Thank goodness for dropping building materials and fuel costs. Remodelers will need the new savings to offset the still-rising pace of other business costs in the slower market of 2009.
Ironically, one such line item may be fuel surcharges for the deliveries of those materials. In a first in its 25-year-history, Fannin Remodeling, of Toledo, Ohio, joined other remodelers earlier this year in having to fork over an extra $15 to $25 for deliveries. As gas prices crept back down, however, most surcharges remained, says owner Chuck Fannin — no doubt reflecting “the really rough times” many suppliers are experiencing. Volatile Pricing
Nor are the materials cost breaks always trickling down to remodelers. At least not yet. Told by a supplier’s expeditor that some products are priced their lowest since the early 1990s, Jeff Titus of Titus Built, in Wilton, Conn., replied, “Where’s all the savings?”
Remodeling consultant Shawn McCadden explains the macroeconomics of this scenario. First, vendors often pay for materials months before they are shipped. This can result in a considerable lag time between a price drop for oil and a commensurate price cut for petroleum-based products such as asphalt shingles and vinyl siding.
Also, McCadden notes, “Money is tight for suppliers, and they can’t keep everything in stock.” So items that are no longer selling quickly — such as the uninsulated garage doors he wanted for some rental properties — have become “special orders” that are priced higher than, for example, the insulated doors “that everybody wants now.” If it’s not a commodity, its price is volatile.
Among other business expenses, many remodelers cite rising marketing costs, not only to compensate for the slowdown (and persuade homeowners that it’s a good time to save on materials), but also to stand out in a field newly flooded with lowballing home builders. In fact, notes Erik Anderson of Anderson-Moore Builders, in Winston-Salem, N.C., “It’s hard to tell whether there’s a slowdown or just more competitors.” Fannin has stepped up his marketing “to keep our name out there,” he says. In 2008, marketing ate up 2.5% of revenue, including radio ads to showcase the company’s new office and many awards such as the Better Business Bureau Torch Award.
Health insurance also continues to eat into margins, as reported in the 2008-2009 Wage & Benefit Survey. When Fannin renewed his company’s policy last summer, the broker quoted a rate increase of 17%. “He got it lowered to 11%,” Fannin says.
On the labor front, remodelers are managing costs by freezing or even cutting pay, negotiating better rates with abundantly available trade contractors, eliminating non-critical positions, and altering job descriptions. More production managers and owners are strapping their toolbelts back on, for instance, often at the expense of other production staff.
And then there’s the cost burden of time. Sales are taking longer to close, for one thing. “We’re spending more time to get people to contract, and more time with people once we’ve gotten them to contract,” says Jeff Rainey of Home Equity Builders, in Great Falls, Va. “Consumer confidence is shaken, and they need reassurance.”
Consider also the impact of production downtime and shrinking job sizes. Having scrutinized his finances, John Rogers of John Rogers Renovations, in Roswell, Ga., identified an this oft-overlooked expense: “With smaller scopes of projects, we end up wasting more time,” he says. “We work for half a day here and do all we can do, so we have to go somewhere else and do something else.
“Driving around in the middle of the day is the enemy of productivity.”