Last September, Morris-Day, in Arlington, Va., had eight clients in two weeks put their remodeling projects on hold until January. For owner Rob Morris, that meant $8 million in limbo. He says that the homeowners were nervous about the stock market and the mortgage industry.
In Orlando, Fla., PSG Construction lost four projects, including one job that was cancelled the day before demolition was scheduled to start. “All four [clients] were executives or business owners who did not lose their jobs or businesses,” company co-owner Stephen Gidus points out.
For Gidus, the majority of clients pay cash for remodeling projects and want to maintain their cash reserves. He says that clients who have lost up to 50% of their cash during the recession want to defer or spend less on discretionary items until they replenish their cash reserves. “They are being much more discretionary about what they are spending and trying to shop harder for what they want,” Gidus says.
Morris first noticed the downturn in his interior design business, Morris DiNapoli, which provides interior furnishings and art for upper-end buyers. “These are nonessentials. They do not affect the appraised value of a house,” he says, so clients are more mindful of the market and of over-spending. High-end clients of his design/build business, Morris-Day, are continuing to spend money. However, those clients now account for 25% of his business — a drop from 50% last year.
Ben White, vice president of Benvenuti and Stein, in Evanston, Ill., says that successful people see this as a good time to invest in remodeling, but there is a disconnect between price and quality. “We have to fight to establish the difference between levels of quality available. We have to educate the customer or we will be swept aside by a market that tries to mask those distinctions,” he says.
Theresa Santerre, in Seattle, says that potential clients of her company, Prestige Custom Builders, are asking more of the firm. “We have always provided a reference sheet,” she says. “Now we are taking [prospects] to visit past projects.”
Good Business Practices
To adjust to these cancellations, some owners are cutting overhead and staff and are tapping into savings to stay in business. Many of them saved money when the market was strong. White says that saving money and reinvesting in the business is what will sustain a company over the long haul. Morris says he would have gone into debt during the four months at the end of 2008 had he not had the cash to cover his overhead costs.
Peter Feinmann of Feinmann Inc., in Lexington, Mass., began saving during the remodeling booms in the mid-’90s and early 2000s. “I am cutting back my expenditures to conserve my cash, but spending it appropriately to reach out to a new client base,” he says. He is also reviewing other income options, including leasing space in his building.
Feinmann says that he reacted quickly at the first sign of decreased leads, lower billable hours for his production and design staff, and unbalanced profit and loss statements. By the end of 2008, he had cut overhead 20% by scrutinizing cell phone plans, insurance policies, supplies costs, computer support needs, and the frequency of cleaning staff visits. He saved $5,000 annually by replacing his dedicated Internet line with a cable connection. With attrition and layoffs, he reduced staff from 28 to 18 employees, and when that was not enough, let go four more employees in early 2009.
The company had two $250,000 jobs pending a design agreement at the end of 2008. “I told my staff that we have no choice but to sell and close these at whatever price we can,” Feinmann says, noting that closing those jobs and a few others kept the company busy through the first nine months of 2009.
Santerre says that as homeowners began delaying start dates for their projects, she kept her staff informed about the situation. “We made a few changes in staffing and salary, including no salary increases for the year,” she says. Santerre shifted production staff to two large custom-home projects and used subcontractors less. Marketing assistant Jocelyn Marshall says that the loss of leads was gradual, as were the changes at Prestige Custom Builders, so there were no shocking or drastic changes.