Facing the Reality of the Labor Shortage Crisis

authors Dave Yoho | December 10, 2018

There are two major issues that all home improvement companies are facing.

What would you have said if 30 years ago someone had told you that by 2018, Sears Roebuck would no longer be a leading retailer (in 2015 their installed home improvement division, alone, sold almost $1 billion annually) and, possibly, by 2019 they may no longer be in business?

And if someone were to ask you what happened to Blockbuster, Kodak, Blackberry or home improvement industry giants such as AMRE or Pacesetter—which no longer exist as dominant companies—how would you reply? Or was your company prepared for the recession (2007 to 2014), and how did you respond?

A major percentage of home improvement companies are having their greatest sales year in 2018 while severely increasing their backlog.

This begs the question: How has this affected their “cycle time,” their “cash flow,” or their “customer satisfaction” rating? These and similar problems created by a rising economy and the availability and ease of consumer credit has and will have critical and unintended consequences for their business.

Two major issues, which all home improvement companies are facing, will continue to exist and even increase in 2019. That’s why trade magazines and various data-producing sources call this a “crisis.”

  • The greatest “skilled labor” shortage in the history of the industry.
  • Marketing costs (producing leads) continue to skyrocket.

Each of these issues are now considered a crisis; however, every crisis also creates opportunity. Many companies prospered during the recession—did yours? The resolution lies in recognizing and reacting to these issues before crisis becomes chaos. Many sources speak about these problems,  yet no one seems to comes up with a plan for an immediate and long-range solution.

What actually occurred within those companies mentioned in the first few paragraphs above? How does this relate to your business?

Most of these companies ignored the issue of impending labor shortage and/or labor diversity. Conversely, consider UBER, an ever-growing international company that owns nothing—no vehicles, no garages, no repair or maintenance centers—or virtually nothing (thinking, planning outside the box).

The home improvement industry would seem to have had its head in the sand.

Today’s labor shortage might have had its beginnings with the recession of 2007. As an example, it is estimated by the National Association of Home Builders that 70 percent of skilled labor left the industry and found employment in “other industries” where they might make less but have more security. At this point, it is estimated that less than half of that 70 percent have returned to the construction industry.

Couple this with the fact that high school graduates, up to those 30 years of age, “do not find construction work attractive.” The recession we refer to ended in 2014, so ask yourself where were this industry’s great managers (thinking, planning outside of the box)?

Each of the problems companies ignored or underestimated diminished “net profitability” while revenues increased. Did they really believe that increased sales would obviate “lower net profit” issues?

Today, there are many companies with multimillion-dollar revenues who have increased the size of their salesforce and marketing budgets.

Their general and administrative costs and their labor costs expanded without producing an adequate pretax net—which should under no circumstance be less than 10 percent pretax net (EBIT).

In the home improvement industry, companies ignored the aging installation workforce and/or their outdated principles of training and compensation packages. Many companies recruited by offering increased “per unit” pay to attract subs from their competitors. The reciprocity of which created higher labor costs without increasing the labor force (no gain, more pain).

Larger growing companies audit and review their accounting procedures and operating statements; seldom do they audit the metrics of their marketing and production models or their relationship to “cycle time.”

The cost of lead issuance created by dividing the leads issued into the fully loaded marketing costs has escalated into obscene levels.

Many large companies saw this as a “non-problem” and simply raised prices. The outcome of which was a cycle of increased operating costs­—that in turn created higher selling prices without necessarily increasing net profit.

In this era of high need for middle- and upper-level managers, highly skilled and well-educated management people are hired, but many are not knowledgeable about the core factors that created the business and/or the model of operation needed to maintain a stable, growing and profitable business. (You cannot know what you do not know!)

Here are a few examples:

  • Customer satisfaction is highly affected by the information and how it is delivered by the person taking the lead. It is further influenced by what the salesperson says and how they say it in the home. It is even further influenced by backlog. If any form of urgency built into a sales presentation— as it might be in most products (i.e. HVAC, plumbing, roofing, windows, insulation, water purification, waterproofing, siding, decks, kitchens and baths)—is diminished by increased cycle time, and customer satisfaction is diminished.
  • Successful in-home selling in the home improvement industry includes everything that happens from the time of “lead intake” to the time of satisfactory completion of the work. The opposite of customer satisfaction is not dissatisfaction—it is no satisfaction.

What have you done to solve the labor shortage within your company?

Here are some realities, which may spur you to action. There is a labor shortage, not just for installation. It is now and will affect hiring salespeople, canvassers, show and event personnel, and skilled managers for all those departments.

  • Currently, there are over 6.5 million jobs (Dept. of Labor), which are unfulfilled in the U.S. for all sorts of labor. You are/will be competing with them.
  • Don’t waste time lamenting or blaming others for the demise of trade schools (although it is high on the list) for contributing to this dilemma.
  • Stop waiting for the solution to come from manufacturers, trade groups, or similar —start researching and create your own plan.
  • Young people (19 to 30) are not attracted to the jobs you may offer. Think outside the box. A high percentage of these people may want to own their own business or franchise (no, not your business). However, a “sub-contractor” is in business for himself. How does your company meet that dream (subs in the home improvement industry do very well)? Remember, many franchises require a sizable investment; your opportunity doesn’t, but that’s only a starter.

You need a plan that fits the kind of people you want to hire.

You need an individual to become fully employed at recruiting. You need a budget for this and a simple funding plan that has a return on investment for your company.

Attend a free webinar, which talks about how. Dave Yoho Associates has prepared a 90-minute webinar on Dec. 12, 2018. If you missed it, we will provide you with a recorded version at no charge. To request your free copy, send an email to admin@daveyoho.com with the subject “Labor Shortage Webinar,” and we will send you a link to the recorded webinar. | QR

Dave Yoho Associates is the oldest (since 1962), largest and most successful consulting company representing the remodeling and home improvement industry. The company has a staff of field representatives and account executives who consult for large and small retailers, manufacturers and service providers. For more information visit daveyoho.com or email admin@daveyoho.com.

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