The Top 500: Bigger and Better

Specialty Firms Remain Strong

Despite tightening construction markets around much of the country, most remodeling firms that specialize in a few key areas are still going strong. In many cases, these firms are going strong because the new construction market is weakening.

“New building is slowing down in our area,” says Scot Hayes, owner of New York Sash in Whitesboro, N.Y. (No. 360). “But we’re seeing a corresponding “cocooning” effect where people are spending more money on their existing homes rather than building or buying new.”

Higher interest rates and rapidly rising energy costs are surely two of the main factors for the new construction slowdown. But many remodelers see the spike in energy and fuel prices as actually helping their business. Mike Lumary, a partner in Clearview Home Improvement (No. 157) in Anaheim, Calif., says a great majority of their clients are investing in energy-efficient upgrades on their existing homes because the cost of buying or building is skyrocketing out in Orange County.

“Because property is so valuable out here, people are continuing to put their money into their biggest investment,” says Lumary. “They have no apprehension about continuing to invest in their existing homes.”

Unfortunately, not everyone is enjoying those same conditions. Like many remodeling firms in parts of the Midwest, Wrightway, Inc. (No. 494) out of Fond du Lac, Wis. is reporting a continuation of a slowdown that began at least a couple years ago. President and owner David Wright says his company has shown a loss “for the last few years,” despite increased investment in marketing. “Our siding division is our slowest right now,” says Wright. “Window replacement is plugging along pretty well, and that’s what is saving us right now.”

Challenges

Kenneth Sekley, president and COO of Patio Enclosures, Inc. (No. 4), sums up the situation for many remodelers across the country when he talks about his company’s recent business. “We feel good that we’re running a bit ahead of last year, but we’ve had to work harder to grow.”

Patio Enclosures is headquartered in Macedonia, Ohio, but they have divisions and perform work across the country. He attributes his company’s recent success to smarter investment in marketing and better lead generation. “We’re regionally specific as to how we allocate our marketing dollars,” says Sekley. “In the New York metro area, TV is very expensive, but in the Southwest, it can be very cost-effective.”

Hayes says his company’s conversion from telemarketing has been a challenge, but it has been for the best. “We now do local and regional home shows where we can sign people up for permission marketing. That’s given us much stronger leads and better results overall,” he says.

Lumary has changed his marketing approach as well because he sees increased competition in the window business as a challenge in his market. “That forces us to be more innovative to set us apart,” he says. “Customers are becoming more sophisticated and educated about materials and components, so we’ve stepped up our level of sophistication, too.”

Lumary says his salespeople are having good luck with laptop presentations in prospective customers’ homes. The key with this approach is to have all the necessary catalogs, samples, previous job photos and other materials with you at the presentation. “We also offer them some sort of discount if they hire us then and there to try and discourage them from going out and getting other estimates,” he adds.

And of course there are still the familiar challenges that remodelers across the country have been facing for several years: staying on top of regulatory changes and evolving codes and finding and retaining quality employees. But skilled labor is no longer the only scarce prospective employee — now it is middle management and salespeople who are in high demand.

“We don’t have a lot of turnover in our sales positions,” says Hayes. “But adding new people is a problem.” Hayes says his company has eliminated print advertising to find potential sales staff and has instead gone to local and statewide online job search services. “So far, it has worked well and has been quite inexpensive for us,” he says.

Opportunities

With the rise in energy costs, many remodelers see an opportunity to sell energy-efficient products and services. “Customers are more knowledgeable about these types of products and they also know that energy costs will continue to rise, so that can be a plus for us,” says Hayes. “Triple-glazed, krypton-filled R-10 window units presently account for 70 percent of our sales.”

Out in California, Lumary plans on adding solar component sales and installation to his company’s offerings. “It’s a matter of other opportunities with other products,” he explains. “I believe solar and insulation products and services will continue to be very strong.”

Sekley sees energy efficiency as a way to market sunrooms as well. He tries to impart the message to potential clients that with the high cost of gasoline, people can “vacation at home” with their families by installing a sunroom, solarium or conservatory. He also sees opportunity in softer markets by imparting the message that building a sun space can add high-quality living space for those clients who can’t afford to move up or relocate. “We play on these issues and we think we can market effectively to them,” says Sekley.

For David Wright, the biggest opportunity that lies in front of him is retirement. As he winds down his remodeling career, he’s not looking for any more business opportunities. But with the benefit of hindsight and the perspective of a long career in remodeling, there is one move he says he wished he would have made a few years ago. “I wish I would have gotten into a bath remodeling franchise a few years ago,” he says, thinking that a bit more diversification might have helped him over these last couple of years. “I have some friends and acquaintances who did that awhile ago and they’re doing very well now.”

Finding Optimism In Full-Service

Full-service remodeling firms are often poised to weather softening markets fairly well — when one area drops off, others can pick up the slack. And that seems to be holding true for those areas around the country where the slowing economy has hit harder than others, namely parts of the Northeast and Midwest.

“We’re in a really tough market right now,” says Rod Burke, vice president of Darrell Burke Construction (No. 499) in Battle Creek, Mich. He explains that the recent layoffs in the Michigan auto industry have affected much of the region, even into parts of Indiana, Ohio and beyond. “Everybody in Michigan is only one or two steps away from the auto manufacturers on the economic food chain.”

In poor business environments such as that, people are often more cautious with their money and more conservative with their choices. But for the rest of the country, it’s good to be a remodeler. John Merkel, president of JM Construction in Wentzville, Mo. (No. 239), says that while new construction has tapered off noticeably, the remodeling market is still strong.

“The market remains very good and we’re seeing steady growth, especially in our niche of upper-end remodeling,” says Merkel. He attributes this to rising interest rates and home prices, saying that people are choosing to renovate or expand their existing homes rather than buying new.

“Tear-downs are on the rise and in some of the more expensive neighborhoods, we’re building a lot of larger, two-story homes or doing second-story additions.”

Challenges

To be sure, the full-service firms on this year’s Top 500 list face many of the exact same challenges as any remodeler today. These include finding and keeping skilled employees, materials shortages and price increases, and identifying and implementing effective marketing strategies. But some remodelers are facing challenges unique to their market alone.

All along the Gulf Coast, remodeling activity has been going on at a fever pitch since last year’s hurricanes — and even from the storms the year before. Jim Crane, president of Crane Builders, Inc. (No. 166) in New Orleans, says his company is just now getting back into normal remodeling jobs.

“Right after the hurricane, we dove into emergency repairs for our regular customers — things like mold remediation and emergency roof repairs,” he says. “That’s all we did until this spring and then we got into gutting and remodeling those homes.”

As you might imagine, that kind of business climate presents its own unique challenges. Perhaps the most important one from Crane’s perspective is controlling costs. “Materials costs are up almost 40 percent in some cases, and we’ve had to increase our wages by 25 percent to retain our labor,” he says. As a result, his firm is only working on a cost-plus basis.

“We can’t have contracts, due to the volatility.”

In the perennially strong California market, the tightening construction market is beginning to show some effects. Bill Rose, director of business development for De Mattei Construction (No. 19) in San Jose, says they’ve had to work harder to maintain their volume. Much of this is due to the fact that they offer both new construction and remodeling services, and the new construction market is slowing down.

But the remodeling segment is holding steady, if not improving in many areas, which allows De Mattei to hedge their bets but also presents some unique challenges. “Smaller remodeling contractors with less overhead are able to appeal to budget-conscious buyers in a climate such as this,” says Rose. “So we’re trying to relay the message that we’re specialists in finish carpentry and management. We try to work that angle with potential customers, but the value of those services can sometimes be harder to sell.”

Opportunities

Burke still sees opportunities in his somewhat gloomy market. Even though his firm has been trying to market energy-efficient products and improvements in light of rising energy costs, they have not seen great results yet. But he intends to keep pushing those aspects and expects better results as the weather cools.

He also sees chances for growth because of the aging baby boomer market that needs accessible renovations that will allow them to age in place. He’s also pushing renovations that are quick and cost-effective from the client’s point of view. “We’ve recently added cabinet refacing to our line of offerings,” says Burke. “When people are pinching pennies, we want to offer them a lower cost alternative.”

Rose says his company is also trying a few new things in order to bolster business. “We’re opening up our geography, trying to get into new areas and neighborhoods with stronger building markets,” he says. And an integral part of that strategy is surprisingly simple. “Seven out of the 10 leads that we get come to us because of our branding. Jobsite signs and our trucks are a huge part of that.”

Merkel plans to expand into other areas as well, only from a business sense and not a geographic one. “We do all our own electrical work rather than sub it out,” he says. “We’re going to start doing that with our plumbing, too. When we can offer most everything in-house, then we’ll be in more control over our scheduling and pricing.”

With the rebuilding activity in Louisiana, the opportunities are flying fast and furious at Jim Crane. But he’s not getting complacent. “With 40 percent more volume than before the storms, we’re focusing on maintaining quality control and attending to details,” he says. “We’re lucky in that we’re pretty much guaranteed as much work as we can handle for the next five years. We just need to make sure we handle it properly.”

Design/Build Firms Loving Tear-Downs

We all know the housing market has slowed from the last decade’s record-setting pace. But only some parts of it have slowed, and sometimes only in some parts of the country. One segment of the construction industry that seems to be staying quite strong — if not getting stronger — is tear-downs and large scale renovations and additions.

Design/build remodeling firms seem to be uniquely poised to capitalize on this trend. After all, a client who is looking to tear down or extensively renovate a home is often doing so because it makes better financial sense because of high new home prices or property tax savings, among other considerations. And many design/build firms tout their ability to offer one-stop shopping and time and money savings by handling everything in-house.

Even in northern New England, where the housing boom never fully developed like in most of the rest of the country, at least one design/build firm is enjoying growth during this current slowdown.

“We’re on pace to have a good year, but not what we’d hoped,” says David Bryan, president of Blackdog Design/Build/Remodel (No. 180) in Salem, N.H. “Our average job is getting smaller because there are fewer larger jobs in this market. We have to work harder for our sales.”

Much of the Midwest is in a similar situation, but some parts remain strong, like Chicago and its vast suburban areas. “We’re in the first suburbs west of Chicago, and the market has been quite supple,” says David Brady, president of Oak Design & Construction (No. 342) in Oak Park, Ill. “Real estate values continue to appreciate and there’s a lot of work going on.”

Even where the strong Chicago construction market spills out, tear-downs are in vogue. “There are a lot of great older suburbs in this area, and these tear-downs are a popular way to complement the great old houses that are still in good shape.”

In the Southeast, remodeling activity remains strong — even in areas not affected by any recent hurricanes. And tear-downs are in such demand there that at least one firm is marketing directly to real estate agents to advertise large scale renovations and tear-downs for new purchases.

“We don’t have income taxes here in Houston, but we do have very high property taxes,” says Ben Crawford, founder of Crawford Renovation (No. 84). “By completely redoing a home originally built in the 1950s as opposed to buying new, a family can save thousands of dollars every year.”

Challenges

For many design/build firms that have enjoyed any kind of recent success, their main business challenges seem to be improving on already successful processes and managing growth. Crawford is opening a new location in Galveston to capitalize on the burgeoning second-home market there, and sees hiring new people as his biggest challenge.

“We’re constantly trying to add depth to our team, both in the field and in the office,” he says. “But finding quality management personnel to grow our business is our No. 1 challenge right now.”

Dale Contant, CR, owner of Atlanta Design & Build (No. 478), says he is focusing on not growing too fast right now. “We want to implement systems and procedures in a careful and timely fashion,” he says. “We run pretty smoothly now, and we want to run just as smoothly when we move to the next level.”

Focusing on process and systems can also help firms realize cost savings — something of which these remodelers are keenly aware. And with material cost increases across the board, that is becoming more important to a firm’s success. “We’re always looking at ways to cut slippage,” says Contant. “Close estimating and cutting jobsite waste can really add up to huge savings.”

Up in New England, Bryan feels his firm has those things well in hand at the moment, and his energies are better utilized elsewhere. He also acts as sales manager for his firm, and he says most of the recent attention has been focused on that side of the business. “We’re trying to bring more leads in and convert more of them to sales,” he says. “I’ve spent a lot of time coaching my sales staff and trying to stay in closer touch with both them and with clients. We’re trying to push referrals and repeat business.”

Opportunities

Optimists say that with every challenge comes an opportunity, and remodelers seem to be optimistic right now. Even in a slowing market, Bryan sees his challenge of pulling in more leads as a way to improve his marketing. “We need to continue to be aggressive and make our own opportunities,” he says. “We’re constantly identifying and evaluating other lead avenues and re-shifting how we get in touch with our customers — past, present and future.”

For some, those opportunities may lie in marketing to aging baby boomers. “Many of those clients are maintaining two homes now,” says Brady. “We see a great opportunity to help them manage those assets and create value in them, whether it be renovating or monitoring and maintaining their homes while they’re away.”

Other baby boomer opportunities may lie in marketing to the aging-in-place market. “No doubt we’re seeing more in-law apartments for aging relatives and adaptive reuse,” says Bryan. Brady agrees, and adds that staying on top of design trends and materials options is increasingly important. “Grab bars in the bathroom are a given nowadays,” says Brady. “We try to stay on the cutting edge with everything, not just floors, countertops and cabinets.”

In keeping with the turnkey solutions theme, Crawford plans on opening a new showroom. “All selections and design will be done from that location,” he says of his $2 million investment. “We’re also negotiating directly with vendors to cut the middleman and increase our margins.”

So it seems for the most part, the remodeling market is very healthy in much of the country. Even in those parts where things are a bit tighter than some would like, the overall outlook is bright. “A lot of other companies are becoming much more sophisticated,” says Bryan. “We’re no longer head-and-shoulders above the rest, and that’s a good thing for the marketplace and it makes us work harder.”

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