By Bill Sendelback
For years, many hearth dealers counted homebuilders, especially custom-home builders, as customers. But when the U.S. recession hit and new-home construction came to a screeching halt, that revenue stream dried up for most dealers. The good news is that new-home construction is slowly but steadily heading toward pre-recession levels, and with it come growing opportunities for hearth dealers to add homebuilders to their customer base and sales.
As fall began, U.S. single-family housing starts had risen to 722,000, up 68 percent from 2011. Although the August annually adjusted numbers were down slightly from previous estimates, the National Association of Home Builders (NAHB) is optimistic.
“The August reading represents a one-month blip in what has been a long-term, gradual recovery,” according to NAHB chief economist Robert Dietz.
“As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers, a positive sign that the housing market continues to move forward,” says NAHB chairman and homebuilder Ed Brady. “The single-family market continues to make gradual gains, and we expect this upward momentum will continue throughout the remainder of the year and into 2017.”
According to most hearth dealers who are successful at selling to homebuilders, it’s not an easy market to tap; it requires effort and organization (what doesn’t?), but with dedication it can be profitable. Most dealers target custom-home builders, particularly builders of higher-end homes, leaving the tract builders and large national builders to fireplace manufacturers who may sell direct to builders or to one-step distributors who specialize in the builder business. As new home construction continues to recover, more hearth dealers are taking the plunge and selling to those custom builders.
“I’m passionate about builder business,” says Grant Falco, general manager of Falco’s in Spokane, Washington. “When I took over as general manager three years ago, I made it my responsibility to tackle sales to homebuilders and learn how to do it better. Our builder sales are now up to $500,000 while they were only $75,000 three years ago. We’ve had a lot of success with high-end homes – we don’t go after spec homes.”
Falco says that, as he set up the company’s homebuilder effort, he quickly found out that the builders were buying from “him” rather than just from Falco’s, and they were looking for the convenience of dealing with just one person.
“The job superintendents need one person to rely on,” he says. “You need to nurture that relationship, and once you have it, it’s a pretty easy business, but you have to maintain the relationship. Builders need to be able to trust you.”
Before becoming general manager of Falco’s, Grant was the installation bid manager. Now, as well as running the entire Falco’s operation, he continues to be the “go to” guy for the company’s builder business.
“We’ve always worked really hard to gain homebuilder business,” says Gene Butler, HPBA chairman and president of The Firebird in Santa Fe, New Mexico. “We deal with all the major builders in our market. These are busy guys, and it’s tough for them to know about all of our products. Builders send their customers to us, and we do all the work and then let the builder know what the customer wants.
“Some successful hearth dealers don’t want to mess with homebuilders,” adds Butler. “It’s different in each market, and it can be tough dealing with builders when you have one-step distributors and manufacturers selling builder-direct, unless you develop strong, trusting relationships with your custom-home builders.”
Butler recommends that dealers become active in their local homebuilders association. “I’m surprised at how many hearth dealers are not involved in their builders’ associations,” he says. “We even sponsor awards for our local Parade of Homes organized by our association.”
John Ewan, owner of Pacific Energy Company in San Luis Obispo, California, echoes other hearth dealers by saying that building strong relationships is the key to success when trying to sell homebuilders.
“You have to make sure you listen to the client, and you have to promptly do your installations,” he says. “My sales force and I try to interact almost every day with these customers. When you do the job right, the referrals you get are some of the best you can imagine.”
Homebuilder business is “very profitable” for Pacific Energy, according to Ewan, and business is picking up. “As we come out of the recent recession, we’re now seeing contractors come in that we haven’t seen for two or three years. Now we’re also seeing a whole new crop of young contractors.”
“Early on I didn’t understand that homebuilder business is distinctly different from retail business,” says Tim Nissen, retired owner and now consultant for Home Fire Stove in Salem, Oregon. “The products are different, the service required is different, and how you sell to builders is different. When I finally understood these differences, I began to manage that business better. Now we really pursue custom-home builder business.”
Builder business works best when the ultimate homeowner is involved, particularly in deciding on the products, Nissen adds. “An advantage for the hearth dealer is that much of that business is counter-seasonal to the hearth products retail season.”
In 2006, Home Fire installed more than 500 fireplaces, half of the company’s unit volume. During the 2009-2010 season, that had dropped to 100 units. “Yes, our builder volume is down, but for us, new-home construction is a growth opportunity.”
Homebuilder business is “good” for Best Fire, in Albany and Troy, New York, according to Wayne Stritsman, former owner and now consultant. “But when things are left up to the homebuilder, he’ll always select the lowest price. Some builders have a design center and want to manage the sale. But we’ve found that 65 percent of consumers don’t want the builder’s product selection – they want an upgrade.
“So we offer a turnkey package to install the consumer-selected product. We point out to the builder that, if he only offers the cheapest models, he’ll look just like every other average homebuilder.” For Best Fire, the target gross profit on builder business is 40 percent. “We even sell the facings to increase our margins.
“It’s not just about securing the business, but working with the builders in the field is important,” says Stritsman. “We interface with them on complicated new products such as linear gas models. When the product selection and price are established, we turn it over to our construction manager. We manage the installation, and we babysit the job superintendent. This business is all about service.”
“Builder business is a challenge for most hearth products dealers because the typical homebuilder wants a discounted price,” says Don Richardson, president of Arizona Fireplace & Patio, a Phoenix, Arizona, one-step distributor and hearth dealer. “Now, with product information and pricing available on the Internet, it’s hard to sell builders at full retail, and dealers will struggle if they try to hold to full retail pricing. But homebuilders also might need grills, outdoor kitchen items or patio heaters that can help dealers increase their margins.”
Richardson points out that tract builders now have only a 10 percent incidence rate for installing fireplaces in their new homes. “They want the cheapest models,” he says. “That’s why we love custom-home builders who are not so hung up on prices.”
“We’re unique in that we have seven outlets – design centers – throughout Southern California that are aimed at homebuilders,” says Eric Peterson, CEO of Capo Fireside, headquartered in San Juan Capistrano, California. “But we’re more than just a product selection center. We take care of the entire fireplace installation. Any serious homebuilder knows that it pays to have expert installations.”
Peterson has 15 dedicated sales managers whose primary function is to contact and interact with architects, homebuilders and general contractors. “It takes work, but we incentivize our people, and it’s worth all the effort.”
Working with homebuilders may not be for every hearth dealer. But done correctly, with a strong commitment and a well-planned sales effort, custom-home builders just may be a way for hearth dealers to increase their sales in a still sluggish sales environment.