Michael R. Morris
Harvard University doesn't expect a nationwide downturn in remodeling in 2008. But if you own a remodeling company in the industrial Midwest or another part of the country where the local economy and housing industry has taken a turn for the worse, that's small consolation.
The fact is, many remodeling firms have had a significant slowdown in 2007 business, and some of them are concerned that 2008 won't look much better (see page 25).
Consider this e-mail I received last week from a remodeler in Pennsylvania who invested in growing his business during the heyday that was the last 5–10 years. He's now having to scale back drastically just to make it through the next year and beyond.
Business is slow for us. Volume is down 40 percent over last year to date. The difference is that the first half of 2006 was strong and the second half slow. We're hoping it will be the opposite for 2007. Gross profit numbers look good. Unfortunately we're not producing enough volume to carry the large overhead we set up. With the opening of our new showroom and hiring of additional staff in the spring of 2006 we were certainly projecting our volume to be up, not down. We slimmed the ranks with a long-term layoff (goodbye) in late October and a short-term layoff (3-4 weeks) in February. We're now looking at another layoff of a production supervisor and office/design support staff. Not the most fun I've ever had.
New calls are steady, with most folks gathering information and sitting on it. Competition is stiffer because everyone who gets laid off collects unemployment and does side work for wages. All of the subs who were doing new construction are now remodelers.
I'm optimistic but discouraged. Hope all is well with you.
Kermit Baker, Senior Resarch Fellow with the Harvard Joint Center for Housing Studies at Harvard University and the Remodeling Futures Committee, points out that similar scenarios are playing out in several markets across the country. Hopefully yours is not one of them.
"The reason we don't expect a big downturn (in remodeling) is that the weakness is happening at a time when the broader economy is relatively strong," Baker says. "We're certainly not in recession at least, No. 1. And No. 2, when you have all this recent run-up in home values and all this massive home equity, it's giving homeowners a buffer to stabilize any downturn."
What does your local market look like as we creep ever closer to 2008? Is your number of qualified leads going down? Is your average job size getting smaller? Are you getting squeezed on gross profit?
Take a look at these key areas of your business before it's too late to do something about it.