In January (News+Notes), we previewed some of the conclusions of "Foundations for Future Growth in the Remodeling Industry," a report produced by the Joint Center for Housing Studies at Harvard University (JCHS) about the remodeling industry. The full report, released last month, draws some conclusions that should inform everyone in our industry who is thinking about how to approach the next 10 years. I've selected those I find most compelling; the report is available for download at www.jchs.harvard.edu.
The remodeling industry is often described as "fragmented" - made up of many small companies - and there is always considerable speculation as to when it will begin to consolidate, as has been the trend among home builders and building material dealers and distributors. The answer appears to be "Not anytime soon." In fact, according to the JCHS comparison of previously unpublished tabulations of Census data, the number of remodelers is dramatically increasing. Counting both self-employed and payroll firms, the number of general contractors with revenues of more than $25,000 grew from about 134,000 in 1997 to just more than 210,000 in 2002. According to the report, most of the growth was in non-payroll firms, which increased by 33%.
This tells me that there is a lot more competition out there. Maybe way more, given that these numbers don't include any increase since 2002, when the remodeling boom really started to take off. And with new construction slumping, there are plenty of carpenters out there looking to make a go of it on their own.
Is this situation likely to change? The current slowdown may cause a shakeout in some areas, but it would be foolish to build a business plan that relies on someone else's failure. More likely is the prospect of increased price competition that is not going to go away anytime soon. To keep yourself out of the fray and to maintain profitability, now more than ever you need to reinforce your image among your client base, concentrate on what you do best, and master the art of engineering the customer experience.
But there is plenty of good news, beginning with the JCHS projection of a period of sustained growth for the remodeling industry once the current slowdown ends. The report points to a number of drivers, including the addition of 12 million households by 2015. Many of these will be formed by minorities, especially through continuing strong immigration, particularly among Hispanics. Another growth factor is the entry of the "echo-boomers"--children of the baby boomers--into the housing market for both new and existing homes.
Baby boomers, now becoming "seniors" at the rate of eight every second, will continue to drive much of the spending. But also promising are the Gen Xers, now in their 30s, who are already spending at a faster pace than the boomers did at that age. Many of these homeowners are non-family households, often single women.
Here's the takeaway: These are not your father's remodeling clients. Each of these groups represents a distinct customer type, and a one-size-fits-all approach to marketing, selling, and serving them won't work for long.
Several other trends identified by the report should help your long-term planning. One is the increasing age of existing housing stock. Most homes need extensive renovations when they reach age 25 or 30; that just happens to coincide with a huge number of existing homes built during the 1980s, the second most prolific period of new-home construction in our nation's history.
Another trend is the increasing demand for energy retrofits, especially as fuel and electricity prices continue to rise.
Sal Alfano, Editorial Director