The remodeling industry has a growing problem on its hands that must be addressed immediately.
The New Focus: Why Remodelers Should Engage the Minority Market Today
A down economy makes it an even better time for remodeling companies to market outside their comfort zone
For years, remodelers have been hearing that they should start paying attention to the minority and immigrant market. And for just as long, many have resisted, using reasons ranging from, "They won't pay for professional remodeling," to "They don't have the money to buy from us."
But the excuses don't stand up to the numbers. Consider the latest data from the Joint Center for Housing Studies of Harvard University. According to JCHS's analysis of the American Housing Survey, foreign-born homeowners demonstrate spending patterns very similar to native-born homeowners. From 2000 to 2007, the average native homeowner spent $2,300 a year on remodeling. Immigrants spent $2,360 a year.
From a monetary standpoint, they should be even more attractive. Median income of foreign-born homeowners in 2007 was $57,600, compared with $53,700 for native homeowners. Median home values? $210,000 for foreign-born homeowners and $140,000 for natives.
|Spending by foreign-born homeowners has grown in real dollars and as percentage of total spending over the last decade.|
"We did try to see if we could find a difference between types of projects, level of expenditure, and we couldn't find anything at all in terms of that," says Kermit Baker, the director of the Remodeling Futures Program at JCHS. "What we're finding is that this population doesn't have lower incomes on average, this population overall lives in higher-valued homes than the domestic population and spends a higher portion of their income on housing."
It is worth noting that one of the reasons there is such a stark difference in home values is that the immigrant population is concentrated in what Harvard has dubbed "gateway cities" such as San Diego, Miami and San Francisco that have higher home prices. However, every year that population disperses to more housing markets. At the same time, the longer an immigrant lives in the country, the greater his or her remodeling spending, according to the JCHS. That means more opportunities in a wider variety of cities.
"That's where the growth is, pretty clearly," Baker says. "Minority households are going to account for two-thirds to three-quarters of the population growth over the coming decade. You're limiting yourself to an increasingly small part of the population if you don't branch out."
|The minority population will be the majority by the middle of this century, according to the U.S. Census Bureau.|
No Time to be Picky
If nothing else pushes you off the fence into the minority market, simple economics should do it. In the current climate, remodelers shouldn't be ignoring any viable customer base, says Bill Carter, president of the William E. Carter Co., a design/build firm in Sacramento, Calif.
"It's important because if you limit yourself to one specific thing, you're not going to grow, you're going to die," Carter says. "It's a different world today. You have to market to everybody."
Whether it's adding a maintenance and repair division or targeting new clients, remodelers need to be open to finding business wherever they can, says Carter, who is also national NARI president.
Carter has worked with a diverse immigrant customer base for years, from Hispanic to Asian to Eastern European. It's just a matter of finding the business where it is.
"This is the biggest thing that guys need to do going forward: capturing the entire market," Carter says. "The market is there. They can borrow money. They've got incomes. It's the real deal."
Tucson, Ariz., remodeler Greg Miedema says the changing demographics of the country make the minority customer important for the future of the remodeling industry.
"It's as important to think about that client base as it is to think about aging-in-place projects," Miedema says. "They're both growing, and they're going to continue to grow, and you can't ignore that fact."
That's already the case for Miedema's company, Dakota Builders, which has a large Hispanic customer base.
"A minority client for other folks might be our majority client," he says. "Almost every client I work with, if they're not Hispanic, they might be married to a Hispanic or are second-generation with a Hispanic parent."
The biggest challenge in working with clients of a different culture is establishing trust, say both Carter and Miedema.
"It can be a little tougher to break into as an outsider, but once you do you're in," Miedema says. "Once you earn their trust, you really get it."
The issue of trust is a common one for companies trying to reach out to multicultural clients, says Michael Lee, president of EthnoConnect, a firm that helps companies increase sales to that market. EthnoConnect works with remodelers, builders and a variety of other industries.
"As much as you have to talk about the job, you also need to talk about yourself and your company, because you have to build a trusting relationship," Lee says.
That may mean more meetings, and longer ones, than a remodeler is used to with the average client. The advantage is that because many minority communities are close-knit, there is a much better chance for referrals once you establish that trust with one member, Lee says.
Even more than with the average remodeling client, spending time in the community is the best way to get to know minority clients. It's also a good way to learn cultural norms and avoid offending potential clients. (For Lee's tips on common cultural mistakes, see the sidebar on this page.)
A common mistake that companies make is assuming that minorities only want to work with someone of their own culture. While that is true to a certain extent, remodeling is such a large purchase that most homeowners want to make sure the job is done right regardless of who does the work.
"What they do look for is someone who treats them with respect," Lee says. "When that doesn't happen is when they'll go to somebody else and be willing to pay more for inferior work."
That trend is most common on smaller projects, where minorities, like many homeowners, will choose a relative or somebody else they know, Miedema says.
"People who have a real asset and want to protect it are going to choose a qualified contractor," he says. "They don't care what the color of your skin is or where you come from."
There is limited data available on the impact of the economic downturn and housing crash on minorities and immigrants, but what is available indicates slight declines in their effect on the housing market.
According to a recent Pew Research Center study, the white homeownership rate has dropped from 76.1 percent in 2004 to 74.9 percent in 2008, a decline of 1.2 points. The Hispanic homeownership rate has dropped 2.6 percentage points from peak, and the homeownership rate for blacks has dropped by 1.9 percentage points from its peak. The Asian homeownership rate is down 1.7 points. However, the immigrant homeownership rate has dropped only 0.4 points, less than the overall rate.
Immigration also seems to have slowed with the declining economy, but that is almost certainly a temporary condition that will end when the economy recovers, says Kermit Baker, the director of the Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University.
"We're talking about something that's been going on for 30 or 40 years, in terms of the upward trend in immigration," Baker says. "I haven't heard anything or seen anything that indicates we're going to move off that path anytime soon."
Multicultural marketing adviser Michael Lee, president of EthnoConnect, says there are several common mistakes remodelers and other salespeople make when meeting with minority clients.
"We tend to insult our customers from the moment we meet them by making certain assumptions," Lee says.
Here are the three big mistakes remodelers can make in the first 30 seconds they spend with a client, according to Lee:
"Just follow the lead of the client, but you have to give them the opportunity," Lee says. "These little things can speak volumes about how the relationship is going to go."
Sometimes the best way to avoid problems is simply to ask clients about their background and culture. While many Americans fear offending people when asking this question, it's actually the best way to get to know them, Lee says.
"What it says to the person is, 'I'm interested in your culture and I'm not going to make assumptions,'" Lee says.
Lee is the author of "Cross-Cultural Selling For Dummies" and a frequent speaker at industry events.