Preparing For A Market Downturn
It’s starting. Market conditions are softening across the country. Communication from remodelers who need business has increased dramatically. Unfortunately, too many of these remodelers weren’t prepared for the downturn, so are now caught in a vise between poor cash flow and the need for a dramatic increase in marketing. While there are some strategies that can be put into place once the slow market has arrived, some -- like laying off employees, moving back to a home office, cutting salaries – can be painful.
Ernie Hofman, president of the high-end remodeling firm, Hofmann Design Build, Inc., in Summit, NJ, lived through a similar downturn in 1993 and 1994. Then, the lack of business produced “a grueling experience,” he says. “It was very hard times. I was working way too many hours, making no money and ready to get out of the business.”
But thanks to the input of savvy consultants and a group of peers, Hofmann made it though with the business intact. This time, he vows he’ll be prepared.
“I keep my eye on an array of information that will give me advance warning on a market slowdown,” he says. His primary source of insight is the real estate market. “Remodeling is very closely tied to sales of existing homes,” he says. “In our market, there are currently twice as many homes on the market than there were a year ago and they’re taking up to six months to sell when they used to go in a bidding war within a week. This is a major sign that things are going to change in the near future.”
Hofmann stays on top of what’s happening by subscribing to local real estate publications as well as the Wall Street Journal Real Estate section which sends him pertinent articles via email daily.
“High unemployment is another factor,” he comments. “If there is an exodus of high paying jobs out of your market area, there will be fewer affluent people to pay for the type of remodeling you’re used to doing.”
He adds, “Also, listen to other people in the business. Keep your ear to the ground. I talk to other remodelers, to suppliers, to our subs. They all have a different perspective. Once, I was very busy, but learned that a major competitor had just laid off 50% of their staff. That was a huge sign that the market was dropping.”
Once you get a whiff that the business climate is changing, act immediately! Hofmann says, “We tend to have a buffer from reality in the form of back log. So when the market drops, if we’re not looking ahead, we don’t see it until our backlog is gone and then we can’t fill our pipeline because so little business exists.”
So as soon as a sign appears, ramp up your marketing. “The worst time to market is when you need leads,” he says. “We’d rather be in a short-term position of having more business than we can handle if it means that the demand will level off to still a decent pace when the slowdown reaches us.”
“Use whatever you can think of,” he urges. “Be creative and really make a presence for yourself in the marketplace. I’ve hired a marketing consultant and we’ve developed a great marketing program to supplement the tactics I’m already using. Since it takes a good 6 months for the effectiveness of a marketing program to show, start it now.”
“My goal is to build that backlog so I can get through the downturn. The leads are for much smaller jobs . . .jobs that I wouldn’t have looked at before. . . but now I’m gladly taking them,” he comments. “It’s natural that jobs will get smaller. If someone thinks that the job size will stay as large as they had been during a contracting market, they’re just foolish. So be prepared to handle the larger number of jobs that you’ll need as well.”
As soon as he sees a shift coming, he informs his staff. “I tell them that it is absolutely imperative that the clients love working with us. Customer service is paramount. Soon, there will be dozens of companies competing for everything that’s out there so my staff plays a crucial role in helping us capture the share we need. Everyone is important when the market takes a dip.”
“The companies that come out on top will be nimble and ready to adjust when they see the market changing before their eyes,” Hofmann says, “it’s those that don’t see it until it’s too late or refuse to adapt that will suffer the most.”
Remodelers Advantage Inc., 535 Main Street, Suite 211, Laurel, MD 20707
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