Pros and Cons of Showrooms

Showrooms and design centers can put you a step above the rest of the pack and help control your client's expectations.

October 31, 2007
Sidebars:
Dennis Gehman, President, Gehman Custom Remodeling
Michael Tenhulzen, General Manager, Tenhulzen Remodeling

Tom Swartz
Contributing Editor

Showrooms and design centers can put you a step above the rest of the pack and help control your client's expectations.

Tom: Dennis, how would you define your view of showrooms and design centers?

Dennis: A showroom to me has some physical displays set up, much like it would be in someone's home or in an office. A design center is more where we're pulling out sample blocks of Corian or granite or stain blocks for matching samples.

Tom: Mike, is there a difference between showrooms and design centers and, if there is, how would you describe the difference?

Mike: The distinction I have with showrooms is that they tend to be built in the event of a coming trend with everything installed. It gives you a good perspective on how it all ties together. Sometimes the problem with that is it's too limiting. People may get attached to certain products that may not work with their home. By having a design center, you have the flexibility to go on with different directions using sample pieces, as Dennis described.

Tom: Mike, what types of displays do you have or see having in your design center? Would you say yours is more of a design center than a full-fledged showroom?

Mike: Absolutely. We've always considered the office as kind of a petting zoo. When you walk in there, you see different types of materials all over, including skylights, windows, different wall coverings, etc. The design center itself is pretty neutral in its appearance. It's broken into two areas. Mostly what we've focused on there is storage capacity and features for accessing product. Lots of counter space, natural light, different lighting environments for winter months, and lots of different materials. We keep the materials fresh and have our vendors and trades people come in regularly to keep the materials updated.

Tom: Dennis, describe yours. What type of displays do you have? Does it go beyond kitchen and bath?

Dennis Gehman
Gehman Custom Remodeling
Photo by Ed Wheeler

Dennis: We have a combination showroom and design center. We had a design center for many years. During the first half of 2006 we invested time and finances to put in displays. We have a full working kitchen where we can bring clients in, have a party and cook a meal. People can touch and feel items on display. We have a full working master bathroom/spa, short of a toilet. We were afraid of the consequences there. We have a room that we call the media center. It's basically a small home theater. Our conference room is really what began as the design center where we were pulling the pieces out and imagining what it would do together.

Tom: Dennis, why did you decide to invest in a showroom?

Dennis: We felt like we wanted to take our business to the next level as far as the scope of projects and clientele that we were attracting. Part of this, in a sense, got pushed on us. There was a lumberyard material supplier about 5 or 6 miles from here that had wonderful displays. People could go there and would say, "we like the second display on the left," and we knew all about those displays. About three years ago, that company went out of business. We no longer had that kind of resource nearby. In talking to other people around the country, we learned that people would say you're going to sell what you show; it's also expensive; and you've got to stay on top of it. We've definitely found out the first two, and we're only a year and a quarter into it, so staying on top of it hasn't been too much of a struggle so far.

Tom: Mike, follow up on that. You've put together some obvious expense and things of that nature for a design center. Why did you do that? What made you go to an in-house design center?

Mike: Basically, it comes down to control. We want to make sure our clients are comfortable with a controlled environment and not just turning them loose out to the local flooring showroom or faucet selection location. All of that is here. We want to be cognizant of their time as well. They're typically dual-income families with limited time. All of the meetings are mapped out in advance, and we make sure we have the product here to show. The investment pays for itself in terms of the service that the customer experiences through the process.

Tom: Interesting. Mike, let's follow up on that, when you say the investment pays for itself. One of the things in my research getting ready for today's discussion, cost came up. How do you see it paying for itself; higher gross margins, better production, less bad orders or a host of other things?

    Michael Tenhulzen
    Tenhulzen Remodeling
    Photo by Ron Wurzer/
    Getty Images

Mike: It's making sure that when we get a client in to design — that we have a higher probability of selling them in the construction. Many times people go out and find products that they just can't afford, and that bumps them out of the marketplace. They just decide they can't afford this project now, "we'll buy a boat instead." By saying yes to this and no to that, guiding them in their decisions, and showing them only the elements that would fit their budget, that helps to keep them on track. We think that, by offering them that service, we have a differentiation in the marketplace. We're not just saying, "Yes, you can have that, and by the way it costs more so we'll make more off of you." We're really cognizant of their budget and fiscally responsible.

Tom: Dennis, what Mike just said is that the investment pays for itself. Do you see this? Here you are in year two of a fairly good amount of money. Do you see it paying for itself?

Dennis: It certainly is heading in that direction. We've experienced a bit of slowness for only about the first year of having the showroom. The projects that we did sell for the most part were of an increased value from what they had been previously.

Tom: You sell more using the showroom?

Dennis: Correct.

Tom: How much did it cost you to get started, and can you put a dollar amount of how much you've spent and are spending to keep it updated?

Dennis: To get started is kind of tough to answer. We were here in this building as kind of a design center since 1998. We invested about a quarter million [dollars]. Our projections were that we would recover that in two to three years' time.

Tom: Are you on schedule with those projections?

Dennis: We are behind on those.

Tom: Mike. How much did it cost to set up your design center, and how much does it cost to keep it updated?

Mike: When we first moved into this office, we had no inkling of bringing design in-house at that point. The initial start-up cost for that was pretty significant, but it got us out of the house. An addition was done about five years later to the building. That addition was about 650 square feet, which was our primary location for our design center. Outfitting that was pretty much uitilitarian, but it did get some nice exposure to the different features. It just depends on your local marketplace to put the value of what sort of investment that would be in terms of the square footage. Just recently, we had a garage as part of our initial build out that was taken over now for design center expansion. We're bringing on additional architects and designers to fulfill that need and help grow our capacity overall. In terms of expense, we found that our process justifies the cost. Just by having that exposure for customers to come in, two and three customers at a time now really gives us the benefit to adhere to their time schedules, their needs and the type of products we're prepared to show them.

Tom: Your showroom initially was approximately 650 square feet, and now you've gone into the garage and another 400 square feet?

Mike: Yes. About 1,000 now, total. And a huge work station.

Tom: Dennis, how large is your showroom?

Dennis: Counting the work station like Mike indicated, we have about 3,500 square feet.

Tom: Does that include your office? In other words, you have working displays and your office has cabinets above it that you're going to sell, too?

Dennis: Yes, exactly. We have different cabinetry displayed in each work station.

Tom: Dennis, how often do you change out the displays? Do you bear the cost? Do your vendors bear that cost? What does it cost you to keep this thing up?

Dennis: We're still trying to figure that out. The reason we have such a large space is we took what was a dairy barn and renovated it for our offices. We're in town on the main drag. It's a big volume of space; we didn't want to destroy the integrity of the barn. That has worked well for us with just the traffic going by. The reality is we could have torn this barn down and built a new building for a lot less money in the beginning. But, we're remodeling contractors and wanted to make a statement with it.

Mike: I was on your Web site a few days ago and like the use of that space!

Dennis: Thanks. It has worked well. We got a National Contractor of the Year Award (CotY) from NARI for it. We continue to have that displayed when people walk in.

Tom: How often do you change it out?

Dennis: We're set up so that every 7 years the whole thing gets changed out each year. Displays, work stations and that kind of an area.

Tom: Do you bear the cost of that, or do you share that with vendors, etc?

Dennis: It's somewhat shared. That's primarily because the cabinet manufacturers will give us a showroom discount and those kinds of things. Sometimes when you say vendors you're talking about sub-contractors and trade contractors. One of the bonuses we offer to our clients is that, especially with interior work, it's all our own employees. We're doing all this work ourselves. We don't have an electrician or tile setter to go to and say, "Can you help us?" for work coming down the road because the reality is we're not giving them any.

Tom: Mike, how often do you change out your design center? Is there a major cost to that?

Mike: The expansion into the garage was our first major capital improvement in terms of the design center in a long time. Again, it was cabinetry and display costs. Something to be aware of in conjunction with the display cabinetry is that some manufacturers will require that you then buy a certain volume from them. When you get into that sort of environment, you want to set up a good relationship and display the type of cabinetry that you will actually be installing. It's kind of an as-needed basis. Our original portion had some shelves set up for display of cabinet doors. They're starting to sag, so there is need for modification there, too. It's really updating as needed and to offer the products that are going to be displayed.

Tom: One of the things people say is they're too costly and too much to keep up. We've had one here — ours is much more of a design center as well — because we don't change it out as often as we can, and cost has something to do with it. In this particular case, do you go to your manufacturers and ask them to do more than just sell you the product at display costs?

the discussion continues...

Mike:
Sure. For example, we have a plumbing supplier here in the local area and had a new product he'd like us to show. What's the cost of that? Well, it's a $600 display item. We say if they want us to show it, how about if we show it for free? So we start at the opposite end of the spectrum and come out somewhere in between. Usually what they'll do is go back to the manufacturer and ask if they can donate a few parts, and they'll take a hit on it, too. So, we end up getting the whole display for a couple hundred bucks. And, we don't feel like we have to sell it. We have that to sell against other things.

Tom: Do the manufacturers have you do co-op, or do they give you any kind of co-op money for ads and promotions?

Mike: We do very little in promotions. That wouldn't be something I'd be able to answer at this time.

Tom: It's not a priority of yours.

Mike: No.

Tom: Dennis, what about you? Who pays, who keeps this up and who helps with offset costs, and does that happen with most of your manufacturers?

Dennis: They do have co-op dollars available. We have not participated a whole lot with that. As Mike said, we're not using them in the ads all that much. We aren't targeting magazines and newspapers, and that kind of thing where the co-op dollars would be available. We certainly talk with them about participation in our showroom and help them understand the value of their products being on display here. They enable us to sell more, which in turn benefits them. There definitely is that aspect of locking yourself in with a certain manufacturer because, in order to hold one to that discount, sometimes it's paid out a few percent off each purchase over the next few years or something like that. As we increase our volume with each manufacturer, usually we get a better discount as well. In that way, it has seemed to work well for us.

Tom: Dennis, how do you promote the showroom, or do you? When they call in and you have a meeting about the showroom, do you talk about home shows and other advertising that you did on the radio or in the paper or flyers? Do you promote Gehman Custom Remodeling showrooms?

Dennis: Any kind of advertising marketing piece that has gone out in the last year and a half has mentioned our showroom, working displays — that kind of thing — and then posts our hours. That's an area we're still struggling with. When people come into the showroom, they like what they see, and that generally helps with the sale. But, we don't have the traffic coming into the showroom like we were hoping for. We invested in a new sign out by the road. We have about 18,000 vehicles going by a day. We definitely have visibility. We were also here eight years in this building beforehand without a showroom and, unless people were seriously considering hiring us, they weren't stopping in. Our hope is that, with the showroom, people would just come and "kick the tires" but would be impressed enough that when they'd want to purchase, they'd be back.

Tom: What you're finding is that you're not having a lot of walk-in traffic where they just kind of come in and look around, like a Lowe's, Wal-Mart, Home Depot or something like that.

Dennis: Yes.

Tom: And you mentioned hours. Do you have specific hours during the week and are you open on weekends?

Dennis: We're not open on weekends. At this point, Monday through Friday 8 a.m. to 5 p.m. and Thursday evenings we're open until 8 p.m.

Tom: Do they come in?

Dennis: Very few. We said we'd hold on to the Thursday evening hours until the end of the year. But if nothing changes, we may consider some changes.

Tom: How do you decide what products and brands you use across the board for plumbing, china, cabinets, countertops, etc.?

Dennis: It's been a couple of things. Part of it is that some brands are already fairly well-established and have a band name, which is known by clientele who want higher-end projects. We try to align ourselves with them. As an example, Kohler has a good reputation. For the most part, it's perceived by people as more expensive. Pella windows would be another one. The granites and marbles of the world are pretty well commodity now, but the engineered quartz is another one. Some of those manufacturers do a better job of marketing to the general public than others do. Part of what I'm looking for is some name recognition, but yet my preference would be to have product available that not all my competition can get a hold of.

Tom: Mike, how do you decide what products and brands you're going to have displayed in your design center?

Mike: In this market and this climate, we want to make sure that it will withstand what the elements can throw at it, especially on the exterior. As far as interior finishes go, it depends a lot on the family structure, our slogan being "Quality Improvements Designed for Life." If it's a young family, we may not recommend soft stones and slate tile and such. If it's someone looking for long-term usage, it may be that it's designed for the future in mind as well. It really depends on the lifestyle of the individual and having a display center for multiple types of materials. Really what it does is coach, train and educate on the pros and cons of multiple finishes and letting the consumer absorb that and simply let us coordinate the colors and finishes with the desirable products.

Tom: Products are different than brand. Products are the category that goes into a remodel job, whether it be a room addition, kitchen or a full-house remodel — let's say if it's high-end design/build or not. Who decides what brands you're going to use in the project itself?

Mike: To back up a little bit. All of our designers are working with our salespeople, so we have design teams. Together, they'll collectively determine, based on budget and ultimate goals, what products would best be suited. The team collectively prepares for the meeting and then when the homeowners propose different options, it may be that they have to have a pull out for the kitchen sink that has a one-touch operation. There's probably only one product that we could allure them to in that regard. When we get into the functionality of the space, the products tend to lend themselves to those features.

Tom: Is it safe to say that your design team, which is you and your salesperson, prepares for the customer what might be available based on their budget and shows the things they get to choose from, and then they choose it? What I think you said was, basically you're choosing the brand that the customer is going to be picking the style from. Are you not?

Mike: Most likely, yes. It may be like the faucet, for example. If it's a Moen versus a Grohe for example, the two may be similarly priced but they may have different features, functions or design aspects that would function better with the countertop, appliances and whatnot. It's designer-based decisions that offer solutions to the homeowner from which to choose.

Tom: That's a great way to put it. Dennis, who chooses the brands and styles that they put into the projects?

Dennis: It's a similar application like Mike just shared. We don't have set teams for each project but the salesperson and then a designer will team up together. We add a third person to that team, and that's the estimator. We've found that the estimators sometimes have a better handle at keeping things within budget than even the designers do.

Tom: We get accused of that all the time. Dennis, before your showroom, you said that the lumberyard which went out of business two years ago had a showroom. You were not at their mercy; they were the help person because you didn't have to spend a lot on the displays. How did the customer choose the brand and styles before you had the showroom? That lumberyard was probably not the only place. Look at the remodeling business around the country right now, there are not a lot of showrooms. A lot of people are afraid because they think it just costs too much. I don't believe that. Where do they go? What happens to them?

Dennis: There are some people that come in who have a picture out of a magazine, and it shows a specific cabinet brand or window. They say, "That's what I want." More so, the people aren't as tied to that brand as they are to the look. They're looking to us as having experience in the industry to recommend to them what we feel would be best to help achieve that look within their budget.

Tom: For their design ideas, they go to pictures and obviously the Internet to get started. That's a lot of pictures and information, and I'm not sure if they can gather the whole concept. Without a showroom, where are they going to find these design ideas?

Dennis: I think it's doable with a design center such as Mike has. Especially with 3-D CAD software, we've used that all along. They can then envision what it's going to be. Then we put the sample block in front of them — engineered quartz, this knob, pull, or tile. People can then envision that coming together.

Tom: Mike, before your design center, where did the customer go? Did they come to you with ideas of what they wanted to do?

Mike: You alluded to it a little earlier; it's obviously the Internet. And, being that we're in Microsoft's back yard, we have a lot of tech-savvy folks that will find out a lot more about the products than we may ever know! There's that challenge! A lot of times, they'll hear something on the radio — they'll look at Consumer Reports and find out something about a particular product. Say, it's a window, for example and, "This is what I have to have because I need it for the value of my home" or whatever their motives are. Because we're very relational-based, we want to make sure that when we take that information we apply it to the products we have in-house or we apply it to other solutions. We use the information and reflect back to them the things that they are looking for so they don't feel like they have to go looking for it anymore. They trust that we understand what they're looking for and they won't have to spend the time doing that. What's interesting about our geography here as well is that we have a lot of engineers. The engineers like to get into the details. Different personalities go with these projects. If you're not 100 percent on top of the details, that's OK; but to know that what they're looking for will be addressed by specialists in their field is another aspect of having designers and all of that in-house, and you can actually control the process.

Tom: That's what we've found, Mike. Before we had this, we were sending them out to the plumbing shop, lighting fixture place, lumberyard and other places. We lost complete control of that. They would go pick anything out. If we didn't send someone with them, we lost control and the allowances we had; if they saw something they liked, we were to blame because we didn't have enough allowance. If we put too much allowance, our price was too high and they'd go to someone else based on price sometimes. We lost control. Mike, did that happen at all? Do you have more control having them there? Do you have to send them anywhere else?

Mike: It's a little off topic, but we also don't use allowances. If there's a little difference there, we work toward the budget. Designing toward a budget we have the types of products and the way they'll be laid out. If we pick an expensive granite, it might just have a really simple edge. If it's a nice tile, it might not have a lot of cuts or decorative inlays. Budget reflects on design, and that's where the team has experience in working together. It operates as a pretty smooth machine.

Tom: Dennis, how about you? In the two years you've had this, do you have better control, or has it worked in different ways?

Dennis: I feel like we have better control. We're sending people out to less places. We've made the determination that the few times we've needed to go out to other places, we go along with them. And it's for that control reason.

Tom: Dennis, are there any drawbacks to a showroom?

Dennis: Other than the up-front capital investment, it takes someone's attention on a regular basis. If nothing else, it's got to be cleaned and dusted once a week. We try to decorate ours with accessories just for the different seasons. We're in that transition for fall decorations right now. It takes some time, but, at this point, I would do it again.

Tom: Mike, what are the drawbacks to a design center showroom?

Mike: The biggest drawback to just having the samples here only is that people have a difficult time envisioning how a 4 by 4 piece is going to be reflected in their kitchen plan. Trust is a huge part of what we do. Visualizing it and explaining it in word pictures is about the best we can do. If someone just needs to see it in person, that's when we send them to the showroom. That's probably the downside to having just samples in-house.

Tom: I'll summarize what we've done here. Then I'll go to you and ask for is what advice would you give someone who is thinking about investing in a showroom?

In summary, here's what I think I heard today:

We talked about the difference in interpretation of a showroom and a design center. The showroom is more physical displays, over a design center, which might have some displays, moveable displays but with more samples than actual working in a physical operating condition. The design showroom would be built in advance of what is to come. It may be that the design center is a little bit more flexible, because we sometimes get attached to the showroom of material, displays and products. Mike referred to it as a petting zoo. They have storage and features and things of that nature. There may be something to be said for having a combo showroom and having displays. The key, as Dennis mentioned, is full working kitchens, to touch and feel. You pointed out that in the bathroom they didn't put a water closet in there for obvious reasons, because someone might use it. Also a media center as well as a conference room.

How, after you did decide to invest in it, having control of the outcome and customers not having to go to other people. We're very aware of the customer's time, and we map out meetings, keep it all in one place, and it gets through in a more timely way rather than sending them everywhere to look at products when they might need your guidance. Dennis was "kind of" forced to take his business to the next level, when the local lumberyard went out of business and no longer had that display available. You had to fill that need. You made a very good quote: "You're going to sell what you show".

About how it would pay for itself: It does pay for itself, in the higher probability of selling the project. Your volume's going to be more. You want to differentiate yourself from others. You can have a responsibility of their budget. You can do that in the showroom, rather than going out somewhere and just picking what they like, not necessarily what's in their budget.

We talked about dollar amount when getting started. It can be a very expensive operation if you start from scratch. In Dennis' case you had over $200,000 to get started. You thought it would come back in 2 or 3 years. Even though you're a little behind there, it's something very rewarding. It's a large dairy barn office on a main street. You wanted to and kept that integrity. In that particular case, you had close to 3,500 square feet. Mike had 650 and just added another dimension of what used to be a garage into a more design-based area. The key to it is as Mike mentioned, process justifies the cost. You can be more efficient and make sure that some things which may fall through the cracks get addressed.

Then there was changing displays. We should change them out a little more but we don't. We do have the cabinets, display, props. Dennis mentioned wanting to change it out every 7 years, but a little bit at a time rather than wait 7 years to try it. You get a little help from manufacturers. Co-op is available but, as most remodelers know, we don't use it very much. It's at the manufacturer's expense instead of ours because you get a discount. You must watch out that you don't get with a manufacturer that requires X amount of products being sold each year. That could become a real sticky wicket if their product is in your showroom.

Promotion: promote it whenever you can. Walk-ins are a little less than we thought it would be, which is not unusual to hear.

Brands: We talked about using higher-end brands that we know are name recognized and have high awareness to the customer. Dennis mentioned that sometimes he can sell something that not everyone has, which is an interesting concept. In Mike's case, he matches the brand to the customer who chooses the brand. He has a design team who says "here's what we have based on the budget" and the need and use of what it is depending on the customer.

Where do they go if they don't come to you? Pictures and magazines is one that we get a lot of. They are tied to a look, not necessarily a brand. You help guide them there. We talked about 3D software which is big in the Seattle area. We find customers in here who know a lot more about it than we do, in a lot of cases.

The drawbacks came to capital investment. Dennis was very honest with the attention on a regular basis, decorating for the season, and things of that nature. Trust is a huge part of the business. With a design center, it helps to have it so you can keep control of the sale itself.

Tom: Dennis, if you had some advice to give to a remodeling contractor who was thinking about a showroom, what would you say?

Dennis: I would say plan it out well. Make sure you have all your ducks in a row before you start! Give it the attention that you would if it was a client. It won't pay to start again, stop again and fill it between other projects; it won't get done right. In your budget, allow some for marketing at the end. It's an area where we fell short. We had some for marketing, but not enough like we should have.

Tom: Thank you. That's very good. Mike, what would your advice be to someone about a showroom?

Mike: There are varying degrees of design/build. There are some one-man operations who use architects and outside designers to fill the need, all the way to adding their own staff in-house. I'd say if you're committing yourself to a design center or showroom, also commit yourself to design staff. In our case, we actually started with a staff first and then did the materials to use. That ended up just by virtue of the process, allowing us to have more control of the clients' wish list and budget. Once we're responsible with the budget, we can then control what the customers are exposed to. We can also expose them to options so that they don't have buyer's remorse, wishing that they had seen something that they weren't told about. It gives us flexibility to be able to sell up as well as hold down the budget. Ultimately, if you look at your marketplace, it's just to differentiate the competition with the services that you provide.

Tom: Mike, do you charge more markups or more money to help defray the cost of your design center?

Mike: I'm not responsible for that. Being a second generation, this is actually my father's mentality. The way we started that was actually by looking at what our customers drive, the home they live in. And when he went out and got the first LS400 and pulled it up in the driveway, he felt he could really see eye to eye with that customer. It's a differentiation that started with that bold statement. If I can walk in your shoes I can certainly offer you the service that you deserve.

Tom: Dennis, do you find yourself able to charge more because you have a showroom?

Dennis: We haven't found that. We've had our budget for years, and our markup has been the same for a number of years. We looked ahead and found we're going to be able to justify this out of cash flow and gross profits and take a little less net profit for a few years. Hopefully in the long run, it will pay off.

 

Dennis Gehman, President, Gehman Custom Remodeling

Located just north of Philadelphia, Gehman Custom Remodeling services southeastern Pennsylvania. It is a full-line, full-service design/build/remodel company that has been in business for 17 years. The 21 employees work out of a mid-19th century renovated barn in Harleysville, Pa. Its yearly volume is about $3 million.

www.gehmanremodeling.com 

Michael Tenhulzen, General Manager, Tenhulzen Remodeling

Tenhulzen Remodeling, based in Redmond, Wash., is a second-generation company going through a business transition. The firm, in business for 28 years, is a full-line residential design/build remodeling center that now includes a custom home division and a real-estate division. The company has 30 employees, and its volume is about $6 million a year.

www.tenhulzen.com

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