Charles Darwin was writing about finches, not home builders, when he described survival of the fittest as the backbone of how species evolve. But Darwin's findings are as evident on a jobsite today as they were when he explored the Galapagos Islands 180 years ago: Species that survive learn how to adapt to the world they live in, and those that cannot die off.
For many home builders, the housing industry's crash has proven too hard an adjustment to make; according to some estimates, roughly 60% of the 100,000 home builders operating at the industry's peak have left the business. Of those remaining, a notable number have evolved, becoming hybrid creatures that do both building and remodeling. The number of single-family builders in the National Association of Home Builders' (NAHB) annual membership census fell seven percentage points between 2008 and 2010. At the same time, NAHB's remodeler membership grew by seven points.
Some dealers also see a shift. Unionville, Conn.-based Sanford & Hawley regularly reclassifies builder customers as remodelers when their purchase patterns suggest they've doing remodeling-type projects rather than, say, buying the framing packages associated with new-home construction. Company president Bob Sanford says that since the housing downturn, his company has decided 7.5% of its customers qualify more as remodelers these days than as builders.
Hybrid builder/remodelers aren't a new phenomenon, of course; they've long been the norm in areas where there's not enough new-home construction to sustain a builder. For instance, in Rochester, N.Y., Jay Tovey has done both for more than 30 years. But he also has seen a shift in work. In 2009, about 60% of his business involved new homes. Last year, almost 90% of his business came from remodeling.
Hybrids represent an increasingly important business line for dealers nationwide, particularly those that had relied almost totally on customers who built from the ground up. For these dealers, the transition is unlikely to be pleasant, as hybrids often expect the same level of service and respect from their suppliers that they enjoyed during the boom years–even though they have more requests and fewer dollars to give dealers than before.
"I haven't found a difference in the level of service I demanded," says one Greenville, S.C.-based builder turned hybrid.
John Holmes, owner of Baton Rouge, La.-based Holmes Building Materials, says that builders who become remodelers often require the same amount of work and time from sales reps but almost always bring in less volume. "It's a struggle on our outside sales staff to deal with that," he says.
David Luecke, vice president of sales and marketing for Forge Lumber in Erlanger, Ky., agrees that a remodeling project can take up as much time in estimating, product sourcing, and deliveries as work on a new single-family residence. "Sometimes product selection for the remodel is higher end, thus higher margin, but ultimately often with remodeling a salesperson can spend the same amount of time on an order for only 20% the normal amount of material," he says.
For Mark Mosolino, owner of Mosolino Development in southwest Connecticut, higher-end remodeling and repair projects have long been a part of his repertoire. In an area that many celebrities and business leaders call home, Mosolino is picky about projects he takes; usually it's anything from $100,000 up. While the minimum project size hasn't changed, the type of business he runs and the suppliers he works with have.
"We've downsized our staffing, so we've got ourselves, the owners, and a few guys running all the jobs," he says.
One way Mosolino has compensated is by making better use of technology, and he expects his lumberyard to do the same.
Mosolino equips himself and fellow employees with iPads to help keep his operation running smoothly; he even uses an application that takes care of his billing. That's one of the reasons Mosolino often works with Interstate + Lakeland of Greenwich, Conn. He says the dealer e-mails him when his order is loaded on the truck, when it ships, and when it is delivered.
"I don't have to have a guy sitting around waiting for a truck to show up," he says. "I just get an e-mail saying the lumber is on the way and then I head over."
Mosolino says he prefers to use e-mail when placing orders because it cuts down on miscommunication and provides a written record of what was requested and when.
Jim Robisch, a senior partner at the Farnsworth Group, which conducted Builder magazine's most recent State of the Industry survey, says e-mail communication is a growing trend in the construction industry, especially as newer, younger builders enter the business.
"The younger generation of builders and remodelers has generation X-ers and Millennials in it," says Robisch. "Going further with communication, what do they want? What kind of information do they need?"
Other dealers have responded to those questions by offering more online and e-mail services. Riverhead Building Supply allows builders to sign up for 24-hour invoicing and online bill paying. In addition, Jody Venditelli, general manager of Riverhead's location in North Kingstown, R.I., notes that all her sales people use iPhones and have laptops that allow the reps to make sales and check data from jobsites.
"We keep up with technology because customers are smarter now, even the homeowners walking through the door," says Venditelli. "They've done research online."
Roll With the Changes
Unlike small remodelers, whose purchases at a building supplier might never have been big enough to justify a dedicated outside sales rep, builders who become hybrids still expect to work through a sales rep–even if, by the dealer's revenue benchmarks, they don't deserve it. Hybrids interviewed for this story say they cherish an accessible rep who knows the products he or she sells and who makes an effort to show up at a jobsite.
But there's a key difference between new construction and a remodeling job, Mosolino notes. When a builder is working a new site, a dealer can generate well in advance a take-off that's likely to come pretty close to the actual materials the builder will require. On the other hand, "When you're doing a repair, you can't see everything you need" because the existing structure hides so many problems, Mosolino says. He may order 1x8s for a project, but after demolition and a better view of what's behind the wall, he might find he needs 1x12s instead.
As a result, Mosolino puts a premium on dealer reps who are as flexible as they are reliable. This again creates a strain for dealers, because it makes it harder for them to have desired products in stock when that desire comes from out of the blue.
The Greenville, S.C.-based builder cited earlier, who declined to be identified for this article, says the most important quality he looks for in a sales rep is familiarity with the building process. He wants to work with reps who are aware of the latest products and who try to make his job easier.
"I want people who are going to help make me money," the builder says.
His advice on the best way to let the sales reps help builders? Don't weigh them down with mundane tasks and paperwork. He suggests dealer executives free their sales reps to go out to jobsites and ask questions and create relationships with customers.
Then again, none of the hybrid builders interviewed for this story volunteered any recognition of how their reduced purchases might no longer qualify them for the kind of service they had received when they were full-time builders.
Camarillo, Calif.-based Brian Hill and his brother Terry own Hillrise Construction, which does both remodeling and new residential construction. Brian says a good outside sales rep is the make-or-break factor for him when choosing a dealer. He has gone so far as to follow sales reps to another company if they change employers.
That's a common sentiment. "The ones that win my business are the ones that provide the best service," says Rochester, N.Y., builder Tovey. It's his No. 1 criterion both for suppliers and vendors. Since Tovey also focuses on high-end construction, quality products are a must. Many of the builders interviewed for this story say price has taken a backseat to service.
"I'll pay a little bit more for services and a knowledgeable sales person that understands my price point, my product, and understands what I will put in my houses," says Wayne Holt, a Cary, N.C.-based builder.
Holt runs a small operation, and he lacks manpower to go pick up materials he may need for a job. That's one reason why the services important to Holt include quick delivery and take-back of materials. He appreciates how his main supplier, Morrisville, N.C.-based Professional Builders Supply, makes it possible for him to get fill-in products within four hours of placing an order.
"If you order something before lunch, you will get it that afternoon," Holt says. "That's huge when you don't have staff and you don't have the capabilities yourself."
Holt also says Professional Builders Supply offers a pick-up or take-back service that credits his account within 48 hours. Holt values that because he recently finished a new house and was pulling into the driveway one day to find someone walking off with some of his leftover lumber. Apparently, a contractor doing work across the street needed some wood and decided to take the leftover materials at Holt's job.
Fill-in ordering and take-back services are nice, but sometimes the best service is as simple as good attitude. Kevin Coutts, a Paupack, Pa.-based builder, says nothing beats walking into a lumberyard where everybody knows your name, has a smile on their face, and wants to help you. "It goes a long way," he says.
Hill says that when he got into remodeling about 25 years ago, he came to value dealers that provided quick turnaround. He says it was important because for many remodels, the home's occupants kept living in the house during the project. That meant little room for storage and the project had to be done as quickly as possible.
"Everything was much faster-paced in the occupied environment," says Hill.
Some dealers say they've improved their business prospects by improving their services. In Baton Rouge, Holmes Building Materials has found that its installed sales for windows, doors, and insulation appeal to remodelers as well as to builders.
"We do see that our contractors who may not have used those services in the past would use it on a remodel because now we're a line item–they don't have to find somebody else," Holmes says.
At Riverhead Building Supply in Rhode Island, Venditelli says she has added specialty sales reps as a service at her location. She has a rep who specializes in roofing and another who specializes in siding to help customers, and has also added more products to her store.
Robisch says many times these hybrid builders have to do their own electrical or plumbing, especially on smaller projects when they can't sub out the work. Responding to that situation, dealers are starting to offer new services and materials such as expanded hardware and retail sections, he says.
Another important factor for hybrid builders is something many dealers can't control: logistics. Hybrid builders want dealers who are accessible and close to the jobsite, so that any last-minute pickups can be made quickly and easily. At least one builder says the project's location often determines where he gets his supplies.
Back to the Future?
Dealers who have chosen to wait for housing's recovery rather than adjust to the rise of hybrid builders could face several more years of the status quo. Economists such as Hanley Wood Market Intelligence predict it will be 2015 before the nation starts more than 1 million home projects in a year, and nobody is venturing when–or whether–we'll get back to the 2.1 million starts we had in 2005.
"There are many more positive signs today than there were in 2011, 2010, and 2009," Robisch says. Keys to improving the economy have been getting rid of foreclosures, a steady unemployment rate, and a growth in employee confidence in their jobs. At the same time, Robisch doesn't see housing starts visibly trending upwards until late 2013 or early 2014 at the earliest, and then only if the country can repair its broken system of housing finance.
Most dealers agree that some builders will refocus on home building and get out of remodeling once the recovery begins, but some believe a fair number will remain in the hybrid stage since it has been so good to them.
"Builders are smarter because they put all their eggs in one basket before," says Venditelli. "They lost too much and it took too long for them to build back up."
Holmes thinks it will come down to who the builder is and what he enjoys doing. A guy who has been building homes for the past 10 to 15 years and just got into remodeling recently will probably drop it quickly, Holmes suspects. On the other hand, builders who have purposely wound down their new home construction businesses and gotten used to the higher profits and speed of remodeling projects probably will keep going in a hybrid role.
"I think you will see more of them go back to what they know best, but a few of them will stay," Holmes says.
5 Survival Skills
Hybrid builders, be they new or old, have expectations that dealers should keep in mind if they want to appeal to this growing species of customer.
Respect Some of these builders may not be ordering the same volume of goods that they once did, but their business and projects are still important to them—and they expect you to feel the same.
Flexibility While home building can be easily scheduled and controlled, remodeling brings uncertainty. Dealers need to learn to live with sudden changes in plans.
Technology Dealers who use the latest technology and offer online services tend to be among the most popular with these builders.
Sales Rep Hybrids want a sales rep who’s active and engaged in their projects, despite the smaller book of business.
Service Hybrid builder/remodelers are counting on you to deliver products, services, and advice that take into account the change in their working lives.