Last year was a year of disparities for remodelers. A bad year for some was a decent year for others. At the extreme end of the scale, 22 percent who responded to Qualified Remodeler’s annual market forecast reader survey said their revenue was down more than 20 percent in 2011. For others, there was business within reach: Nearly 14 percent said business was up more than 20 percent.
Across the board, nearly 47 percent of remodelers reported revenues up from a range of 1 to more than 20 percent last year. Fifty-three percent reported business was down across the same percentage range. The results for 2010 were nearly identical: 46 percent up and 54 percent down.
For 2012, remodelers are more confident. Nearly two-thirds (64 percent) of those polled expect revenue to be up, while 36 percent anticipate a decrease.
Although the course of the economy is hardly certain, remodelers have always been adaptable, and that’s exactly what many are doing in a tentative market—adapting.
Change or Die
John Schmitz, owner of Blueprint Homes and Remodeling, Des Moines, Iowa, epitomizes such a mind-set. “Change or die” are words he lives by. In 2010, he shifted his focus from residential remodeling and went after commercial jobs, primarily government work. He had one of his best years ever, he says.
Last year, there was a better blend of commercial and residential work, but Schmitz didn’t turn down a recent job dealing with the water-treatment side of a server farm for a major computer software company. “Five years ago, I would have said ‘go find somebody else,’” he says.
“There are still a lot of residential opportunities,” Schmitz says. “People are just dragging their heels; they are not in any rush.” The usual financing, particularly in the form of home equity, has dried up, he notes. Instead, money from inheritances and settlements has paid for several of Schmitz’s recent residential jobs.
Making the shift from residential to commercial is something remodelers can handle, Schmitz thinks, “but you have to be more sophisticated than a guy operating out of a pickup truck. Everyone looks at you with a skeptical eye. They expect you to cross your t’s and dot your i’s. They don’t take your word you have insurance; they want proof,” he says.
There are other obstacles, too. “The pay is slower,” Schmitz adds, “and the big commercial contractors don’t want to admit anyone else to their ballgame.”
Residential remodeling hasn’t vanished but it has changed, and the changes are likely to have a long-term impact. For example, Schmitz doesn’t think people maintain their homes as meticulously as they once did. “Basically, they just ignore it for 20 years, and then, when stuff falls apart, they either buy a new one or are faced with a great deal of rebuilding. I think it will create a big bubble [of remodeling work] at some point, but I just don’t know how far down the road it’s going to be,” he says.
Remodeling whims seem to belong to another time, too. Schmitz remembers when there was always a hot home-improvement fad to fuel business. “It was paneling in the basement, and then it was pre-fab fireplaces. You always had something fueling the fire. Now, there don’t seem to be any trends out there,” he comments.
Schmitz has changed his pricing structure and bid presentation to align with the times; he gives clients control so they don’t feel cornered. He does this by presenting them with choices so they can bring the total cost down by selecting less costly options or alternately choosing upgrades if they wish. Also, bids are detailed, so items, such as the cost of demolition, are detailed and clients don’t feel unjustified profit is concealed in the bid.
“The moral of the story,” Schmitz says, “is contractors may want to rethink how they’re making presentations.”
Goal Is to Grow
Mike Pierce, president of Hughes Kitchens & Bath, Canton, Ohio, is one of the two-thirds who look forward to advancement in 2012. “Our goal is to grow,” he says. “It won’t get anything but better, and I want to take the opportunity to expand our footprint.
“I’m not looking to stay in a holding pattern,” he continues. “I think this is the time to move forward if you are able to.”
“People are still spending money,” Pierce posits. “The key is positioning yourself to be the person they choose. It’s not the best of environments with the current state of the economy, but people still want good value,” he says, stressing the need to educate customers the lowest price is not always the best value. “We don’t compete on price,” he adds.
Pierce sets out to differentiate Hughes Kitchens & Bath from the very first contact. He sends a small gift before the first appointment to set the firm apart and to make the meeting an event. “Then it’s just about communication and finding out what the customer wants,” he says. The initial conversation is vital to determining what potential clients are looking for and whether Pierce wants to take the job. “We’re not a fit for everybody,” he says.
Potential clients are more knowledgeable about products and prices than ever before, Pierce relates, but he is quick to discourage them from purchasing products themselves. “You have to have good warranties and really back the product,” he says, “but if I can’t supply the products, there is no way I can back them. I have no idea what they’re buying.
“We don’t get into fear tactics; that’s not the point. It’s just about peace of mind, which is what people want. They don’t want to redo their kitchen or bathroom [because of product failure], but they don’t want to pay an exorbitant price, either,” Pierce says.
“There are a lot more customers who will have a big printout. They’ll try to set their budgets by looking at every plumbing fixture they want to put in their kitchen or bathroom and then ask me for the labor cost. It’s like asking to buy a car by the pound,” Pierce says.
“We’re not selling a cookie-cutter product; it’s customized and it’s backed by a warranty. Customer service has to be bar none,” says Pierce, who reveals he once contemplated a career as a chef or a position in hotel-restaurant management. “I love five-star treatment,” he adds.
Pierce aims to deliver just such an exceptional experience to his remodeling customers. “Most people can deliver a beautiful kitchen, but the ride a customer takes from the time they call to set an appointment to the time the job is cleaned up and they have a beautiful kitchen is very important. That’s what the customer remembers, and that’s where you’re going to get your referrals,” he says.
He notes potential clients are researching companies as much as they’re researching products. For Pierce, the legwork done by potential clients is a good thing. Nearly 80 percent of the leads he receives are “ours to lose; they are very qualified leads,” he says.
What patrons are saying about a business has always been important, and social media and blogs have made those sentiments more important than ever. “Most bloggers are upset,” Pierce observes. “You cannot drop the ball. Things are going to break, but it is how you deal with the customer and how you rectify the situation that keeps customers happy. It’s the reason they’re coming to my door and setting appointments,” he says.
Looking forward, Pierce doesn’t expect new construction to pick up soon. “The gods are not making any more property, and there are a lot of older homes and people who are staying in them longer. Aging-in-place is huge and is growing by 30 percent a year,” Pierce says. “There are a lot of people still sitting on their money, but there are millions of dollars out there, and people are buying every day.”
Although Pierce says he doesn’t compete on price, many remodelers object that customers are unwilling to pay realistic prices for work or are cutting corners wherever they can. “I think people are setting arbitrary numbers for their projects and then finding builders who will build them for that amount. They’re less concerned about the quality of construction and what goes behind the walls,” says Jonathan Kantar, principal of Sage Builders LLP, a residential design-build company in Newton, Mass.
“I’m quite certain there are companies that are not certified properly and are not putting in place the required precautions, and customers don’t care. They’re certainly not willing to pay for it,” he continues, making reference to the EPA lead-paint regulations many remodelers found vexing in 2011.
Kantar doesn’t see the influx of inexpensive and inexperienced competition slowing in the near future. Although unprofessional, price-cutting rivals have long peeved established remodelers, Kantar notes municipalities have been forced to cut budgets and jobs, eliminating police and fire department jobs, to cite just one example, and creating new entrants into the carpentry and handyman market.
“That means professional remodelers who employ the best technology and methods are going to continually get squeezed,” Kantar says. “I don’t know if I have a remedy for the situation because economic conditions are a very tough opponent. I think as an industry we need to remind our clients more than ever of the dangers of cutting corners and see if we can persuade them to reduce the scope of their jobs a little [to avoid compromising standards].”
Finding a Niche
Nevertheless, Kantar sees opportunity and change on the horizon. “I think continuing to push energy efficiency, taking a more holistic approach, looking at how families use energy and developing expertise in energy saving is a growth niche,” he says.
“I think as the economy improves, the cost of fuel is going to go much higher and there may even be a carbon tax, which will cause fuel prices to rise, as well. That will create demand for real energy performance. Remodeling contractors who understand how to deliver it in a cost-effective manner will have a real leg up on others,” Kantar adds.
Commenting on a recently proposed home-performance-based tax credit (see “Overview,” page 6) that could replace the expired 25C energy-efficiency tax credits, Kantar says it will mean “professional remodelers who take their work seriously and who are educated in the process will be able to provide an alternative to less informed companies who may claim to be green but are, in fact, less knowledgeable.”
Differentiating themselves from the competition, recognizing opportunities and preparing for change are what successful remodelers have always done; so although numbers shift and players may change, that strategy is likely to remain a constant.