Last month in this space, I reviewed a series of market projections for 2014 from Harvard University as well as the industry’s leading associations.
Maybe your company has saturated the local community. A second location can be a great way to increase business.
Maybe your company has saturated the local community. Maybe you want to grab a piece of a lucrative remodeling market. Or maybe you just are looking for an opportunity to grow.
Whatever the reason, many remodelers consider opening a second location at some point. While some fail, many succeed, and with careful planning, a second location can be a great way to increase business, even — maybe especially — in a down market.
It may seem counterintuitive to expand in the current market conditions, but it may be the best time. In many markets, employees will be easier to find, property will be cheaper and marketing costs are down.
The Neil Kelly Co., which has had two locations for years in Portland, Ore., has expanded recently into Eugene and Bend, both more than 100 miles away. The Eugene showroom opened three years ago; the Bend location earlier this year.
"Deschutes County (where Bend is located) was one of the fastest growing counties in the country over the last few years," says company President Tom Kelly. "But because of what I just told you it's also been one of the hardest hit markets in the downturn."
That doesn't change the fact that the Bend market will be an important one for the company for years to come, Kelly says. That is why the company had been targeting the market for expansion for years. The key is having realistic expectations.
"The market has great long-term growth prospects but is currently a tough market," he says. "We planned for a tough market, so, so far we're on budget."
Coming into the market as it was slowing was probably easier than trying to start up in a booming market, Kelly says. It's paying off as the company scouts future employees.
"The Bend market was so hot, we probably wouldn't have been able to hire the people we needed," he says. "Now they're looking for work and we're creating relationships. The key to being an effective remodeler is having a great cadre of trade contractors who know you and want to work with you, and I'm not sure we could have gotten that before."
Opening a new location isn't the way to survive a downturn, but it can be an important part of a long-term growth strategy for a solid firm.
"The long-term perspective is much more important than the short-term," Kelly says. "Downturns are an opportunity to grow and expand market share if one is in a strong financial situation."
That sentiment is echoed by Larry Weinberg, CEO of BOWA Builders in McLean, Va., which opened an office about 35 miles away in Middleburg, Va. in late 2005.
"I see this as much easier to do right now than it was three years ago," Weinberg says. "It's a slower ramp-up, but if we can succeed in a slower time, when this turns around we'll be in a great position. The current economy is almost inconsequential."
To run each of its geographic divisions — whether run out of McLean or the new office in Middleburg — the company has team leaders, often former remodeling company owners themselves. During the best times, they were doing well enough that they weren't interested in coming to work for BOWA.
"This looks a lot more attractive now," Weinberg says. "It's just a lot easier to find good people."
Taking the Plunge
Opening a new location requires more employees and more capital, so it has to open up enough business to make it worth it.
BOWA has long had separate divisions built around the geography they serve in the Washington, D.C., area. Until they expanded to serve Loudoun and Fauquier counties in Virginia, they'd never needed an office in those new markets.
"When we started talking with the business leaders and the architects that served that area, they let us know pretty early on that people in Middleburg don't like doing business with someone who doesn't have an office there," Weinberg says. "We're swimming upstream when we open up in a new market to begin with, and then when we were told it's going to be even harder if you don't have a presence, we decided to go ahead and do it."
Before expanding into an area, BOWA looks at several factors, including real-estate values, age of the homes in the area and incomes. Because the company focuses on high-end renovations, they are particularly interested in the number of homes over $1 million. The Middleburg area has a lot of older homes and some of the most valuable homes in the D.C. area, which made it worth the expense and effort to open an office there, Weinberg says.
In general, deciding to expand geographically has become a necessity for BOWA if the company wants to continue to grow.
"I don't want to say that we've saturated the Washington, D.C., market, but we've done well," Weinberg says. "The only way to maintain growth is to expand into other markets."
The addition of new divisions also means more career opportunities for employees, which is important in keeping the best and brightest.
"If you're going to hire and retain the best people, the best people don't want to stagnate," Weinberg says. "We have a lot of good, loyal employees that have the opportunity to take more responsibility as we open up new divisions."
The same factors have driven the growth for the Neil Kelly Co. When choosing where to expand, the decision on the Bend location was similar to those made by BOWA — high household incomes, high home values and an opportunity for growth. Both Bend and Eugene came about through acquisitions of existing small kitchen and bath showrooms. While the Bend market was targeted in Neil Kelly's business plan, the decision to expand into Eugene was more sudden. The owner of a showroom that was selling the company's cabinet line called to tell Neil Kelly he was retiring and ask if he wanted to buy the business. At the time, Kelly said no, but continued to think about it, especially once one of his former employees expressed interest in running that location.
"Expanding into the Eugene market was not something that was in our plans," Kelly says. "But then we had someone in the company who was interested in going there to be the manager, which was a key for me."
At that point, management was already thinking about opening up in Bend or elsewhere, and this was an opportunity to see if it would work.
"We have two locations in Portland, but that's a different animal than managing a business that's 110 miles away," Kelly says. "It ended up being a fairly reasonable purchase price, and we wanted to see if managing a remote location was something that worked in our business model."
While both the Bend and Eugene locations were somewhat distant, both, particularly Eugene, are within range of the television, radio and newspaper advertising Neil Kelly does.
"We were pleasantly surprised by the level of brand recognition we had," Kelly says. "Previous brand recognition is something I really want to underscore as something a remodeler should consider if they're looking at expanding."
Once a new office opens, having the right people in place is probably the most important part of success.
"We have to make sure that it's the BOWA brand," Weinberg says. "People in that division have to be empowered to make their own decisions, but also know to work within the BOWA framework. It's not the kind of thing where you can just hire somebody and send them off and expect them to do it."
That's why BOWA prefers to start a division from within rather than acquire an existing company, although the company has acquired two in the past.
"I would be nervous about taking another company and slapping the BOWA name on it, then crossing my fingers that they're going to be treating customers the way we want them to," Weinberg says. "If we lose money, we can get over it, but damaging our brand can have long-term effects."
Kelly prefers to buy existing businesses instead of start from scratch because of the value of having an existing showroom and client list, but still put previous Portland employees in charge of both the Bend and Eugene showrooms.
"I wouldn't have done this if I didn't have people who wanted to go over there from the company," Kelly says. "I trusted their management abilities as well as trusted them in general."