Home Improvement Dealers Face Changing Landscape
Successful home improvement dealers have been shaped by meeting the needs of their ever changing customers. Will today’s formula for success prove to be equally effective in 2013 or sho uld dealers already be looking towards new strategies to take them into the future? The competitive landscape has already changed and more change is on the way. The Window Guy & Sons is now more likely to be simply The Window Guy. In years past, it was common practice to see sons and even daughters take a role in the family business. Today, it’s more the exception, and that’s a trend in all areas of home improvement. Home improvement is difficult and challenging work and operating as a small business can be overwhelming. Many dealers are encouraging their children to choose a smoother career path. Dealers are pursuing a variety of strategies to grow. Some are teaming up to create bigger, more diversified operations. Windows may remain the lead product, but dealers are finding that broader product offering can reduce seasonality and increase the number of selling opportunities they have with valuable leads. Growing dealers are moving from cramped warehouse/showroom locations into strip malls that provide the selling environment that most consumers prefer today. And, of course, these type of locations encourage more walk-in traffic. The sale may still close in the home, but more are beginning in the mall. Many dealers, particularly those in larger markets, are also expanding or looking to expand with multiple locations. This type of expansion usually depends upon the dealer’s ability to develop loyal managers who will run a satellite operation as if it were his or her own.
Family names are being replaced with regional and even national franchises with names like Appleby, Champion, and Renewal by Andersen, ushering in a new era in window retailing. The next generation of window dealers is more likely to have roots in finance than in contracting now that window dealerships are being packaged as an investment opportunity rather than as a trade. Window retailing is particularly attractive when compared with alternative opportunities available to entrepreneurial investors. The underlying market fundamentals are excellent, product demand and margins are both high at the dealer level, and quality dealers work against long backlogs. Many investors have tried to harness the huge potential of home improvement, but their efforts have proved elusive in such a fragmented industry. Availability of well-packaged opportunities provides these investors with solid market access while providing window manufacturers with a highly tuned channel for their product. New entrants to the home improvement industry are strong candidates for franchises, as they are more anxious to follow a proven formula than find something that is shaped to their particular style. The strong regional and national brands behind the programs provide the support they need, while providing a familiar name to the community. Independent dealers that have already developed a success formula are less likely to be attracted to these packages, as they usually resist paying for another business model. The successful independents too are often a brand unto themselves in their local market area, the result of years of quality workmanship communicated by word of mouth. The Window Guy is sometimes better known than the national brands within his local market.
INCREASED PROMINENCE AT HOME CENTERS
Entrepreneurial investors aren’t the only ones to discover the opportunity in the window industry, the lumberyards and home centers are also giving windows their full attention. Windows have always been a part of the product mix for lumberyards and home centers, but windows have never enjoyed the strategic prominence they do today. Shopping for windows–or anything else–at a typical big box store today, you may well be offered windows by a third-party supplier operating from an in-store kiosk long before you even find your way to the window department. Upon arrival at the window department, you’ll find a choiceof stock sized wood, aluminum and vinyl windows. Madeto-measure units are also available, often with only a one-week lead time, through their computerized special order department equipped with configuration, quotation, and ordering capability, linked directly to the window manufacturer. The big boxes have become very proficient window retailers. The big boxes have long been the domain of the do-it-yourself buyer, not the professional tradesmen, and while working to increase trade sales, the big boxes are increasing their support of another class of customer, the buy-it-yourselfer. BIY customers are typically DIY buyers that see improvement projects that they want to take on for their home, but are reluctant to tackle themselves due to either time or skill limitations. Siding and windows are very much in this category. Now these buyers can select the window products they want and the store will arrange installation, creating savings for the buyer and a new profit stream for the store. Installed sales have been around for decades but have never come close to approaching their anticipated sales potential. Most home improvement dealers dismiss the larger retailers’ installed sales programs as a long-failed experiment that’s simply incompatible in the highly fragmented home improvement industry. Until recently, they have been correct. But there has never been a stronger case for installed sales than that which exists today.
INSTALLED SALES PROGRAMS POISED FOR GROWTH
A major reason that installed sales have failed in the past is that retailers were approaching installation as an afterthought, not as a distinct and demanding separate business. Installation was seen only as a means to an end, not as an end in itself. That’s no longer the case. Publicly-traded big boxes have an unquenchable need for growth, a need that has long been satisfied by opening new stores on a weekly basis. As the retail market nears saturation, growth will have to come from increasing existing store sales. Attracting more pro contractors is one strategy to do that, but a faster approach may well be to increase sales to the 12,000 to 15,000 homeowners who pass through the doors of the average big box each week. Selling windows to homeowners has proven to be profitable, but selling window installations is now seen as the greater opportunity. Installed sales programs vary by company and store location. Currently, these programs provide installation services through the use of third-party contractors, preferred dealer lists, Internet-based referral programs, or the retail company’s employees. Their growing popularity is being driven by several factors. A growing shortage of qualified tradesmen is pushing out lead times on some home improvement projects to over a year. This labor shortage opens the door to less skilled and even unqualified workmen, and when a project goes wrong, homeowners often have little recourse. Enter the big boxes. Given the choice of undertaking an expensive project with an unknown contractor or dealer, homeowners are increasingly opting for the security of dealing with a major retailer, knowing these stores have a valuable reputation to protect, as well as ample reserves to correct a project gone awry. Homeowners pay a premium price for this added assurance, but many do so for the peace of mind. The big boxes currently account for an estimated 10 percent of installed sales. But, by their own admission, they are just now getting serious about the opportunity. Independent dealers are already benefiting from installed sales by getting referrals as preferred contractors and by providing labor and materials in other programs. Non-participating contractors have found that locating a showroom in a strip mall anchored by a big box can be a gold miner for walk-in leads. Homeowners often have their interest in home improvements sparked by a visit to a big box. Exiting the store, they are presented an immediate opportunity for some comparison shopping—without the need for an in-home presentation.
OPPORTUNITIES WILL SHAPE THE DEALER OF THE FUTURE
For all the challenges, the dealer of 2013 is likely to face they should find themselves entering an era of exceptional opportunity. At the most basic market level, there will be more homeowners, living in the largest inventory of aging homes, being served by a smaller group of qualified dealers, than at any time in history. The accompanying sidebar on page 00 provides more detail on demographic changes, but consumers will be better educated on product options, and many will already have pre-sold themselves on premium products before contacting a dealer. Pricing will be higher as a result of the anticipated strong influence of installed sales by the home centers–and margins will follow. The success of installed sales won’t signal the end of the independent dealer but more likely it will strengthen their opportunity. The big retailers will generate a higher level ofinterest and activity in home improvements, and while they have earned a reputation for low prices, they give nothing away. Independent dealers routinely boast that they can undersell the big boxes, but working against lengthy backlogs they must ask themselves why. The big boxes will motivate many independents to begin charging for the value they provide, rather than for the costs they incur. Once that threshold is crossed, dealers will be positioned to provide the level of service today’s buyer expects. The independents have some high quality products to sell and a great story to tell, perhaps now it will come out. Installed sales should rejuvenate the industry. Looking upstream, manufacturers and distributors are already looking for opportunities to work more closely with dealers, lending their resources and expertise to developing the strong and loyal dealer networks they themselves will need to survive in a changing market environment. Ask any window dealer how their business has changed over the past 10 years and most will tell you that it really hasn’t. Perhaps from the dealer perspective, where every project presents a different challenge, only an outbreak of routine or standardization could really be counted as change. To the outside observer working to keep up with the industry, however, change has followed change in rapid succession. The home improvement industry in general, and the window business, in particular, are rapidly evolving. The dealer of 2013 will still tell you that nothing has really changed over the past decade. But they will be more professional in their approach to their market, more knowledgeable of their products and customers, more diversified in their product offerings, and very computer savvy and reliant. They will regard distributors and manufacturers more as allies than as suppliers. They will have established themselves as brands in their own market area, and customer service will take on a new importance as they work to grow their brands. They’ll also be correct when they say nothing has changed for them. Every day will still require something more from them, and every day they’ll find a way to deliver. It was after all the dealers that created the home improvement industry and the creativity of the dealer of 2013 will keep it growing.