As you'll read in this special big builder issue, it's projected that by the year 2010 the 10 largest builders will control 50 percent of the new-home market, up from an estimated 30 percent this year and only 8 percent in 1993, according to Margaret Whelan, housing analyst for the investment firm UBS. She also noted that this growth is being fueled in part by strategies to expand geographic reach, make acquisitions to gain access to more land, and diversify product lines (types of homes), as well as a focus on cost reductions to drive higher margins. For dealers, these evolving trends are signaling the need for new two-tiered strategies that not only consider the overall size and market reach of big builders but also take into account their varied business models, such as whether they have centralized or decentralized purchasing and how much labor is subcontracted and/or outsourced through installed sales by LBM suppliers.
These points also were supported in a late-January big builder Webinar titled “The BIG Issue: Capacity Management,” which was hosted by Symbius Corp. (you can access a recording of the event at http://symbius.raindance.com). Luis Solis, the Webinar's moderator and president and managing partner of Symbius, pointed out that there are four primary ways that big builders are reengineering their purchasing flows: expanding geographic reach that is shifting purchasing from being community based to regionally centric; expanding production time and procurement horizons from months to years; developing new supplier relationships that shift from transactional to strategic alliances focused on the sharing of information; and adopting new terms for product purchasing and construction services that are less ad hoc and more measurable by quarterly reviews and surveys.
Many progressive dealers that you will read about in this issue are responding to these cues and jockeying for positions to better serve big builders going forward. Examples include:
Yet while many dealers are on the path to establishing better alliances with big builders, there still is a long way to go according to our cover story, “Big Expectations” (page 56), which presents the results of the most recent BIG BUILDER Study, which is conducted by BIG BUILDER magazine, a sister publication of PROSALES. Interviews with 11 of the top 100 builders in the United States confirm that while pro dealers and distributors still are the primary intermediate suppliers for builders and manufacturers, they often are caught in the middle between trade partners that are often not on the same page.
Hence, we hope this special issue will give you more insight on how to develop and refine a strategy to grow alongside big builders rather than being squeezed between them and manufacturers.