As the economy and the housing market struggled, residential contractors had to make adjustments to their purchasing behaviors to keep spending down and margins in line. In LEK Consulting's third annual Contractor Behavior Survey, the firm found that contractor optimism is on the rise, and purchasing practices reflect that. The survey of 650 residential contractors nationwide offers these insights.
Responding to Price Pressures
In tight times, contractors took a range of steps to keep jobs and their revenue coming in. LEK's data says that in the 2011 survey, 44% of contractors reported taking lower margins on jobs, and 47% performed extra services on jobs to keep clients happy.
In terms of product selection, brand familiarity remained important — even as contractors looked for ways to reign in costs. According to the survey results, in 2011 53% of contractors reported purchasing the same brands as usual through less expensive retailers and distributors in order to save money, while 11% said they purchased lower-grade products from their usual brands. "Contractors have continued to value their trusted brands during the downturn and generally remain loyal to proven products, rather than risk purchasing the less expensive alternatives by other manufacturers," the report says. Indeed, only 22% of contractors reported straying from their trusted brands to purchase a less expensive brand.
In the current 2013 survey, a similar number of contractors (12%) reported purchasing lower-grade products from their usual brands, while the tendency to buy through less expensive channels dropped 5 points to 48%. This could be explained by the fact that the number of contractors taking lower margins on jobs also dropped 5 points to 39%, while the ability to take on fewer better-priced jobs rose 6 points to 46%.
"Many [contractors] are simply walking away from jobs that they don't expect will provide appropriate margins," the report says. "They are also increasingly finding non-price mechanisms to address pricing pressures, with nearly half of those surveyed performing extra services rather than reducing their quotes."
Channel Shifts
In all three years of LEK's survey, price has actually come in second to durability in terms of contractors' criteria for product purchases. That said, pricing was a major reason many contractors indicated for their choice to shop at big-box stores rather than through the pro channel.
While LEK says contractors found that big-box stores underperformed compared to lumberyards and other pro retailers, "convenience drove them to spend more at big-box stores, citing proximity to jobsites, inventory, and product selection" as being important. Having products in stock for immediate delivery ranked third on the list of purchasing criteria, selected by 67% of contractors. "Having the right products in stock enables contractors to purchase materials as needed ... rather than tying up capital in materials or worrying about storage logistics of purchased items," the report says.
That said, LEK finds the tendency to buy through big-box stores has plateaued and is projected to slightly decline (-0.8%) over the next three years. Pro channels are seen as providing faster, more reliable delivery, while also providing contractor services and knowledgeable staff.
Best-Performing Brands
For the first time since the survey's inception, this year LEK asked respondents to cast votes for the highest-performing brands across 14 product categories. LEK then rated the companies using an aggregate score for product breadth, quality, price, and service level.
Not unexpectedly, the highest-performing brands (listed in the table below) were among the largest in their respective markets, including USG (drywall), James Hardie (siding), Owens Corning (insulation and roofing), Trane (HVAC), Georgia-Pacific (framing), and Sherwin-Williams (paint). A slide show of products from the winners in all 14 categories can be found at the top of this article.
"Because contractors are loyal to durable brands with strong reputations, earning high performance scores is critical to product manufacturers," the report says. However, LEK notes that the categories remain very competitive and that in one-third of the categories, the leaders hold only a slightly higher score than the category average. —Lauren Hunter, senior editor, REMODELING.