Plan Now: Five Forces to Watch
The more things change in remodeling, the more they stay the same. Your business, however, should not.
Five years ago - March 1997 - is when Professional Remodeler first stepped into what proved to be the most tumultuous, exciting times the remodeling industry has seen. In keeping with that bold spirit, our fifth birthday seemed like the perfect time to take stock of the future rather than reflect on the past. Of the many factors shaping the industry, we’ve picked five that we predict will dominate the next five years: the continuing shortage of skilled labor; the aging of the baby boomers coupled with Generation X’s movement into what traditionally has been prime remodeling age; the growing usefulness of technology; the big boxes’ hold on consumers; and the increasing number of local, state and federal regulations.
Surprised to hear this? Doubtful. New research from the NAHB indicates that 80% of remodelers see the lack of skilled labor as a significant issue shaping the industry during the next five years. The next four issues to top the list were the aging population (50%), increased government regulation (42%), the Internet (42%) and competition from retailers (38%). Immediately after followed the immigrant work force (33%), computer-aided design (26%) and the computerization of office functions (26%).
So you know what’s keeping you up at night. Now let’s do something about it.
Looking for labor
No. 1 on most lists is labor. Despite months of headlines trumpeting layoffs and the unemployment rate, which stood at 5.6% in January, many contractors still can’t find skilled workers.
According to Bureau of Labor Statistics projections, the civilian labor force will grow by 12%, or 17 million, from 2000 to 2010, bringing the total number to 158 million. At the same time, the number of jobs in the construction trades is projected to increase from 6.5 million to 7.3 million during this decade, a growth rate of 13.3%. Factoring in the need to replace workers who retire or change careers, the bureau estimates there will be more than 2 million job openings in construction.
Finding employees to fill those openings will require looking beyond the young and middle-age men who traditionally have composed the bulk of employees in residential construction. By 2010, women are projected to make up 48% of the labor force. We’ll also see a drop of 3.8 million workers age 35 to 44. The biggest growth in the work force will come among people 55 and older: 8.5 million. The median age of the labor force is projected to rise from 39.3 in 2000 to a record 40.6 in 2010.
Don Novak, CGR, president of Novak Construction Co. in Cedar Rapids, Iowa, has a history of hiring unconventionally. He found his mother-daughter design team, Joan Weberg and Dana Clark, from among his customer base. After doing two remodeling projects for the Webergs, Novak ran into Jon Weberg, who mentioned that his wife was looking for a job. Novak remembered her flair for design and told Jon to have her get in touch. That was 26 years ago, and Joan is preparing to retire. Jon decided to begin working for Novak Construction after retirement.
"He understands computers better than a lot of us, so he helps keep us out of trouble," Novak says. "He also takes pictures of completed projects for home shows, parades of remodeled homes and displays in our showroom."
The manager of Novak’s handyman company, Home Repair Express, also joined the team after retirement. "We met at the home show three years ago and did a nice addition for him," Novak says. "He took early retirement, and we caught him at the right time."
Juan Urbieta and Carmen Guerrero-Urbieta of Urbieta Construction in Dayton, Ohio, have advertised for employees as far away as San Antonio. But good workers still were hard to find, and they actually cleaned house in January 2001, replacing all their employees. One new hire was lead carpenter Galen Booker, a veteran in his early 50s. Because of Booker’s work ethic, punctuality and ability to be a team player, Guerrero-Urbieta has begun working with a local veteran outreach specialist and the Ohio Department of Job and Family Services to hire more veterans.
She offers an interesting perspective on another development in the labor force: the number, growing since the 1970s, of Asian and Hispanic immigrants in it. The BLS notes that the U.S. Asian population grew from 3.7% in 1990 to 4.7% in 2000 and is projected to reach 6.1% by 2010. Hispanics made up 8.5% of the population in 1990, growing to 10.9% in 2000, and are projected to hit 13.3% in 2010. Immigrants make up much of that growth.
Guerrero-Urbieta’s husband, Juan, was born in Mexico. They started their remodeling firm 14 years ago when his lack of English skills prevented him from finding a job. Since then, the influx of Hispanic workers has been felt widely in the construction industry, evidenced in everything from English--Spanish construction dictionaries and rising injury statistics for Hispanics on job sites. Last year, the Occupational Safety and Health Administration awarded grants to 15 organizations providing outreach to Hispanic workers.
Be sure to give thorough and equal job and safety training to employees and subcontractors for whom English is not a first language, or prepare for lawsuits. Guerrero-Urbieta, who is bilingual and in a previous career worked at a Japanese company where her boss spoke no English, advises managers to learn some of their employees’ languages, use drawing as a key form of communication and try to understand cultural differences underlying employee-boss interaction.
The changing consumers
Everyone has been talking about baby boomers and what the aging of the American population means for the coming years: in-law suites, universal design, first-floor master bedrooms, ramps and chairlifts, and learning to work with several generations of a family as well as medical professionals.
But you can’t forget the newest group of homeowners: baby busters and echo boomers. The Joint Center for Housing Studies at Harvard University projects that by 2010, 7.6 million of the country’s new homeowners will be from 25 to 34 years old, with another 6.7 million from age 35 to 44. They have their needs, too.
These people have grown up with technology. They expect to do research - on potential contractors, on products, on the remodeling process - online. They may expect a PowerPoint presentation as part of your sales pitch. And they will definitely expect you to know the ins and outs of every home system available.
They’re also environmentalists. In Professional Builder’s 2001 study of home buyers born from 1965 to 1978, 91.3% said energy efficiency is extremely important in a new home, 61.1% said the same of resource conservation, and 82.2% said the same for indoor air quality. While green building techniques and energy-efficient products such as photovoltaic systems and radiant barrier heating have been around for a while, remodelers have been slow to adopt some of these technologies. Consumers have, too, because they tend to focus on installed costs rather than life-cycle costs.
But add the proliferation of local and state tax credits for homeowners whose houses meet energy-efficiency standards, and the pain of first cost begins to ease. This could go national, too. In February, after removing a $300 tax credit for making an existing home energy-efficient, the Senate put it back into the Energy Tax Incentives Act of 2002. Combine that with this generation’s propensity for thinking green, and you have a consumer-driven opportunity just as strong as aging in place.
Here’s a quick list of technologies that have become pretty common in remodeling the past few years: pagers, cell phones, e-mail, Web sites, job-costing software, computer-aided design. Nevertheless, the remodeling industry lags in adopting technological advancements.
Take the Internet. While many remodelers have developed Web sites, most of these sites are simply “brochure-ware”: static pages that offer marketing text and pictures. Few remodelers have taken advantage of the Internet’s many possibilities as a business application: managing projects both internally and externally via a Web interface, qualifying customers via interactive surveys, selecting and purchasing products, allowing customers to generate rough designs of their own projects, or obtaining permits.
In terms of running the production and back ends of a business, no technology will improve efficiency or profitability without an integrated systems approach already in place. But maintaining the standards of customer service that are a must in remodeling will require technology on the front end. According to the U.S. Census Bureau, Internet use is growing at a rate of 2 million new users per month. As of September, 54% of Americans used the Internet, and 66% used computers. On top of that, the bureau reports that 36% of Americans in 2001 had used the Internet to search for product and service information - up from 26% one year earlier.
If you have a computer and/or Internet access, here’s one free opportunity: Manufacturers offer Web sites and CD-ROMs that let contractors and consumers swap out colors, shapes, sizes and textures of visible products such as doors, siding, appliances and surfaces. Use these tools as a virtual showroom if you don’t have one of your own - better than sending cli-ents to a retail showroom and losing control of the selection process, and the markup.
The giant retailers show no signs of stopping their march across the country in search of your clients’ hearts and minds. Lowe’s sales increased 17.6% from $18.8 billion in 2000 to $22.1 billion in 2001, while sales for The Home Depot increased 17% from 2000 to 2001, bringing fiscal 2001 sales to $53.6 billion. Lowe’s added 113 stores in 2001 for a total of 753. The Home Depot opened 204 stores last year for a total of 1,333.
Service and reputation remain the only way to compete with these behemoths. Established remodeling firms with an established client base haven’t had to worry much, but young companies or those looking to grow need to educate potential clients on the benefits of working with a professional. Open your offices for an evening or weekend home-improvement class the same way the big boxes do - but instead of convincing them that do-it-yourself is the way to go, explain to your audience what you can do for clients, both in doing the work and in purchasing products.
Regulated out of business?
Fulfilling the demands of government codes and regulations takes a lot of time and money. Look for it to cost more every year. Remodelers can avoid some regulations by avoiding certain projects - choosing to work in only one county instead of three, or refusing to work on pre-1976 housing with a likelihood of lead-based paint. But that’s hardly a solution. In Berkeley and Oakland, Calif., new waste-disposal requirements for contractors have made trash disposal more expensive, and that’s unavoidable. Land regulations can make new home construction so tough that builders turn to renovation, underbidding remodeling contractors in the process. That’s just what’s happened in her market, says Jan Dell, CGR, of Peter Dell Custom Remodeling in Yakima, Wash., because of Environmental Protection Agency rules to protect salmon in the Northwest.
This is a toughie. Be sure to add enough time and money to your schedule and cost estimate to cover all the regulations. The NAHB has a Legal Action Fund to which local and state members can apply for funding of litigation relevant to the residential construction industry.
Are these the only challenges and changes remodelers will face? Hardly. Insurance, "toxic" mold, the availability and on-time delivery of building products, and the country’s overall economy continue to be concerns. We’ll be covering them all for many years to come.
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