The remodeling industry has a growing problem on its hands that must be addressed immediately.
Installed Sales Revisited
After more than a decade of debate, many remodelers are taking another look at this controversial corner of the industry.
Twelve or 15 years ago, the mere mention of installed sales brought snarls from remodelers. They resented that their product suppliers were morphing into business competitors. They fumed that many suppliers were hiring bottom-feeders who provided poor service, dragging down the already embattled reputation of the remodeling industry. Contractors who signed up as installers encountered inaccurately specced jobs, slow pay and poor support from the retailers.
As consumer demand for one-stop shopping has grown, installed sales could do nothing but grow, too. In fact, it has moved from the back roads onto the main highway of remodeling, and its growth is picking up speed. Many retailers and contractors have found a way to make installed sales work. For others, however, installed sales is still a rough ride. In the old days, "[Sears] merchandised labor like they would a pair of pants," says Dave Reinert, who began his career with Sears in the 1970s and now runs Sunvek’s seven-figure installed-sales operation in Scottsdale, Ariz. The Sears installed-sales program was innovative, but it was shackled by two problems: inadequate control of installation quality and the high overhead of corporate management. Sears was onto something. The driving force behind installed-sales is the same now as it was in the 1970s: Customers want a name-brand company they know and trust to install their products and stand behind the work.
Today installed sales has penetrated almost every corner of the remodeling business. Industry expert Walter W. Stoeppelwerth, of HomeTech Information Systems, Bethesda, Md., says eight of the top 10 building-material dealers offer installed sales, as do more than half the biggest 100 dealers. They are joined by hundreds of lumberyards, hardware stores and dealers around the country that have installation crews or trade contractors who install roofing, siding and insulation, garage door openers, windows and doors, kitchens, sunrooms and more. Scores of manufacturers have preferred-contractor programs for installation of their products. And the number of contractors participating in installed-sales programs around the country is growing steadily.
The biggest players are the nationwide retail chains - notably The Home Depot, Lowe’s, Sam’s Club and Sears. The big boxes are working aggressively to turn the home-improvement product shoppers who flood through their stores into installation customers. The Home Depot, the largest home-improvement retailer with a rapidly growing roster of more than 1,000 stores, did $1.3 billion in installed sales in 1999; Lowe’s did $350 million that year, and saw its installed-sales volume rocket to $600 million in 2000.
Much of the sell-furnish-install work for the big boxes - primarily roofing, siding and windows - is farmed out to large contracting operations that pay a licensing fee of around 8 percent of sales. St. Louis-based United Homecraft, for instance, which specializes in sales and installation of siding, windows and other remodeling products, generated half its $5-million annual revenues last year through installed sales for 15 Sam’s Club locations and other retailers in the Midwest. "Some installed-sales companies have bought home improvement companies and folded them into [their operations]," says Roy Burleson, manager of installed-sales program development for Builder Marts of America.
Small, one- or two-person operations are doing installed sales as a way to garner business without the expense and effort of marketing and sales. Some work with big boxes; others partner with building-material dealers. Typically, the retailer pays the contractor an installation fee that’s either predetermined or quoted by the job.
Retailers look for installers with track records of good work and satisfied customers. Bob Gallo, installation manager for The Home Depot’s New York City and western Nassau County region, says contractors of any ilk must pass extensive interviews and background checks before being signed on as The Home Depot installers. He goes through The Home Depot’s authorized handbook page by page with all his new recruits, making sure they understand and agree to job procedures, the code of ethics, the fee schedule for their region, and other operational policies. The Home Depot’s Expo Design Centers use basically the same system.
Manufacturer-driven installer programs likewise want the cream of the crop. Pella, the Iowa-based window and door company, provides sales, marketing and advertising support to installers selected and trained for designation as Certified Pella Contractors (CPCs). The home office signs off on all CPC candidates but lets its independently owned sales branches, or Pella stores, handpick installers from the local labor pool, says Pella spokesperson Jennifer Grove. Whether hired full-time or used as trade contractors, CPCs tend to be experienced installers whose work the Pella stores know.
Customer Satisfaction Is No. 1
"The job," says Stoeppelwerth, "is to figure out what the customers want and give it to them." Installed-sales customers, like all remodeling customers, demand good work and premium service. Most big, specialized contracting companies have systems, standards, efficiencies and controls in place to satisfy customers and make a profit on installations. It’s been a different story for retailers who have farmed out installations to armies of small contractors, sending them to jobs without training or quality controls. Too often the result has been problems and complaints.
But that situation paved the way for a third breed of company on the installed-sales scene: the gatekeeper or contractor broker. The Home Service Store (HSS) is one of the hottest new models on the scene. "We are a link between retailer and installer," says Michael Christy, who runs the installation division for the Atlanta-based company. HSS does a thorough screening of all applicants for inclusion in its contractor pool, checking credit records, criminal records, and homeowner and trade references. Typically, says Christy, HSS has two or three contractors for each product-installation category in all of its 177 markets and locations - mostly Sam’s Club and Wal-Mart stores. Every contractor guarantees his work, and HSS guarantees it, too. HSS contractors acquire the brand-name label and an influx of jobs. "We try to increase people’s business by 20 to 30 percent," says Christy. The retailers retain project control, and customers hire a skilled, professional installer through their neighborhood product retailer whose work is backed by double guarantees.
Sears uses another kind of gatekeeper system. The company now licenses all its installation work to 15 companies that sell, furnish and install jobs under the Sears name. Ray Gabler co-owns Olympic Home Improvements, Inc. (OHI), which installs kitchens and baths, windows, siding and other products in 11 states and the District of Columbia.
"I have people in Sears stores who do the selling," Gabler says. OHI has hundreds of installers, all trained to meet specific work and quality standards.They work exclusively for Sears installed sales.
Internet-based companies are delivering installed sales, too. After testing the concept in Lowe’s stores last year, ServiceLane.com launched ServiceLane Home Improvements to provide sell-furnish-install services on exterior remodeling through Lowe’s. Improvenet, the Internet-based contractor referral service, is exploring relationships with retailers and manufacturers to add installed sales to its menu this year. Retailers would turn installation contracts over to Improvenet, which would pass them along to its contractor partners and oversee the installations through project advisors.
Risk and Reward
Few would argue that installed sales is a major business opportunity. But it’s not without risk for dealers and contractors alike.
Burleson says many pro-contractor yards that provide installation do worry about alienating their contractor customers. He adds that many dealers back away from jobs where they would be bidding against a contractor customer, or they subcontract the job to that customer. On the other hand, dealers who subcontract installation can find themselves competing for a contractor’s attention. "Many times a contractor says, ‘My jobs come first,’" he explains.
Contractors can get burned if they are tied to a fixed fee that does not cover the actual work required on a particular job. Since profit is attached to labor alone, jobs that get complicated or take too long are losers. Other problems for contractors who count on installed-sales jobs: untrained salespeople, bureaucratic hang-ups, slow payment and corporate shakeups. United Homecraft president William Nyberg says his company suffered through slow payments and lost invoices with Builders Square before the retailer closed its doors. Carl Hyman’s Long Island, N.Y., company, Alure Corp., geared up to install windows and siding for 11 planned Lowe’s stores in New Jersey, but only one or two stores materialized. Explaining that he needed five stores to break even, Hyman parted ways with Lowe’s.
Chuck McDonald’s company, INEX Construction, Chevy Chase, Md., did kitchen installations for both The Home Depot and Lowe’s for two years. Last November he dropped The Home Depot, complaining of management, sales and pricing problems.
But for every installed-sales complaint these days, there’s a good-news story of a successful partnership between contractor and retailer or manufacturer. Hyman is delighted with his franchise to install OCF basement finishing systems.
"[OCF has been] fabulous to deal with," he says. United Homecraft has been successful installing vinyl windows for Sam’s Club and The Home Depot, says vice president Wayne Kaufman. "We did well for Builders Square, too." In Scottsdale, Ariz., Sunvek’s installed-sales division is thriving. It did more than $1 million last year, much of it laminate countertop work for The Home Depot. "The margins are lower than they are for other jobs," says Sunvek’s Reinert, "but there’s no marketing expense." Sunvek has two schedulers in the office and about a dozen installers. "We load up [the installers and send them to the job sites] at 7 a.m. every day." The key, he says, is to "keep it simple and controlled."
Just about everybody involved in installed sales agrees with Reinert’s simple-and-controlled yardstick. Single-line installations are best because the work is predictable and standardized, and workers can be specialists. Uncomplicated jobs such as kitchen refacing and sunroom installations work if they are tightly systematized. More complex or varied projects are much tougher. The idea of handling design/build projects through a nationwide installed-sales program is "frightening," says Stoeppelwerth. "I don’t think anybody can do it."
"American industry now knows you make money selling service," says Stoeppelwerth. "For us, that’s installation."