The housing bust that started in the late-1980s was particularly hard-felt at Longview, Texas–based Cassity Jones Lumber & Hardware. Simultaneous slumps in the oil and financial industries had pitched the Lone Star State into its worst recession since World War II, and with housing starts at a 35-year low, Cassity Jones was on the brink of going belly-up. “That last one just almost got us,” says company president John L. Jones. “We're not going to let this next one get anywhere near as close.”
With talk of a possible housing slowdown permeating the building material industry now, Jones says his $80 million, eight-unit company is keeping a close eye on how much credit it extends to its customers and is policing overdue accounts. But the dealer is also maintaining its traditional focus on selling to custom home builders, which account for 90 percent of its sales, even as production builders have ramped up activity in the Dallas-Fort Worth market in recent years. The reasoning behind that focus is simple: “The custom guy is always going to be there,” Jones says. “We've seen the downtimes before, and we've seen the production guys go away.”
You don't have to look far for data to back Jones up. Currently, the nation's 10 biggest home builders account for one-sixth of all single-family homes and 22 percent of spec homes built, up from 9.4 percent 10 years ago, according to NAHB economist Michael Carliner. Meanwhile, custom home builders' market share has slipped to just 12.3 percent, Carliner says. But at the nadir of the last housing slump, the numbers were eerily reversed. “When the market was really in the tank, at the low point for total single-family starts in 1991, [custom home builders' market share in the U.S.] was up to 23.6 percent” from just 14 percent a decade earlier, Carliner says. Why? One reason is that custom home builders' clients were still willing to finance projects, even as the banks were shying away from tract and custom projects alike. “It was very difficult for a builder to get a construction loan, but the homeowner had a much better shot at it. That protected [custom builders],” he says.
If the cycle repeats itself in coming years, dealers such as Jones who have been through slowdowns before say it's likely that custom builders will be a driving force in keeping pro suppliers busy tomorrow—which means dealers should keep a close eye on those accounts now. As Jones puts it: “You just gotta kill 'em with service today.”
Of course, the market's pendulum has forced many dealers to retool their businesses to serve the growing production market. Take Stan's Lumber of Twin Lakes, Wis., a $40 million dealer whose custom base has slipped to 75 percent of sales from 83 percent just a year ago. With production builders moving into its region, the company has responded to them, and they now account for 24 percent of its business. But Stan's is trying to keep the trend in check. “As president of this company, I don't want to exceed 25 percent to the production builders,” says Carl Torstenson of the two-unit firm's current business approach. “The custom builder is what our operation has run on for the last 23 years. I don't want to jump headlong into the production side and drop the ball on what brought us here, because with the production guys, it's all about price. With the custom guys, if you provide them with the utmost service, they're going to keep coming back to you.”
Ken Kerkman, president of Kerkman Bros. Construction Co. of New Munster, Wis., which builds approximately 10 custom homes a year, is just one example of a custom builder who has been coming back to Stan's since it opened in 1982. He spends about $2 million a year with the pro dealer “because if we have a problem on the job, Stan's gives us the answers we need,” Kerkman says.
“When it comes right down to it, that custom guy is going to need a two-legged resource, which means we can differentiate ourselves on something other than price,” says James Cissel, president of $140 million, seven-unit Manning Building Supplies in Jacksonville, Fla., which serves an 80 percent custom base. “If there's something good we can do for them, we're not waiting for the slowdown, we're doing it now. Hopefully, they'll remember that down the road.” —Joe Bousquin is a Newcastle, Calif.–based freelance journalist.