Market Memo

Qualified Remodeler magazine mourns the passing of its founder David Sauer. David founded QR in 1975 and sold it to a pre-cursor company that became Cygnus Business Media in 1996.

Today his many friends in the remodeling industry shared the following e-mail about his life and his contribution to the remodeling industry.

It was written by Linda Shchoffman.
 

My Dear Friends:
 

It is with great personal sadness that I tell you that we heard today that David Sauer, Founding Editor & Publisher of Qualified Remodeler Magazine, and dear friend and colleague of so many of us, has died.  Dave died of a heart attack, in his sleep on June 17, 2007.
 

As so many of us know, David Sauer was one of the best friends the Remodeling Industry has ever had. We owe him a debt that many of us who were pioneers in the profession, do not, even today, completely understand. He believed in us and in the power we had to influence the economy of the United States; he led us to understand that we are professionals, that we deserve to be treated as such, by our customers…but more importantly, by ourselves, if we expect to receive the respect we deserve, that we must demand the same from ourselves and of others.
 

David  Sauer was the owner and chief champion of Western Remodeling Conference, as he knew, instinctively, that the professional & profit centers of the industry had moved to the West. I was privileged to work with him for several years, as Conference Manager, and I learned much from him. Neil Kelly, Les Cunningham, Martha Kerr, & Dave Love, among others, joined forces in helping Contractors & Suppliers in the Western USA to realize that they were also pioneers and leaders in this new industry that had the power to transform the country.
 

When Dave founded QR, remodeling was pretty much undiscovered territory and many of us in the industry were still inexperienced and unaware of its potential. But, always, Dave had an unerring sense of the marketplace and how the members of the remodeling profession could transform ignored and blighted places into inspired and revitalized homes. And he never hesitiated to share his ideas, no matter who might scoff or disagree. He turned out to be right much of the time.
 

The loss of such a champion of our profession is indeed a great one. The creation of NARI, a merger of the National Home Improvement Council with the National Remodelers Association, in fact, would have never occurred if it were not for Dave Sauer.  Through sheer force of his personality and his journalistic skills, he persuaded a bunch of remodeling contractors and manufacturers to put aside their differences and their self interest in order to form an organization that would define the future of the industry.
 

Arrangements are being made by Donnellan Funeral Home, 10045 Skokie
Blvd, Skokie, IL 60077.  A wake will be held from 3-9 PM on Tuesday, June 19. Funeral Mass will be June 20 at 1:00 PM at Sacred Heart Catholic Church in Winnetka, IL.
 

Warm Regards,
Linda Schoffman

LAS VEGAS — Take the sexiest, most upscale part of the residential construction industry — kitchens and baths — and drop it into sin city for a week and you are going to like what you get. This week’s Kitchen and Bath Industry Show was memorable for the lavish entertaining at eateries and night spots around Las Vegas, as well as for the sheer volume of product introductions across all categories from plumbing fixtures to appliances.

Here are 10 things are learned this week.

 1. The best companies manage to look beyond any gray clouds. Since the middle of last year the production home building side of the residential construction market has been a bit pekid. And even though the remodeling portion has remained strong (albeit growing at a slower rate) the slowness on the production building side has dampened the sentiment among some industry suppliers who’ve relied heavily on production building in the past. Taking the long view, many manufacturers like Kohler, Geber, Elkay, Moen, Eldorado Stone, Hansgrohe, TWC, just to name a few, are stepping up their product innovations and introductions knowing that remodeling and custom homes will keep the kitchen and bath market growing for the next decade and beyond. While touring the new products on display under the big Kohler tent, the docent, a staffer at the company’s Design Center in Kohler, WI, told me that 50 new products were on display, the largest group of new products in recent memory.

2. Concrete is a hot look. Four or five years ago, concrete countertops began appearing as a cool fringe item for kitchens and baths. This year it was everywhere at the show. Appliance manufacturer Fuego used it in most of its displays of new outdoor kitchen products. And it was also on display through a new lighter weight material called Syndicrete that is being marketed by the same folks that have grown Eldorado Stone over the past several years. For the Kitchen and Bath Insutry Show, Syndecrete was on display in the shape of a giant molded soaking tub. The tub got a lot of looks during the show and I am told that a specialty hotelier is looking to order a large number of them for outdoor use. Syndicrete was displayed in large square tiles as an interior or exterior accent for walls and floors. Go to www.syndecrete.com for more information.

3. The high end of the Kitchen and Bath Market is Booming. OK. So I knew this before I attended this show, but it was really brought home in dramatic fashion as I visited many of the exhibits. Case in point is the rise of La Cornue, the french, range and stove manufacturer. It’s top of the line 180 cm wide version starts at $38,000 per unit. Here’s the rub. In my estimatation, this thing is a value at $38,000. The colors are great and for all of the wealthy boomers and GenXers that clamor for authenticity in anything they buy, it is the genuine article. It is built for a precise, gourmet cook, and can be customized to match any color. You can see their products at www.lacornue.com.

 4. The Bronze Age Returns. Bronze specialists, formerly known as Stone River Bronze changed its name to Nobilus and highlighted their company’s ability to custom make and match all hardware found in a remodeled home. The name change refelcts the company’s move toward the new use of other materials like steel, brass and copper. On display at the company’s K/BIS booth was a demonstration of its casting process complete with a 25 lb. door knob created for a home in California.

5. High Design is Everywhere.  Remodelers and designers will not be surprised to learn that high-design has emerged as a factor in the kitchen and bath marketplace. What is surprising is the degree of innovation that can be seen in some of the new styles on display at K/BIS this year. German plumbing firm Hansgrohe came to the show with a line of bath faucets and accessories from noted designer Jean Marie Massaud. Massaud’s work with Hansgrohe follows similar stylings from Philippe Starck, Antonio Citterio and Phoenix product design. Go to www.hansgrohe-usa.com/brands/designers.html to learn more. The company’s approach with these designers is to let them completely re-imagine the bathing experience. Massaud’s work is very flat, and very reflective of the natural world. Accompanying toilet brushes take the form of chrome tree sticks. Contemporary high design styles also emerged from Wood Mode cabinets, Wellborn cabinets and a host of vitrious china manufacturers like KWC, Toto, Kohler etc. Lavs and toilets, in particular are a centerpoint for design innovation.

6. Ease of Installation means extra profit. The needs of contractors out in the field are also at the forefront of new product features and beneftis. Sterling, a Kohler brand, prides itself on a line of products designed with the contractor in mind. Easy to install traits figure into the design of all of its products from sinks to shower enclosures. Sterling www.sterlingplumbing.com executives Tim O’Connor and Tom Bartenstein — not known for their contracting experience — demonstrated a five-minuite installation of Sterling’s line of replacement shower doors. Under the main Kohler brand, a line of vanities also bring ease of installation to the market. Express Assembly vanities come out of the box somewhat compacted, but then stretch out to full size before the sink and additional cabinet facing finishes out the job. Go to www.kohler.com.

7. Already Hot, Outdoor Kitchens are still gaining. Seem like every appliance maker has introduced ruggedized versions of its wares — from refrigerators to cooktops — suitable for installation in outdoor kitchens. Fuego, www.fuegoliving.com, for example unveiled an entirely new raft of offerings specifically for outdoor living. These products also could neatly fit under item No. 5. The line is very sleek and mondern.

8. Air bubbles and chromatherapy can work wonders. My shower does not yet have lights that change from blue to red to yellow, but I am told that when I do get with the times I will almost certainly gain some kind of positive energy that will last all day. (I’ve been searching for that kind of energy ever since I bought my first bar of Irish Spring soap.) Seriously, the numerous new shower offerings that include chromatics is staggering… so there must be some benefits to speak of aside from their stylish vibe. A Quebec City company wants to add air bubbles to the mix as well.

9. Green remodeling is here to stay. State and local water-use regulations in many parts of the country have put the onus on plumbing products manufacturers to step up their game when it comes to saving water. And with a lot of recent research and development, those manufacturers have answered the call, introducing dual-mode shower heads and toilets. Toilets for example have really moved forward, with some boasting options that are measured in liters. The days of old, 3 - gallon tanks is gone, 1.6 gallons and below is now the norm, and it won’t be long before homeowners learn about 1.1 gallon and below flushing options.

10. Kitchen and bath suppliers are looking to embrace more remodelers. A good many took time to talk about the overall health of the residential construction market. Remodeling and custom building seem to be the strongest sectors, therefore, more attention is being paid to the needs of contractors in this group. Many are working through their distribution channels to make product sourcing easier. They are also looking to provide quicker turnaround times on specialty or custom items. Don’t be surprised if your suppliers start giving you a little more TLC in the coming weeks and months. And if they ask your opinion, don’t be surprised if they get out pen and paper and start taking notes.

CAMBRIDGE, Mass. – Each spring and fall, economist Kermit Baker of the Harvard Joint Center for Housing Studies, presides over a meeting of remodeling industry leaders to discuss the latest market data. This week’s bi-annual event was marked by a preview of a new remodeling market leading indicator index and a look at remodeling growth in the coming months.

After growing at a torrid pace during most of 2005 and 2006 — with rates at or approaching 20 percent during some quarterly periods — the remodeling market is experiencing slower growth in the 5 percent range and will likely stay that way for the remainder of the year.

Regionally, there are places in the country where remodeling is actually declining (think of hard hit Michigan and Ohio where auto industry retrenchment has hit the hardest, or of specifc market bubbles where home prices appear to be headed down), but everywhere else remodeling demand has firm underlying support.

The underlying support, Baker told the group,  comes from three main factors:

• The economy remains in growth mode; recession is not imminent
• There are high levels of home equity — “cash out” refinancing activity remains strong, particularly for adjustable-rate mortgage (ARM) conversions
• Several remodeling niches offer growth opportunities — energy retrofits, rental units, and aging-in-place.

But there are some negatives in the remodeling outlook. According to Baker, those negatives are:

• An ongoing residential recession with soft house prices creating nervousness for homeowners
• Existing home sales (while still high by historic levels) have been trending down
• Business conditions softening at remodeling contracting firms
• Consumer debt levels remain high and subprime mortgage fallout will tighten lending standards

The much anticpated new indicator will be called the Leading Indicator of Remodeling Activity (LIRA), which was previewed at the conference, will be released for the first time on April 19.

Revisit this Blog on the 19th for a complete view of the new indicator.

It is difficult to ignore headlines about the increased rate of defaults in ’subprime’ mortgages. Southern California, Florida, Texas and other fast-growing areas of the country, where most of these loans were originated, will certainly feel some impact.

But aside from isolated local impacts and the possible reprecussions on Wall Street as bankers absorb a wave of bad debt, the affects of these foreclosures should not be felt nationally.

And the local picture does not look too bad either.

The Inland Empire of Southern California is one region where remodeling activity might be affected. In this area, just east of Los Angeles, new homes have been built at a rate of 27,000 new homes annually over the past five years. This rate of new home construction was kept alive due largely to the efforts of create mortgage underwriting.

Some buyers were offered 50-year mortgages in order to be able afford a new home. Other buyers were not required to list a source of income. These are bad practices for which a real correction is necessary and healthy. The good news is that remodeling activity is still growing (albeit more slowly) and that population and job growth in Southern California will support new growth in short order. It is projected that there will be another 3 million people living in Riverside and San Bernardino Counties over the next 10 years.

Florida and Texas are similar to Southern California. They are in the sunbelt and their economies will ultimately recover. The latest report from the Joint Center for Housing Studies “Foundations for Future Growth in the Remodeling Industry” support this assertion. Some of the fastest areas for remodeling growth over the last two years have been in these areas.

- The remodeling market inTampa, Fla. was up 26.7%

- Miami was up 39.5%

- Houston was up 9.2%

Located in the Sunbelt, these are non-traditional remodeling markets, but as the median age of homes rises, renovation and remodeling are required.

But beyond these local concerns, the overriding reason why the national remodeling market will not experience any hiccup associatied with mortgage foreclosures is the demographics of the impact.

Much of the professional remodeling market activity is coming from upscale clients. Very few of these higher income clients and their higher dollar kitchens, baths, room additions, and whole-house remodels will be curtailed by higher foreclosures at other income levels.

Take a look at “Foundations for Future Growth in the Remodeling Industry”, the recent report from Harvard. The remodeling market is strong in so many ways. It is a great place to build a future. And fearmongering about mortgage foreclosures should be taken for what it is.

ORLANDO, Fla. — At its Winter Board of Directors Meetings held in conjunction with the International Builders Show, The Remodelors Council of the National Association of Home Builders changed its name to NAHB Remodelers.

The new name, which was adopted by the council Feb. 7, then separately approved by the NAHB on Feb. 9, also marks a departure from the use of a unique spelling for the word remodeler. Taking a cue from the National Association of Realtors, which trademarked an “ors” ending for the generic word realter, the Remodelors Council trademarked and embraced a similar spelling for its key descriptor beginning in the late 1970s.The rebranding effort also dropped the word council, which was a reference to the organization’s relationship within the hierarchy of the National Association of Home Builders.

“I am looking forward to the day when we could simply be known as the NAHBR,” said the group’s outgoing national chairman Vince Butler, CGR, CAPs, of Butler Bros. Remodeling.The rebranding effort is not expected to have an immediate impact at a local level. Local Remodelors Councils will be allowed to keep their current identities alongside a reference to the new name. The group’s trustees did not want to put a timeline on the name change at a local level because of the costliness of making such a change in a short time.

Internet Searches Played a Factor The growing importance of the Internet played a factor in the group’s decision to change its name. With consumers increasing using the Internet, in particular searches on the the World Wide Web, as a way to look for remodeling professionals, the unique “ors” spelling of the word remodeler became an increasing liability in terms of search engine results. Very few consumers knew that searches using the word “remodelor” would turn of up a list of hiqhly qualified professionals.

To me it was really cruel to have to come back into the office on Jan. 2 and face the onslaught of e-mails and projects that the holidays helped me keep at bay for two weeks. I have honestly not looked up from my computer since I sat down 10 days ago. But… It is that time of year, particularly for remodelers. 

In the eastern half of the United States, remodelers are typically holed up during January, working on indoor-only projects, but the 30-day spate of warm weather has really heated up the market, or so I am hearing. (Denver… not so much. Keep your snowboards waxed.)

Judging from my conversations with remodelers since the new year, leaders from around the industry are flush with resolutions that will help them create more business in 2007. And one of those resolutions that I am hearing from many remodelers is to enter more design comeptitions.

Design competitions have really taken off over the past few years. We are especially gratified by the continued success of our Master Design Awards program. Go to www.qualifiedremodeler.com/awards for more details. Last year we had a record number of entries and we had an amazing turnout at our awards event at the Remodeling Show.

Entering a design competition is a time consuming process. There are the mounds of photography to sort through. Maybe you’re among those who are determined to hire a photographer to get the most favorable “after” shots. You’ve elevated you’re binder entries to a high art form. I am thinking of Modern Yankee Builders in Rhode Island or Silent Rivers in Des Moines, Iowa. These remodelers really take pride in their binders.

It is this time of year when the editors here at Qualified Remodeler — Chaya Chang our managing editor and Jon Minnick our associate editor and I — really get a sense of the loving care that many of you put into your design entries. As they come in, we typically ohh-and-ahh over the photos and marvel at the amazing transformations. We know how hard you and your people work to put these binders together.

Right now, many remodelers are rushing to meet the Contractor of the Year entry deadline for the NARI competition, go to www.nari.org for more details. After that, many will prepare binders for the largest regional design competition in the industry, the Chrysalis Awards. For more details go to www.chrysalisawards.com. Then, we hope, the next pressing deadline for your design award binders is our competition on May 25. 

A couple of years ago we teamed up with Chrysalis to streamline the workflow for you and all the members of your team involved in the creation of your beautiful binders. We aligned our entry categories in such a fashion that all binders formatted for the Chrysalis Award could be forwarded “as is” to our offices for judging. Years before that, Chrysalis did a nice job of aligning its design categories to match up with the Coty Awards. So as you and your team slave over your Coty and Chrysalis binders, take comfort in the knowledge that your efforts do not have to be duplicated for our competition.

—-

As a side note: presentation really matters in winning design awards. Anything you can do to demonstrate what you have achieved on a project, it is worth going to the extra effort.

1. Get great “After” photography. Don’t rely on your rusty shooting skills. Even the best projects can look bad behind a amateur lens. To keep costs down, I would suggest sending out some feelers to your network of friends to see who among them might actually know what they are doing with a camera. The surefire, but much more expensive route is to hire a pro. If you’ve got the budget, the expense can make sense.

2. Try to remember to take photos before you begin. If not, work with the client to obtain some of their photos of the house. These before photos set the baseline of what is achieveable.

3. Tell a story. There is no better way to bring a story to life than to organize your photography and words in such a fashion as to tell a story about the project. Build some drama. Show your details.

Good luck with your design entries in 2007. And please e-mail me if you have any questions about our Master Design Awards — patrick.otoole@cygnusb2b.com.

There are times when you really have to scratch your head and wonder how policy gets made in Washington, D.C. Little more than a year ago, it became clear that remodelers were about to be tagged with a very onerous responsibility by the Environmental Protection Agency. Under the proposed rule, all professionals involved in residential repair and remodeling who work in homes built before 1978 (and that is more than 70 million units) would need to take a series of expensive steps to ensure that they were not distrubing lead paint and creating a hazard in homes where children were living.

The remodeling industry is not in favor of disturbing lead paint and creating health hazards, but the rule unfairly targets remodelers without a lot of clear evidence that this industry’s work practices are creating hazards. At this point, it is important to know that the rule has not been enacted yet, and that an extended comment period allowed time for the industry to marshall a game plan to combat the enactment. Many of the main opposition points to the lead based paint rule making are nicely summarized in an “Issue Briefing Paper” from the National Association of the Remodeling industry or NARI. NARI LBP Position

Just last month, the results of a professional study of work practices in removing lead-based paint was released by its sponsor, the Remodelors Council of the National Association of Home Builders, which also worked collaboratively with NARI on the study. The report’s findings were extremely favorable for remodelers. final-study-report.pdf Through its testing partner, Atrium Health & Environmental Services LLC of Reston, Va., the Remodelors Council took 342 air samples and 407 surface samples in five remodeling projects in pre-1978 homes around the United States. The samples were collected during 60 typical renovation and repair activities. Importantly, airborne lead testing was done before-and-after the remodeling project was completed. In all five sites there were was no significant increases in the prescence of lead. And in one test site in Newington, CT, the home was actually healthier after remodeling than prior.

CAMBRIDGE, Mass. — At the Remodeling Futures Steering Committee meeting of Havard University’s Joint Center for Housing Studies held Nov. 8, a number of presentations by researchers and industry experts shed light on the immediate and long term future of the remodeling market.

The underlying numbers presented really appeal to my inner geek. And the demographic side of remodeling could not be more interesting. In a presentation entitled The Demographic Underpinnings of Future Remodeling Activity remodeling spending was broken down into “cohorts” of Americans. Leading edge baby boomers are now about 60. Trailing boomers are as young as 42. Generation X ranges from ages 31 to 41… and so on. What was clearly revealed by the research is that home remodeling spending is partially a function of age of the homeowner. The peak spending years are approximately 35 to 50. So it makes sense that the past decade has been one of incredible growth in remodeling spending… the largest cohort of Americans… leading-edge and trailing baby boomers have been moving through through prime spending years. And boomers are still spending and supporting our industry.

Lately, however, Generation Xers have moved into the picture in a bigger way. And though they are numerically a smaller group, at an individual level, it seems that Xers are spending at least as much if not more on remodeling. That is really good news for remodelers in the near and mid term future.

Keeping in mind that demographics is only one leg of the stool that supports the remodeling industry… along with an aging housing stock, a favorable economic environment for spending… in terms of sheer numbers the long term picture looks even better. By the year 2015, minorities are expected to contribute nearly one quarter of total spending on remodeling activity. This also makes sense… minority groups will comprise 24.7 percent of all homeowners in 2015.

The upshot is that remodelers should take some time to get to know the purchasing decisions and lifestyle needs of Gen Xers, and over the long term, they should cultivate relationships with minority buyers. These groups will truly shape the remodeling industry that is to come.

Selling is one of the key skills associated with successful remodelers. A few weeks ago as I sat in on a remodeling peer group meeting hosted by Remodelers Advantage, this truth was repeatedly discussed: specifically, how do you find people who have enough experience and ability to gain the confidence of a well-heeled clientele. Most of the remodelers at the peer group meeting rely on one primary sales person… themselves. The trouble with this is that the company is completely dependent on one individual to keep the jobs flowing. But on the other hand, it is really hard to turn qualified (and expensive) leads over to an individual who may come up empty.

Here’s what many in the group are doing to improve their prospects of bringing a bona fide seller into the fold.

1. Look within your organization. More remodelers are getting up to speed on evaluating their current team members to uncover hidden skills. There are a number of personality tests that can be administered. Many who want to be sellers don’t actually have what it takes to close and negotiate. The worst thing to do is to promote someone into a position where they are not equipped to succeed. When an internal candidate is tested and appears to be the right fit, it is important to develop a plan to adequately train and mentor that individual.

2. Design Specialists… Design oriented remodelers who have had luck hiring new sales people, have been particulary successful hiring those with a design background. They must be evaluated for selling, but if they pass muster… this is a good way to go.

3. Incentives are important. Top sellers tend to be motivated by money. If a six percent commission can be afforded to the right person… by all means pay it. If that person is successful, your money train will keep that person in place for a long time.

Among the ways we can appreciate the accomplishments of the Top 500 remodeling companies (which are compiled in our newly published annual listing) is to drill down on the source of their new business.

On the Top 500 application we ask remodelers to break out the percentage of their jobs that come from previous customers, the percentage from referrals and the percentage from new marketing initiatives. I sorted the Top 500 spreadsheet according to those with the highest percentage of repeat business and found some very classy remodeling organizations.

I have a great deal of respect for those companies that continually manage to draw new business from old customers.

Don’t get me wrong. I also respect those who grind it out year-in and year-out working a system that generates new leads that are scientifically captured then pitched and re-pitched. This is truly the American Way ­– growth through sheer force of will.

But when it comes to defining success in the remodeling business – providing excellent quality while earning a good profit – there is not a better barometer than those who’ve built businesses that are nearly self-sustaining through the amount of business that comes in from existing customers.

Below is a list of the 40 or so remodeling companies that drew at least 40 perecent of their new business last year from previous customers. Among them are a mix of design/build firms as well as speciality companies. The list shows tht repeat business is not the province of one type of company.