Editor’s Note: The research for this article is based on interviews with the principals of several major kitchen and bath “whotailers,” as well as on information gleaned from the “Whotailer Roundtable Conferences” of 2004 and 2005, moderated and facilitated by Morton Block Associates. It is the first of several features, exclusive to Kitchen & Bath Design News, exploring the key business challenges facing today’s “whotailers.”
The word “whotailer” won’t be found in Webster’s Dictionary, but it’s certainly well known in the kitchen and bath industry.
Coined by the late Alan Dresner, CKDE, an original KBDN columnist and well-known Washington, DC-area distributor, the word refers to wholesale distribution firms that evolved in the 1980s, when traditional two-step distributors were forced to make changes in their structure. Those changes included providing products and services to the wholesale and retail markets.
Two-step appliance distribution was the first to experience the changes. Appliance manufacturers began direct marketing and drop-shipment programs to builders and dealers – the very foundation of the wholesaler’s business. Cabinet manufacturers were the next in line to offer direct marketing to the same competitive channels. The economics quickly proved unfavorable – and threatening – for wholesalers, and pushed them to explore new ways to market products and services. The survivors of the shakeout soon learned that, in order to survive, they had to enter the retail sector.
On the surface, a transition like this may appear simple. However, the reality is that new ventures always contain built-in learning curves and other pitfalls that result from on-the-job learning. In short, there were no books that could teach the “ins and outs” of retailing to even the most successful distributors. In contrast, day-to-day experiences provided the foundation for companies to adapt to the different demands of the wholesale and retail markets.
Today’s whotailer continues to service builders, contractors and dealers – and can have one or more retail showrooms. Most provide design and installation services. Not all whotailers carry inventory, but those that do have most of it pre-sold to builders and contractors. Their staffs usually consist of specialists who call on the builder and contractor markets; employees who service smaller dealers/designers; project managers; installers; inside sales desk help; and warehouse/delivery personnel.
Many whotailers seem to wrestle with whether to have installers on the payroll, or to employ them as subcontractors.
Indeed, many whotailers have installers on their payroll; others have subs. Some use both.
Whotailers say there are advantages and disadvantages to both. Control of scheduling, consistent performance and dedication to the company are a few of the advantages to having installers on the payroll. The con, they say, is overhead.
Utilizing subs has its own advantages and disadvantages. No overhead, of course, is a major advantage. Conversely, less control over scheduling, non-dedicated customer relations and expensive after-market punch list work are a few disadvantages.
Symbiotic Relations Michael Kopman-Fried and his partner David Trachten own and operate Viking Kitchens, LLC, a whotailer headquartered in New Britain, CT. Their business evolved from its days as a storm window manufacturing business, Viking Aluminum. In 1992, the company expanded into the kitchen business. Five years later, Kopman-Fried and Trachten bought the kitchen division from Viking Aluminum.
Operating as Viking Kitchens, LLC, the business has four locations today and serves property management projects and builders. Viking Kitchens also inventories two cabinet lines to serve the property management business. It also fabricates laminate, solid surface materials, engineered stone and granite countertops.
Viking Kitchens currently uses 90% subcontractors and 10% in-house installers for the installation of kitchens. Eventually, the partners would like to exclusively use subs because that would give them a fixed price on labor.
The reason they’d gain more price control with subs is because they use a point system for installation. Base or wall cabinets equal one point, oven cabinets equal two points, etc. The value applied to the points depends on the complexity of the project. For example, property management installations may have a value of $25 per point, whereas a higher-end, more complex kitchen may have a value of $32 per point.
Kopman-Fried also likes subcontractors because he has a “symbiotic” relationship with them. He believes they’ll do extra because they’re businessmen with an eye on future business, he says.
When asked about scheduling problems with subcontractors, he replies that it’s a non-issue, because his company has a project manager who ensures that there are no scheduling conflicts. The only pitfall is that it takes time to train them, he adds.
When questioned about installers on the payroll, Kopman-Fried offers: “Employees provide no risk benefit. Guys who work on payroll want their 40 hours and go home,” he says. “Payroll installers know they have a job tomorrow.” Kopman-Fried adds that he has offered his installer employees incentives, but they’ve refused.
In Viking Kitchens’ perfect world, the firm would like to hire retired craftsmen part time to handle punch-list work, and use subs for the bulk of the work.
Mixing It Up
Another point of view is offered by Williams Kitchen and Bath, which uses a mix of in-house employees and subcontractors for installation. The whotailer, headquartered in Grand Rapids, MI, mainly utilizes payroll installers in the company’s primary trading area, while subs are used in the outer areas.
Williams Kitchen and Bath is a 35-year-old wholesale distribution company offering a variety of products, such as appliances, fireplaces, countertops, windows and doors, among others. It works with builders, kitchen/bath dealers and remodeling contractors.
The firm has 12 locations throughout Michigan. On the east side of Michigan it is a two-step distributor of kitchen cabinets, appliances and countertops.
According to company president Mike Koster, installers on the payroll provide a “reliability factor,” particularly for appliance installs. In contrast, Williams uses subs for countertops because it creates “fewer hands in the pie, and fewer places to look for accountability.”
“Our commitment is to build a partnership with our customers,” he says, echoing a statement that appears on the company’s Web site: “We will anticipate and exceed expectations through vision, integrity, quality products and exceptional services – delivered with a smile.”
Koster adds that the company has a 100% level of customer satisfaction when using its own crews to install.
However, he admits that there is more overhead with installers on the payroll because of tools and trucks – not to mention salaries and benefits – when compared to subcontractors. He also notes that there’s more price control with subs because they work on a flat-fee basis per project. When asked about customer satisfaction with subs, he replies, “good people are good people, regardless of whether [they are] on the payroll.” He adds that the mix of both subs and in-house installers gives his company more options. But when Williams needs someone, the payroll installers are there.
Accent Kitchens of Virginia Beach, VA is a 25-year-old business with three locations in southeast Virginia. Stephen Dubanevich, president, says his company offers three price points of cabinets to builders and homeowners. The firm also offers full service to those seeking turnkey solutions.
For Accent, the breakdown between payroll installers and subcontractors is 50-50. Dubanevich reports that jobs run smoother with the payroll installers, “especially for the touch-ups and punch-list items.”
The smooth-running jobs, he says, result from new installers having been trained by senior installers on the job. The commitment is there “because everyone is working for the same cause, the same profit sharing and the company’s reputation.”
He adds that subcontractors can have conflicting interests – with schedules being the main source of conflict.
Dubanevich also varies the way he pays subcontractors. Some he’ll pay by the project, others by the box or the degree of difficulty. His payroll installers get a minimum base pay per week, plus incentives for timely completions.
However, he warns that business owners need to make certain they are familiar with the Federal Wage and Hour Compliance Division of the U.S. Dept. of Labor. For instance, he notes that the DOL does not always recognize the top 10 or 20 questions asked by the IRS to determine if workers are subcontractors or employees. He has even had to make adjustments in the way he pays subcontractors.
How can this be avoided?
Dubanevich recommends keeping hourly time records for subs as well as employees.
Brian Gordon, president of Kitchen Expo, has been in the kitchen and bath industry since 1987, and opened the first of his company’s five locations in 1995. Along with direct retailing to consumers and contractors, Kitchen Expo operates a wholesale division that serves lumber yards, builders, developers and property managers. The company maintains a seven-figure inventory that runs on the average of 60% to 70% pre-sold.
The only payroll installers Kitchen Expo has are service technicians and project coordinators. Although Gordon admits that his company relinquishes some control when using subs, he employs a unique approach to providing labor for the retail business.
The firm lets consumers select the installation program best suited for their needs. They are:
- Premium Installation: Kitchen Expo facilitates the installation of cabinetry and countertops through its own contracting resources. Estimates are provided for installation and merchandise. Once approved, the contractor proceeds with the installation. The product is paid for on delivery or before.
- Shared Resource: Kitchen Expo provides the customer with a list of independent quality contractors. These contractors do business with Kitchen Expo, but are not otherwise affiliated with Kitchen Expo. The consumer chooses a contractor and purchases only the merchandise from Kitchen Expo.
- Product Only: The client buys only the merchandise from Kitchen Expo and uses his or her own contractor for installation.
By offering choices, Gordon says Kitchen Expo avoids having to recommend an installer, thereby relinquishing responsibility, unless the customer chooses Kitchen Expo’s “Premium” option.
The whotailers interviewed for KBDN agree for the most part that there’s no one way to provide installation for kitchens and baths. Both payroll installers and subs have their own unique features and benefits, they point out. When all is said and done, the single greatest factor driving the decision is the amount of profit derived from the installations – and the amount of liability and risk involved.
Whichever direction whotailers select, industry leaders say it’s critical to be sure that compliancy is met – especially when it comes to government guidelines.