Odds are good you’ve been to a convention that featured one of those glass boxes in which a whirlwind sends money swirling all around you, creating frustration as you try to grab the cash. Welcome to Steve Moore’s world. Moore runs the installed sales operation at Knoxville, Tenn.-based Tindell’s. Like you in that glass box, he’s having success, but he also laments that he’s seeing many more dollars fly away.
Moore’s trouble—and the problem faced across the country—is finding the labor needed to do installed sales jobs. As part of its efforts to hire workers, Tindell’s has dropped its rigorous three-step interview process in place of conducting a single interview. The company also eliminated a 60-day trial period, runs job-search ads nonstop, commits to a training period of up to one year for each hire, and offers a good benefits package. “We had to increase our per-hour rate for new employees with no experience in trades,” adds Moore. And even with these aggressive tactics, Tindell’s attrition rate for installed sales employees runs around 50%.
“There’s plenty of work in Knoxville, but we’ve hit our max,” Moore says. “We could have done another million dollars last year in our installed sales division.”
Dealers across the country are telling the same good news/bad news story. Some operations told ProSales of 50% gains in their respective markets and product lines. Improved sales can be attributed to the housing market’s continued recovery. Future prospects appear to be just as bright, given the increases in housing starts forecast this year as well as the robust remodeling market. And the small labor pool represents huge opportunity for dealers to expand their footprint or enter the segment, because for all the trouble that dealers have finding workers, many builders have it worse.
Nevertheless, installed sales remains an acquired taste. Fewer than half of the dealers in a 2015 survey by The Farnsworth Group said they offered installed sales, and even among the ProSales 100 members that year, just under two-thirds were involved. To many, embracing installed sales is like hugging a hand grenade: It too easily can blow up in the form of angry customers (who now see you as competitors), expensive liabilities, and the myriad dangers that come from trying to learn a new business model.
But if you can master the trade, proponents say, the benefits are robust. At Poncha Lumber in Poncha Springs, Colo., installing insulation provides 10% of the company’s revenues but 20% of its profit. It’s 20% of 84 Lumber’s revenue.
And there are competitive advantages. At a time when builders can’t find workers and would rather not subcontract construction headaches, being able to not just sell but also install the product can prove to be the clincher that wins the contract.
The story of dealer involvement in installing products starts several decades back with tales of LBM operations that entered a repair and remodeling business line because a need developed in the local market. Then, during the housing boom, dealers increasingly found themselves called upon to help frame single-family homes and put in windows, doors, cabinets, and countertops. Lately, the big growth has been in multifamily projects.
When Boston-based New England Building Supply, acquired by Kodiak Building Partners in 2013, added installed sales to its service lines in 2014, it exclusively focused on the multifamily segment. “We saw our first revenue in installed sales in 2015—just under 6% of our total revenue,” company president Pat Flood says. “Our client projects are comprised mainly of mid-sized framing and siding projects for small, independent general contractor-developers and large general contractors with projects ranging from 25,000 to 100,000 square feet.”
Likewise, at Builders FirstSource (BFS), “Our level of installed sales business has remained relatively flat over the past three years with a slight gain in 2015, but a healthy percentage of these gains have been represented in the multifamily sector,” says Terry Rosamond, the company’s vice president for installed sales. “We’ve done some large multistory, high-density projects in the last couple of years that are typical of the trends we’re seeing in this segment.”
With a presence in 30 states and 200 locations, US LBM also is big on multifamily projects, says Dale Carlson, vice president of operations at US LBM. “Despite the labor challenges, we see installed sales as a large growth category,” he says. “We’re trying to get labor off the jobsite by supplying our customer with turnkey solutions. As labor challenges continue to haunt [the industry], we’re seeing an increase in the use of building structural components on the jobsite.”
A Careful Process
Building on the success of its retail operations, 84 Lumber entered the installed sales market in 2007 using a market-by-market approach, says Mike McCrobie, 84’s vice president for installed sales nationally.
“We look at each market and identify the best services we can provide in that market—including pricing—and build a management team around each of our clients,” he says. McCrobie estimates that framing provides 60% of 84’s installed sales revenue, while windows and doors provide 20% and the rest comes from insulation, roofing and siding, and interior millwork.
“We’re huge fans of wall panelization and find value in having our own manufacturing to maintain control of the process,” he says. “This is a growth area for us, and we’re opening two manufacturing facilities in April—one in Raleigh, N.C., and another outside Indianapolis.”
Poncha Lumber started installing insulation sales in 2004. “It’s become a very important part of our ops,” says Steve Chelf, operations manager for the company. Last year, multifamily represented nearly 50% of the dealer’s installations. “Our company started with me and another guy installing batts and blowing fiberglass with a small DIY machine,” says Chelf. Now business is so good and labor is so tight that Poncha also has changed its hiring procedures. “Our wages have jumped by 30%,” Chelf says. “We don’t let job applicants walk out the door before we make an offer.”
In other regional markets, companies like Tindell’s as well as Idaho-based Franklin Building Supply are enjoying increases in installed sales by focusing on single-family projects. “This part of our business has grown tremendously the last three years,” says Moore. The company offers installation for insulation, garage doors, fireplaces, windows and doors, and after-paint products and is looking into adding interior trim.
Franklin has adopted a careful approach in adding to its core installed service lines. “Currently, business is strong,” says CEO Rick Lierz. “Installed sales have increased significantly over the last two years as home building in our markets has improved, but we typically do not get into a new installation application quickly—we take our time to study and set it up for success. An example is installed framing. We resisted for years, but after a long period of study, we began a test program last year to install framing for one home builder.
“In 2015, we framed one test home,” Lierz continues. “Most folks would look at that process and say that it was painstakingly slow and deliberate, but we looked at it and recognized that [it] would be easy to get out ahead of ourselves before we knew what we were doing. The result of our process was a contract to install framing for multiple subdivisions—a prospect we are much more comfortable accepting now.”
Challenges and Solutions
Dealers vary in terms of whether they have employees do the installing or hire subcontractors. At BFS, “I don’t see us expanding and creating our own labor force to install products,” says Morris Tolly, COO for BFS’ Eastern division. His firm relies on subs. In contrast, Franklin Building Supply believes in using employees. Installed sales experts say going this route helps dealers more confidently commit that crews will be on site on the days promised. Of course, employees also can cost more, particularly if you don’t have any work for them.
84 Lumber views labor challenges market by market. “Labor compressed during the downturn, but we’re seeing demand from pre-2007 levels. Recruiting has always been No. 1 for us,” says McCrobie. “No. 2 is strengthening our relationships with existing subcontractors. We also utilize internal associates to identify new subcontracted partners, especially in our most vibrant markets like Houston, Baltimore, Atlanta, and Charlotte, N.C. We sell the long-term benefits of working with 84 Lumber and put a lot of work in front of our clients, which really helps with retention.”
In the meantime, dealers are scrambling to find workers. “The industry has lost a decade of employees since 2006,” US LBM’s Carlson says. “But in all of our markets we’re working very closely with local and regional building associations, participating in job fairs, and offering internships through trade schools and colleges to fill labor gaps and to promote the industry.”
Labor challenges offer LBMs an opportunity to focus on efficiency across the enterprise through the use of technology to offset reduced manpower. Business process management software can be instrumental in achieving this goal.
At BFS, shared technology is one key to its management process. “Our crews, onsite supervisors, and schedulers use customized software called AppWright,” says Rosamond. The company uses the software’s JobCenter to manage ordering, delivery, and installation of inventory. “It eliminates the ‘he said/she said’ of crews waiting around for deliveries or deliveries having to be returned because crews weren’t scheduled.”
Meanwhile, BMC Stock Holdings is touting Ready-Frame, a system that downloads house plans into software that directs the cutting and labeling of the lumber needed to frame a structure. BMC claims the system cuts framing time by at least 20% while reducing waste and the potential for accidents. And by sending the materials in organized bundles rather than as pre-built panels, BMC gets more stuff on a truck.
While the future looks good for installed sales operations, the dealers ProSales spoke with are being careful. “We hope to be at 15% of sales and would love to keep the margins we’re running,” says Chelf. “I don’t see us adding new products. Our direction is to try to increase profits and enhance our existing services.”
As for Lierz, “I see continued growth in our market and expect that the level of installed sales and mix of installed products will increase,” he says. “But we’re committed to being deliberate and smart about what we take on and will likely expand into other markets we currently serve.”
Although less than two years into the installed market, New England Building Supply has plans to expand into cabinets and millwork. “We’re dedicated to the turn-key space and anticipate significant growth in the coming years,” Flood says. “But before any expansion, it will be important for us to gain an understanding of those segments and identify the best subcontractors with which to partner.”