Up until now, the only type of remodeler who typically operated more than one location was the single-line guy selling roofing, siding, or windows. Those jobs are easier to sell than, say, additions, or kitchens and baths. They're also easier to process. One reason is that so much of the installation is subbed out. For single-line contractors, the focus on marketing and selling a limited range of product is what drives growth. It's why many specialty contractors do lots of business in multiple locations.
Consolidation on its Way
Up until 10 years ago, the number of full-service remodeling companies with an annual volume greater than $5 million was less than 100 throughout the country. Today it easily exceeds 1,000 -- and is growing fast. Yet, especially when compared with specialty or insurance restoration companies, few full-service remodeling companies operate branch locations.
If the trend in new home construction indicates anything, it is that in the future, full-service remodelers looking to hold onto their market position may have little choice but to open branch offices. In new home building, more and more business goes to the 15 largest companies, all of which have multiple locations.
The lack of consolidation in the remodeling world -- which continues to consist of tens of thousands of small companies -- makes me believe that the market is ripe for it. In the next five to 10 years, I predict design/build companies will start to use more subcontractors and will open branch offices.
New Market Opportunities
Three trends point in this direction. The first is technology. Technological innovations like pocket PCs, wireless Internet for transmission of text and visual images, and PDAs all enable companies to better coordinate and manage subcontractors, as well as to track job progress. Simply put, they can do more, in more locations, and manage it better.
The second trend is the availability of market opportunities for multiple branches. Take, for instance, second homes. Many baby boomers are purchasing second homes in mountain, lake, or seashore locations. Often these are poorly maintained vacation homes in need of thorough remodeling. The second home market, driven by an aging and affluent demographic and the availability of low-interest mortgage loans, is healthy and growing.
The last trend is the expansion of the handyman business. As home prices rise, the need for maintenance and repair -- three to five calls a year per household is typical -- will grow. Design/build contractors are finding that handyman is a way to make money on small jobs and retain their customers for large projects in the future. The need to separate this business -- with its call center and intensive marketing effort -- lends itself to second locations.
You're probably wondering: If it's hard enough to find good craftsmen now, where will I find people to manage and staff a second location?
What will happen in the near future is that many smaller contractors will end up going to work for a larger company. Because these contractors have run their own company, some will be able to run a second location for their new employer.
Expect the consolidation process to result in a closer relationship between manufacturers, suppliers, and contractors. For instance, as the biggest lumberyard chains go after the biggest builders, mid-sized distributors and yards will seek the business of small and medium-sized builders as well as large remodelers.
My guess is that a lot of the training in installation and technology will fall to manufacturers and distributors. What is certain is that the need for training at all levels is going to greatly increase and that technology will become even more necessary.