A lot of guys were unaffected — the ones who had their house in order, who were listening and watching and paying attention,” Niner says.

Niner reports that remodelers of his acquaintance are seeing increased calls for major remodels from clients that remodelers may have talked to a year ago.

“[Homeonwers] are bored with the political news and the Wall Street debacle, and they’re tired of waiting,” Niner theorizes. “The market’s ready,” he says.

Another of the challenges mentioned by many of the remodelers who spoke with Qualified Remodeler is competition from new-home builders and carpenters.

They “don’t have the skills to bid the job or to complete it. Builders and unemployed contractors eradicate themselves; they do one or two jobs and they get themselves in so much trouble they never want to look at remodeling again,” Niner says.

Niner suggests that remodelers make every effort to bond with clients from the first phone call rather than when they go out on the initial client meeting. He also suggests they sell design contracts as a profit center instead of giving free estimates.

Perception is Everything

Many remodelers see the public’s perception of the economy as a key. “It’s not that everyone has lost all their money; it’s just that everyone wonders how much they’ll be losing by the time this is over. Have they already taken the big hit or are they about to take it? The uncertainty is killing everyone,” say Mark Glidden of Stone-Glidden in King of Prussia, Pa.

Scott Balentine, president, Lifestyles Custom Homes and Remodeling Inc. in Overland Park, Kan., agrees. “Much of the state of the economy is perceptual; it’s self-fulfilling,” he says. He tells the story, however, of a client who decided to go ahead with a kitchen remodel because the client feels the economy is going to rebound a lot faster that people think. Balentine says he’s picking up that sentiment in conversations with people in the financial industry as well.

Balentine notes clients may be putting projects on hold but are not flat out canceling the projects.

Glidden relates one of the suggestions raised at a breakfast meeting of a group of NARI members — including remodelers who have weathered previous downturns — was getting back to the basics.

“We’ve all been so busy that we lost a lot of the personal touch, one of the things that made us good in the first place; one of those is just sitting across the table from someone and looking at them and having a real conversation.

“We’re not e-mailing proposals; we’re not faxing them or mailing them; we’re hand delivering them,” he adds.