Dear Friend:
I've been in the remodeling industry for many years and have seen many changes. Mitch, our Editorial leader for this newsletter, recently came to me and said - so, what are the biggest changes you see for the remodeling industry in the near future? Well, here is my response.
"Change is good." We hear this proverb many times in reference to all aspects of our lives. And I believe this proverb is applicable, today, to the remodeling industry. Over the past few months I've thought a lot about what this might mean to the remodeling industry.
I believe the remodeling industry is on the crest of a wave of change. In this month's article, I am sharing with you my three predictions of change to the remodeling industry. Read on, and let me know if you agree with my predictions or have ones of your own by sending me an email to hometechbbi@hometechonline.com.
- Walt Stoeppelwerth, HomeTech Information Systems, Inc.
P.S. Whatever lies ahead, we want to make sure you are prepared. Download our FREE desktop reminder on the best ways to manage your contacts at http://www.hometechonline.com/ManageContacts.pdf. This PDF contains a summary of the key points from our last several newsletters on this topic.
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In This Issue
- Feature Article: Remodeling Industry Near Term Predictions
- HomeTech ADVANTAGE Tip
- Did You Know This Remodeling Industry Fact?
Remodeling Industry Near Term Predictions
PREDICTION #1:
Consolidation and Specialization
My first prediction is that we will see consolidation in the remodeling industry, and we will also see more remodelers focusing their businesses on a few core competencies. There are several influencing factors that contribute to this prediction.
Today the remodeling industry is quite fragmented, with 15,000 – 20,000 remodeling businesses operating with more than $1 million in annual sales. These remodeling businesses are typically "one-off" or single locations operating within a one to two hour drive of their locale.
Many of these remodeling businesses are owned by those who are over 60 years old and who want to retire with no clear successor in sight. With a draw toward "knowledge-based" employment and vocational education cutbacks, there does not seem to be a next generation of workers to take over these remodeling businesses that exist today as independent entities.
Currently, 17%-28% of home builders are what we would consider "big" – they operate in the $15 to $20 million range, and it is predicted that we will see 40-45% of home builders operating at this level in the very near future. These "big" home builders use a lot of subcontractors and are in effect tapping significantly into the pool of available, quality sub-contractors accessible to remodelers.
Advancements in technology will allow a smaller group of talented remodelers to expand their businesses. With contact management, estimating, accounting, document management and all the opportunities the web provides, technology will help the remodeler support a larger operation with fewer people.
This industry shift towards consolidation will present some remodelers with prime opportunities. The first being to specialize their businesses. Rather than consolidate or cease to exist, a good percentage of remodelers will focus on the aspects of remodeling that they do best and offer very specialized services that will continue to be in high demand. Kitchen, roofing, windows and siding are all aspects of remodeling experiencing ongoing growth and can be independently successful as a specialized service.
Some remodelers will be the catalyst for consolidation. By developing a good business plan and seeking out complementary remodeling businesses with established areas of opportunities, these remodelers will become the larger remodeling firm that we expect to see as the industry consolidates. They will capitalize on technology to create larger, more efficiently run remodeling businesses.
No longer wanting to run their own show and build their own client base, some remodelers will opt to subcontract to the now bigger guys. These remodelers will continue with what they like to do best but work as supporting trade versus an independent entity.
Lastly, a great opportunity will now exist for some remodelers to simply just grow themselves. Not through consolidation, but by investing in technology and aggressively marketing to clientele, these remodelers will grow their businesses and sub out to other remodelers.
PREDICTION #2:
Pre-Fabrication Will Become A Serious Remodeling Option
In new home building in 2006, 15% of the work being done was pre-fabricated, and the reasons why are sound. Pre-fabricated components are factory produced and, as such, provide more consistent construction at a lower cost than the traditional stick-frame construction. The use of pre-fabricated components also helps to speed up the overall construction time on-site thus reducing the cost to build.
I predict that the use of pre-fabricated components will play a significant part in the remodeling industry in the years to come and not just for the quality and cost reasons mentioned above. With 80% of the people who are buying new homes buying homes in areas where builders are building 50-100 houses in one of typically four different styles, the remodeling projects that owners will take on to these homes will be of the same nature. Limited choices of home designs will mean more standardized remodeling jobs.
More standardized remodeling jobs for the remodeler equates to more known costs and known components for the construction. Hence, pre-fabrication. The remodeler can cost out the pre-fabricated components, and most likely stay within 5% of the estimated project cost. What homeowner would not appreciate that?
Bear in mind that by pre-fabrication I don't mean lack of customization. The successful remodeler will be able to capitalize on the pre-fabricated components but will still be able to, and asked to, customize the overall project to the homeowner's taste. This might mean making the bathroom larger and the closet smaller – both preferences expressed by the homeowner that can and should be accomplished even if using pre-fabricated components.
PREDICTION #3:
Baby Boomers Will Boom the Remodeling Industry
Assisted living, active adult communities, 55+ housing. Every community today is seeing an increase in the construction of housing options for our aging population. With 73% of the senior population owning their homes outright and 90% wanting to live in their homes until they die, the necessity to modify existing homes to meet the needs of the aging population is growing. Remodelers will need to address and solve this demand.
Percentages of the aging population will stay in their existing homes and require modifications to these homes in order to do so. Ramps, first floor bedrooms and modified bathrooms will all be remodeling projects needing to be done. But with 60% of the aging population also needing assistance with their daily routines, an increasing demand for commonly called "granny suites" will also come into play. By taking the proceeds out of existing homes, aging parents will opt to add onto their adult children's homes and build a fully attached yet self-supporting living space. Bedroom, living area, bathroom and independent outdoor access additions to existing homes to house an aging parent (or parents) will become common remodeling projects.
The remodeler will meet the aging population's needs in another way as well. Those who opt to stay in their primary homes are no longer capable of maintaining them. This demand for ongoing maintenance will create a new category of remodeler who will offer house maintenance services on a contractual basis to keep homes running efficiently. A good example of how this specialized remodeling service is growing can be seen at: http://www.woodmeister.com under their "Lifestyle Management Services" offering.
I don't have a crystal ball, and I don't know with an iron-clad degree of certainty that these predictions will ring true. But having been in this industry a while, I hope I've at least given you things to ponder as you grow your business this year.
Additional Resources
- WoodMeister Master Builders web site
Using the "Assembly" Feature to Transfer Data Into An Estimate
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According to the most recent figures available, in the United States there are approximately 82,700 general contractors with payrolls who generate the bulk of their revenues from remodeling work. Their aggregate remodeling billings were approximately $45 billion in 2002. This represents an average of $544,135 per residential remodeling establishment. There were an additional 117,200 specialty contractors who generated $41.2 billion in revenue for an average of $351,535 per establishment.
Source: Foundations for Future Growth in the Remodeling Industry, Table A-7, Harvard University, Joint Center for Housing Studies, 2007, Unpublished tabulations of the 2002 Census of Construction
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