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Last year, in the midst of the rising steel and particleboard markets, my wife and I built a house. The housing market was strong and our builder was busy. For us it was the perfect time to build.
The empty-nester-home-by-the-pond called to us. As we reviewed the past five years, we could only see the market, and the home prices, growing, so we thought we had to go for it before it was no longer affordable.
This year we have decided to add landscaping, cement and paving stones. While last year we couldn't count on getting a contractor to give us a quote, this year, we can't get them to stop following up.
Several sources say the housing market is in the tank, but for how long and by how much?
It is believed that new housing often drives the woodworking market. Cabinets, windows, mouldings, flooring and doors are all part of the new home sales. If they drop, we all suffer, right? Well, it depends on what statistics you want to follow. David Seiders, chief economist at the National Association of Home Builders (NAHB), says the market for single family home starts will continue to slide the rest of the year, plunging by 26 percent by the second quarter of 2007. Seiders does not predict it will be a long-lived downturn. We'll hit bottom and then stabilize sometime next year, he says.
Meanwhile, the Federal Reserve Chairman Ben Bernanke reports that housing is undergoing a "substantial correction" that will slow down the economic growth by a percentage point. While economists predict an extended slowdown and interest rate cuts next year, they say that a recession in 2007 is unlikely.
According to the National Association of Realtors (NAR), growth in home prices is expected to be minimal with less than 3 percent growth in prices expected.
Locally, a major window manufacturer just announced, through the Wisconsin Department of Workforce Development, that it planned to lay off 150 employees in December. The same week I had a $20 million Wisconsin institutional casework manufacturer ask me to help spread the word that they needed at least 10 more experienced commercial cabinetmakers for their new custom division.
Is there a lull in the market or a downturn?
Yes, the new home market is slowing, but slowing from a ridiculous pace of inflated growth. In every market there are companies doing poorly while others grow. When new home building stops, remodeling grows. Commercial may be up, while residential is down. Which side of the market should you follow?
The point is it doesn't really matter. You have no control over the market; you only have control of your reaction to it. No matter what you think or say, the market will do as it wants. The question is: How do you prepare for it? Do you pull back or do the same as you always have? Do you layoff staff or add salespeople?
As the contractors call us wondering when we will be ready, and what we've decided, I can hear the urgency in some of their voices. They aren't accustomed to the quiet phones and the lower demand. The voices are familiar. They are the same voices I hear coming from our customers and vendors during every lull.
As our industry backlog decreases, woodworking shops are starting to panic and the only action they can think of is reaction. The calls range from shops asking if we know of any extra work for them, or if we know of any good salespeople? Should they fire all their factory sales staff and hire independent reps? Should they fire all their independent reps and hire factory salespeople? The sales managers call and let us know that their position was "eliminated" and do we know of anyone hiring. Several shops will call letting us know that they have "extra" time on their CNC router, wrapper, press, laminator, etc.
The common denominator in all of these calls, whether it is our contractor or the woodworker, is that they don't have a plan. They have taken the business as it came in and never spent the time to set up a strategy for when it didn't.
SETTING UP YOUR STRATEGY
The silver lining in the slow market cloud is time. Your company has the time to plan and strategize, so take the time to look inward. The company is in woodworking for a reason. You and your company have certain areas you excel at. How do you know what these are? Ask your customers. Ask why they came to you? Who referred them? What did these people say you are known for: delivery, service, attitude, customization, installation ease or speed? Often, what we determine as easy is very difficult for our competitor; so don't overlook your natural talents.
Examine your attitude.
Try to be brutally honest with yourself. Were you up because the market was up or were you building your own long-lasting reputation? Where can you improve your shop's abilities as the market tightens?
Don't listen to the negative talk.
Be realistic that it is harder to find work, but also realize that even in down markets customers are spending money. Your competition is selling to someone. Unless you have every piece of business, you know that there is always more out there. As the market drops you will hear the horror stories of shops laying off people or even closing. Don't let these closings affect your outlook; remember that an up market supports the financially weak players and a down market shuts them down.
Now is the time to look at your physical plant and showroom.
Use the time to improve, review lean manufacturing, rework the shop layout and take a training course in that CNC programming you bought. Work hard at getting more efficient in your production.
And if you are in the retail cabinet industry, for goodness sakes, refresh the showroom or at least dust it. Finally, add those cabinet components, new door styles, hardware towers, trash bins and drawer slide samples into new clean cabinets. There may not be as many people walking through the door, so you cannot afford to lose them because you have a disorganized, dirty, outdated showroom. While we are busy we put off the basic sales tasks that bring new business in. It's the classic cobbler's kid's story. We can't make cabinets for our showrooms because we are too busy making cabinets for everyone else. Now, you have the time to get it right.
It's time to market and advertise.
Many competitors are trying to save money by spending less on marketing and advertising. This leaves a void you can fill with your ads. People may not be buying new homes, but it is an excellent time to sell remodeling. The new home buyer who has stopped looking at homes still has the itch to change their surroundings. One of the top five cabinetmakers in the country looked at its mix for 2005 and realized that over two-thirds of its cabinet business was coming from remodelers, not new builders. That figure will only increase in a new home market slowdown.
Adjust advertising to reflect the customer you want.
Are you still advertising cabinets? Consumers think in rooms, not in cabinets. Why do you think closet companies and garage organization franchises differentiate themselves from cabinets and kitchens? Because consumers think about changing a whole room, not a cabinet. They see the closet as a room that gives them more control of all their stuff, and the closet companies pander to that thinking.
Drop cabinet advertising and start talking about lifestyle. Show them successful home libraries, laundry rooms, theaters, personal gyms, wine storage, along with closets and garages and kitchens. Show them how with your help they can get organized, and back on track with their lives.
Stretch your expertise.
Maybe you haven't built a home theater room before, but someone in the area has. It is time to collaborate with others in your market and share the knowledge. You have to give to get. One of the best ways to find new business is to employ companies that have a narrow specialization like the electronics in home theaters, trainers that set up personal workouts and sommeliers. All of these people have contacts who are looking to change their lifestyle and are willing to create the space to do it in. The goal is to get the word out that you are versatile and to find niches you normally didn't have. Don't turn down jobs not in your area of expertise. Instead, use your collaborators to get work you would usually ignore. One successful partnership can lead to many new referrals and a whole new niche.
The partnership approach pays off. Break your patterns and start stretching your capability.
Ask your competitors for work.
Every major competitor in your market is willing to talk to you openly at least once a month, but you have to go where they are. Every state and major metropolitan area has trade associations that sit you next to your competitors every month. If you have not taken advantage of the knowledge and networking of your local associations because you were too busy, now is your time to learn.
The Construction Specification Institute, National Association of Home Builders, National Association of the Remodeling Institute, Kitchen Cabinet Manufacturers Association, National Kitchen and Bath Association and many others have monthly meetings, officer positions, speaker boards and dinners. You will pick up the latest trends, products and trade gossip way before the nonattendees.
For a real stretch join an association that is not primary to your industry. I have one successful friend who sells laminate, but was also a past president of the local Association of Interior Designers. He would always say, "Where else can a salesman meet the top 25 designers in our market for dinner and work side-by-side with them on their favorite cause?" And of course if you wanted to meet any of those designers, he was the guy who could get you in. If you are a woodworker and you attend and contribute to the local chapter of an ASID, AIA, or NKBA on a regular basis, do you think you might end up with a few more high-end specification jobs?
Don't forget to help the local charities.
Not only is it good for the soul, but it is also good for business. My computer technician runs a small company fixing people's computer snafus. Every year he works with the local women's abuse shelter in planning and organizing all the lists, mailers and gifts for the yearly fund-raiser in town. It is a huge affair with wine tastings, art auctions and speakers. The event is planned and attended by the big donors in town and for a few days every year he works side-by-side with them on a shared cause. For the rest of the year, he is busy working for the same big donors on their personal and business computing needs. This is the only marketing he has to do all year.
Stop making and selling, and start listening and filling.
Our industrywide problem is that we are woodworkers, not salespeople. We have a tendency to make things and then go sell them. Whether the times are up or down, you will often find the owners of woodworking firms in the shop, not in the office. When times get tight, it is more important to take the time and listen to the market. Every day people are walking in your door with information you can use to find your next niche: customers with needs and problems, employees with ideas for products and, most of all, salespeople in your shop. All you have to do is start listening to their needs and filling them.
In tough times, the real information on what is selling and where is the market going is with the salespeople that call on you. They are spending every day talking with everyone in your market. They know what is moving and what is dying. For example, suppose the salesman of finishing materials says he can't keep dark cherry stain for maple on the shelves; and the next salesperson comes in and mentions that chrome cabinet accessories have become 80 percent of his business, completely replacing plastic. If your showroom is still showing brown oak cabinets and almond plastic susans, you might want to rethink your display.
Quality will win out.
Consumers who are spending, are spending with more care. If dollars are tougher to come by, they will go one of two ways: either with the cheapest alternative to get by or with quality that will last long after they have spent the money. The middle ground of "good enough" suffers during downturns.
Middle quality level manufacturers are attacked from both ends. The low-quality fabricators adjust their product look to match and hide the differences to confuse the consumer. The high-quality shops set themselves apart and ask the consumer to see what they can get for just a few dollars more. Consumers are more cautious with their dollars and try to educate themselves better when the dollars are harder to come by.
Ed. note: Rick Hill is the founder of WoodReps.com, a national association of independent sales representatives in the woodworking industry. Hill also runs OnPoint Sales, an independent rep group in the Midwest. He can be contacted at onpoint@excel.net.
author: By Rick Hill