Two market segments couldn't be more different in supplier service needs than remodeling and production building (think special orders vs. national accounts). Yet when it comes to market expansion opportunities and hot new account prospects, these two customer bases couldn't be more alike in the growth possibilities they currently offer pro dealers.
It's an interesting dichotomy to think about, especially if you are planning to keep both of these markets in your crosshair. The average remodeler may be small, but in total the remodeling industry represents 40 percent of all residential construction and improvement spending, according to the Harvard University Joint Center for Housing Studies (JCHS), and this collective force offers dealers a chance to focus on selling more high-margin, specialized product offerings. At the same time, production behemoths continue to gain critical mass in the industry and they are serving up profitable new business avenues to dealers, such as components manufacturing and market expansion opportunities.
I'm sure you already know these trends if you're reading PROSALES, but you might not have some of the notable statistics that are making these markets standout customer targets:
Big bang. Production builders are now the fastest growing segment of the residential construction industry. Overall, the top 100 builders accounted for 448,851 of the 1.2 million homes sold last year, and they increased their overall market share to 35.7 percent, a 1.7 percent increase over 2003, according to the BUILDER 100 ranking, an annual report published by BUILDER magazine, a sister publication of PROSALES.
Many of the BUILDER 100 companies attribute more than 50 percent of their sales to their top 10 markets. This level of concentration brings up two questions: Are the top players going to hit the ceiling in their target areas of operation, which are primarily in the nation's top 50 home building markets, and if they do will more of them start tapping secondary markets and/or branch out into other types of construction? For example, there has been a recent increase in the amount of attached housing built by the BUILDER 100, and many are pursuing more infill, mid-rise, and even high-rise construction. These shifts definitely can be new business opportunities for suppliers.
Small, steady, and strong. With an average age of 32 years, U.S. homes are a remodeling industry jackpot. According to the Joint Center's 2005 remodeling industry report, “The Changing Structure of the Home Remodeling Industry,” there are approximately 120 million existing housing units, stock that's expected to continue growing consistently each year. Consumer spending on these residences has been very steady—there hasn't been a major downturn since the early 1990s and almost 30 million homes were significantly updated in the past decade, the report says. Homeowners and rental property owners spent $233 billion on remodeling projects in 2003!
The JCHS also estimates that there are 816,700 individual remodeling businesses, of which 171,544 are professional contracting firms.
One of the biggest growth trends among larger firms is luxury remodeling. High-value homes, which had an average price of more than $400,000 between 1995 and 2003, have fueled 90 percent of the improvement remodeling growth over this same period. In 2003, these homes accounted for $40 billion in spending, and professional remodelers captured $31.4 billion of that business (DIY accounted for most of the remainder). The trend continues, and that means more demand for suppliers to deliver high-end (which usually are also high-margin) products.
Even though there are vast differences between the way remodelers and production builders do business, a lot of dealers no longer believe that they must choose one over the other. Many are serving both masters by creating two-pronged business models, often with different facility locations, manufacturing capabilities, and products to handle their unique needs. The most successful dealers are getting the best of both worlds by cross-selling niche-targeted products and services to strategically increase the percentage and range of materials they can supply to all of their customers' jobs.