Competing in Today’s Resi Market

Everyone knows about the decline in new housing starts, the precipitous drop in housing sales and the consolidation of home building to regional and national builders. While the custom builder market represents opportunities, the “tract/production” builders are where the volume is. With declining revenues, builders and contractors are more cost-conscious than ever before and continuously seek cost reductions to improve their profitability. Consider:

• “Production” builders are driving material costs down. These builders focus on price. They are streamlining their contractor relationships and want “the lowest price”. Recently, M/I Homes told its contractors to reduce their pricing by 5-10%. In February, an article in the San Diego Union-Tribune highlighted Lennar’s efforts to reduce contractor charges by up to 20%. If a contractor has to reduce their pricing, they want “some” of the savings to come from materials. This may be due to the need to cover land and home inventory carrying costs.
• Conversations with distributors repeatedly reinforce that residential contractors are focused solely on price, especially for these builders, and especially for “infrastructure” (inside the wall) products. This input was reinforced by our end-user research regarding private labeling.
• Conversely, custom builders are more open to quality, but still want price efficiency.

To compete in this market, price, price and price appear to be the driving forces. To be successful, distributors should consider segmenting the residential market and identify ways to “get the right price”; otherwise the business will migrate to CES and Rexel, both of whom benefit significantly from private label and no-name brands.

Strategies could include:

• Identifying no-name, secondary or tertiary brands to quote/stock as needed
• Negotiate SPAs with manufacturers, or get other special pricing
• Pursue the custom builder who may value your services
• Focus on selling upgradeable products that are visible to homeowners (i.e. lighting, designer wiring devices, lighting controls, central vacs, intercoms, sounds systems, wireless security, and generators)
• Consider how to profitably bundle an upgrade and infrastructure strategy at your contractors and/or builders
• Watch your resi contractor DSOs!!

For manufacturers, the name of the game is:

• Being price competitive
• Build brand equity at end-users (for appropriate products)
• Find ways to convince contractors that products save more time than the incremental cost
• Unfortunately, the quality argument does not seem to resonate with this market

Hopefully the upcoming Channel Advantage Partnership research project on the residential market will provide some insights.

For distributors focused on this market, buying “right”, targeting a market segment(s) and streamlining operations is critical to making this segment profitable.