Decline in Industry Makes us Ripe for Innovation

By: Jim Moody, CAE
President

Ruth Kellick Grubbs, an industry consultant and a good friend of CSA’s, recently sent out a newsletter to clients with some harsh insights. Contrary to what I’m hearing from some economists and from other industry gurus, Ruth says there’s no recovery on the horizon for home building.

She cites several reasons to support her analysis:
• Statistics indicating home price increases may be misleading.
• The current low interest rates are not sustainable.
• The homebuyer tax credit will not last forever.
• FHA loans now makeup a significant portion of the market, and they are risky.
• Foreclosures are going to spike again, and so are subprime resets.

Different people can look at the same statistics and come to very different conclusions. Certainly Greg Brooks, another industry consultant, has a different perspective. We provide you with his insightful newsletter each month, and he has a much more positive view of the future than Ruth does.

But whether you think brighter days are just around the corner or not, Ruth makes another point that is interesting.

She says we are at a critical point in the life cycle of our industry. People who study these things have determined that industries typically go through birth, growth and then a decline. The length of the cycle may be different from industry to industry, but the pattern is generally the same. Once an industry hits a decline, there has to be an innovation or the industry eventually dies.

We know that our country will continue to need housing in the long run, so the industry is not likely to die. Instead, someone will find a better, cheaper or faster way to get the job done, and the rest of the industry will fall in line. What’s not known at this point is whether the innovation will keep independent dealers in the mix (although with a much changed business model) or cut us out entirely.

Ruth asserts that technology will have a much larger role in the industry going forward. She also sees major changes in the distribution model, since ours is the most expensive model in existence. She also notes that our existence depends on our customer’s ability to sell our products and services for us, and that’s probably not going to be true in the future.

I’ve seen a lot of information about how homes going forward will be smaller and less customized because cheaper will be better for consumers. If that’s true, then I wonder whether the future is in more manufacturing. Will wall panels be the next big thing? Will the dealers and the home builders essentially be the same company? I don’t have answers to those questions, but it is good food for thought. What do you think the innovation in our industry is going to be? Use our blog feature to post comments.

Meanwhile, one of our members brought a ProSales article on credit to my attention. The article talks about how dealers who aren’t diligent in credit are as guilty of sub-prime lending as the mortgage companies. Clearly credit issues have been significant for our members over the past two years. How you extend credit and manage collections will be critical in the recovery of business going forward. We’ve had a task force developing a guide to best practices in credit and collections this year, and it’s now if final production. Hopefully it will be a useful tool for you; we’ll let you know when it’s available. Here’s the link to the ProSales article

News You Can Use - On Technology

Walker's Building Estimating Reference Book Now Available Online, 94 Years of Know-How at Your Fingertips
Construction estimators can now access this authoritative, industry Standard reference guide, relied upon by generations of contractors for computing building construction labor and material unit costs, is now available on the Internet. In addition to the hard copy print book, Walker is offering the option of subscribing on-line to the entire book or to subsets, of CSI division chapters which are presented in HTML/PDF Read only formats. Read more.


National Gypsum Website Features Sustainability Information
National Gypsum Company has launched a new "Green Site"at http://www.ngc-green.com/
Architects, product specifiers, customers, and the general public can find practical information on how the company's products, processes, and plant network contribute to make positive contributions to green building practices.

The new site includes many tools starting with the Product Sustainable Features page listing National Gypsum wallboard plants, their use of recycled content, and the distance between the plant and its source of gypsum. Read more.

News You Can Use - On Technology

New Lien Writer 9.1.5.1 Software Released
The latest version of Lien Writer, the premier program for Mechanic's Lien paperwork has just been released on the web. Read more.

Huber Engineered Woods Launches Sweepstakes to Promote New Website
Huber Engineered Woods LLC, a manufacturer of innovative building solutions, is launching an online sweepstakes at http://www.advantechcashgiveaway.com/ where contestants can register to win up to $5,000 from May 25 through July 31, 2009. One grand prize of $5,000 will be awarded, and five runner ups will receive a prize of $1,000 each. Winners will be notified on Aug. 30, 2009.

AdvanTechperforms.com is a newly launched Web site designed to help builders, retailers, architects and homeowners distinguish the superior benefits and performance of Huber Engineered Woods' AdvanTech flooring, sheathing and rim board from competing products. The Web site uses unique and engaging content to demonstrate the strength, moisture resistance and quality that make AdvanTech an unmatched building resource. Read more.

How 'Information Modeling' Is Affecting Your Work
Source: Contractor`s Business Management ReportPublication date: June 1, 2009By Miletsky, Robert

Information modeling offers con- tractors and owners a wealth of information on a project. Whether renovating or "restoring" an existing structure or building from scratch, it is clear that modeling offers signifi- cant advantages over the now "old- fashioned" method of reviewing the rolled-up plans and six-inch- wide book of specifications and building off of these items. Yet modeling has encountered significant roadblocks on its way toward gaining wider ac- ceptance and use. And the ability of modeling to overcome these bumps will go a long way toward determining how effective it will be and how useful it will be to contractors. These issues became clear at the American Institute of Architects (AIA - www.AIA.org) Annual Convention in San Francisco at the beginning of May, and from a conversation with Phillip G. Bernstein, FAIA, RIBA, LEED AP, and vice president, Autodesk Inc., www.autodesk.com. What are these roadblocks and what can you expect to see in the near future with respect to modeling? Read more.

News You Can Use

TRENDS, NUMBERS, REGULATORY ITEMS

AP Stress Index confirms easing of recession
Source: Associated Press/AP OnlinePublication date: June 8, 2009
By MIKE SCHNEIDER and JEANNINE AVERSA

The recession's grip appears to be loosening as seasonal hiring picked up this spring. That's the conclusion of the Associated Press' monthly analysis of the economic pain in more than 3,100 U.S. counties.

The latest results of the AP's Economic Stress Index show the free fall that marked the autumn of 2008 and winter of 2009 gave way in April to a more controlled descent, possibly even a bottom. Still, the analysis found that pain remains high compared with year-ago levels. Read more.

Builders Fear Consequences of New Appraisal Law
Source: BIG BUILDER NewsPublication date: June 8, 2009
By Sarah Yaussi

It's been little over a month since the switch was flipped on the Home Valuation Code of Conduct (HVCC), and many builders are still unsure as to what the new rules mean for their business. However, many believe any regulatory change spells disruption.

The new code, a pet project of former HUD secretary Andrew Cuomo, was an attempt to secure the independence of real estate appraisers, who, say the code's supporters, have been under continual pressure from lenders, mortgage brokers, real estate agents, and even home builders to inflate values. Under the new code, lenders have set up firewalls between their loan departments and their either internal or third-party appraisal services if they wanted be able to sell the loans on the secondary market to either Fannie Mae or Freddie Mac. Read more.

A Housing Recovery: Not So Fast
Source: Business WeekPublication date: June 8, 2009
By David Bogoslaw

Stocks of homebuilders have had an impressive run recently, thanks to a stream of improving macroeconomic data, including home sales and consumer confidence, climbing an average of 38% since March 9. But will the recovery last? Recent gains in long-dated U.S. Treasury yields augur rising mortgage rates, while the likelihood of increasing foreclosures could further bloat the housing supply in the months ahead. Read more.

U.S. Lumber Production Falls 28% in 1Q09
Source: PROSALES Information ServicePublication date: June 5, 2009

Lumber production across the United States in the first quarter fell 28.3% from the year-earlier period to total 5.47 billion board feet, the Western Wood Products Association (WWPA) reported. Meanwhile, production in Canada slid 24.9% in the same period to total 4.64 billion board feet. Read more.

HUD revises rules for stimulus money
Source: Associated Press/AP OnlinePublication date: June 3, 2009
By KEVIN FREKING

Federal officials have lowered the threshold that the nation's public housing agencies must meet to get some of the stimulus money set aside for new roofing, plumbing and other renovations. Read more.

ProBuild Raises the Bar on Technology

Jim Moody , CAE
President

Last week I mentioned my concerns about ProBuild as a competitor. This week, I’d like to comment on ProBuild’s new technology package and dig into the industry’s use of technology.

But first, I want to address comments made by some of you on last week’s entry. I’m thrilled that the column generated comments. Diverging opinions are welcomed – even encouraged. Thanks to all of you who posted. My goal is not to have the last word, and I certainly won’t pretend that I’m always right. What’s important to me is creating a meaningful exchange of ideas that provides some useful information and builds a sense of community. My only requests are that comments remain in good taste and free of personal attacks (whether aimed at me or other commenters). All commenters last week followed those guidelines.

Now, to the technology issue. ProBuild is spending millions on a new technology platform called ProEdge, according the May issue of ProSales. ProBuild has about 200 full-time staffers and 100 consultants devoted to IT and will spend about 2% of revenue (in 2008 that would have been about $88 million) on technology in 2009. The goal is to integrate the legacy systems of dealers acquired by ProSales onto one platform and then to provide data in more granular detail than is typical in this industry. Once the system is up and running, the technology spend will drop to 1.5% of sales, and the expected return on investment is 7-15%.

In contrast, ProSales notes that the majority of dealers in the ProSales 100 spend less than 0.5% of revenue on technology. Almost half spend less than 0.25%. And that’s the biggest dealers. My anecdotal experience tells me that even those low numbers may be generous for the entire industry.

I’m not suggesting that this is the year for a major technology spend (maybe it is for some, but I know so many of you are in survival mode this year), nor am I suggesting that technology is as important in this industry as it is in others. (In the ProSales article, one of the leaders at ProBuild notes that his previous experience at Fidelity Capital was in spending 22-30% of revenue on information technology. There would almost certainly be unfavorable return on that kind of spending in the lumber business.)

What I am saying, however, is that one member of the competitive pack is about to set the bar higher. This could quite possibly raise the expectations of customers. As you go forward, you might want to think about how you can get the most out of IT rather than viewing it as a necessary evil.

Have you invested in the training you need to get the most out of your existing systems? Do you have a website? Is it just a “brochure,” or can customers access their account through it? Can you track orders? What about online purchase orders? Can you invoice/receive payment online (assuming you want to do that)?

Craig Webb, editor of ProSales and a good friend of CSA, has posted a related article from Bob Wiltse on how to use IT as a sales generator on the ProSales website.

So, how do you view this information? Is ProBuild spending too much in an industry that has never seemed to need as much technology infrastructure as some others? Will they fail to see a return on the investment because the customers don’t care too much about technology? Is it wiser to minimize technology spending as much as possible?