I hate loose change. What I once loved as a small child, collecting shiny pennies, nickels, dimes and, when lucky, even quarters, has become a nuisance, weighing down my pockets and setting off the metal detectors at airports and government buildings. Panhandlers on the street are less than grateful and usually sneer when you actually give them your “loose change”, which they requested, in lieu of folding money. So when I see a change donation box at a fast food restaurant I almost always empty my pocket.
On the other hand, I was annoyed to find out this week that the ticket redemption machines at my local casino no longer dispense change, instead issuing a ticket for anything under one dollar. I know why this was done; it saves the casino substantial money not having to restock the machines with change and not having to repair the machines when change clogs the dispenser. And beyond that, the casino fully realizes that many of the tickets for the “loose change” will often never be redeemed or, even better, will be reinserted in a slot machine along with some additional folding money that will also be lost. But from my standpoint, and even though I do not want it, the casino was effectively keeping my loose change without my permission.
I realize we are talking about very small amounts of money which really do not matter to me as an individual. Within the homebuilding industry, however, I find that builders are constantly giving away not only their “loose change” but also real amounts of “folding money” every day by failing to optimize their operations.
In one of the housing markets where I am active, one of the national homebuilders returned recently having been there before the housing downturn but departing when the market went south. More on that builder in a moment, who for purposes of this blog I will refer to “ABC Builder”, but first please allow me to digress.
I had seen this “hit and run” philosophy of operation several years before when I had prepared an expansion strategy for another national homebuilder who I will refer to as “DEF Builder”. At that time I had examined several potential markets on their behalf for expansion potential and among others had recommended one specific mid-south market where the long-term prospects for housing demand were solid. I had selected several specific neighborhood areas and provided product and pricing recommendations for initial entry into this market where competitive opportunities were most obvious and had prepared a staged plan for what I believed would offer potential for a market-dominant position within a seven to eight year period. I had specifically forecast a short-term downturn in demand in year three to four which had been factored in to my initial site acquisition strategy but that would have created additional opportunities for opportunistic growth.
“DEF Builder” went into this market, purchased land in three of the four locations that I suggested, opened for sales and was operating profitably. However, when the downturn that I had predicted hit in year four they packed up their tent and left town. As anticipated, the market started to recover two years later but this homebuilder was gone and did not return for several years and today, instead of a market dominant position, has only a small share of what is one of the top twenty-five markets in the country. While I fully appreciate the need of any public company to maintain cash flow and maximize shareholder confidence, it is difficult for me to agree with a philosophy that totally sacrifices long-term profitability and growth potential for the sake of short-term savings. Read the rest of this entry »
Most economists and industry pundits agree that the housing market in 2014 will continue to improve but there is no doubt that we will still be faced with strong competitive conditions and cautious buyers. My recommendation to my developer and homebuilding clients throughout the country to assure their success is to return to the basics and create a strategy for every new community prior to commencing development and also for every existing community reflecting the current market conditions, just as if they were starting the community from scratch as of today.
For every community, an examination of the specific site conditions, the existing and probable future competition, the local economy and the market conditions is essential to provide the analysis that defines the “playing field” from which a realistic strategy for success can be developed.
Although most housing markets are performing well, certainly in comparison to recent years, over the past few months I have been asked to evaluate several communities in several different geographic locations that were not performing to the homebuilder‘s and developer’s expectations. As part of the background data I had requested each client to send me the original research and strategy documents. The replies, which were amazing similar from each developer, was that as they had been building in their markets for several years, they had seen no need to do any research or prepare a written strategy.
When I completed my analysis of these developments and their markets, the reasons for the lack of sales were crystal clear and, not surprisingly, consistent throughout most of these communities:
– They were offering stale, dated home designs that had not been changed for the past five years, or more;
– Their product lines failed to provide a full spread of designs, styles and pricing to satisfy the target markets within a given segment;
– Their locations were often further “out” than anything that had been fully accepted by the market and newer, competing developments were now available that were closer “in”;
– More importantly, many of their new developments had been acquired primarily due to the attractive land pricing, often distressed existing communities wherein other builders had failed but were brought to them at a substantial discount that was simply “too good to pass up”;
– There were four or more other builders in nearby locations competing directly with their communities, many with almost identical product and most offering something “special” (better pricing, better value, better features);
– Their sales staffs had been with them for some time and, as they were “experienced”, had not received any training in years;
– Their advertising and promotional strategies and budgets were the same that they had used ten years ago when their markets were very strong.
As my primary business is as a consultant, I am loathe to turn away business but it was sad to see that every situation was almost identical and that most of the problems should have been foreseen and could have been prevented. Having not been prevented up-front, the cost and effort to correct these failings was now substantially greater than if they had been recognized and addressed in the beginning.
For every community, there is one optimal development and marketing strategy that will maximize sales and profitability under foreseeable market conditions. While it may take a little time and effort to properly create such a strategy, the value is immeasurable and well worth the effort. Read the rest of this entry »
Recent events have convinced me that there is still a major opportunity for improvement in communication so I am reprising (with some current updates) an “oldie but goodie” blog.
Cool Hand Luke, the source of the headline for this blog, is a truly great movie. For those of my readers who are too young to have seen it when issued in 1967, I would recommend renting it one night or downloading it from “on demand”. The film earned Paul Newman one of his ten Academy Award nominations and won George Kennedy the Academy Award for Best Supporting Actor. It is included in the American Film Institute’s “100 Years…100 Heroes and Villains” (number 30 greatest hero) and “100 Years…100 Cheers – America’s Most Inspiring Movies (number 71) and was placed in the Smithsonian’s United States National Film Registry in 2005. It is classic Paul Newman at his best playing the role of an anti-hero with an indomitable spirit. And the tag line captioned above is outstanding, applicable to almost every aspect of life these days but, perhaps, especially relevant to the homebuilding industry.
Lack of proper communication continues to be pandemic these days and, in my opinion, is at least equally, if not more, the fault of the speaker as that of the listener. Saturday evening I stopped at the local Walgreens to purchase spirits of camphor. Not being able to locate the item and as the pharmacy was closed I asked a clerk for assistance. As she was several decades younger than I and apparently not familiar with the product she asked me what it was and I replied “an astringent”. Her reaction was an immediate blank look followed by a repeat of her question, “what is it?” and, I without thinking, responded, “spirits of camphor, it is an astringent”.
I admit it, the fault was mine. I should have realized this person was unfamiliar with spirits of camphor and, as she no doubt was a product of the esteemed Florida public school system and apparently not having been provided with even elementary training in the basic products of a drug store, she was also unfamiliar with the word “astringent”. When she once more asked “what is it?”, to prevent what I saw evolving into an Abbot and Costello routine of “Who’s on first…”, I did not repeat my answer but explained that it was a liquid in a small bottle typically applied to tighten the skin. When I was then led to the cosmetics aisle I knew that I still had failed to properly communicate and asked where the rubbing alcohol was located. I had no success there as the Walgreens in our area no longer stock spirits of camphor but thanks to the miracles of modern technology I ordered it from Amazon.com where it seems you can purchase almost anything.
Monday evening I attended a city council meeting in a town near where I live. I am involved in the proposed redevelopment of a 30 year old community and this was a special council meeting called specifically to consider our request for rezoning, following two prior meetings of the Planning Board which had lasted four and three hours, respectively.
We were proposing to develop 150 single family homes on 9 holes of a defunct golf course and to reinstall the other 9 holes creating a new 27 hole golf course with new clubhouse, swimming pool, fitness facilities, etc. Prior to starting our planning for this development my team and I had met with the leaders of the various homeowner associations within the community to solicit their input and determine what needed to be done to garner community support for our plan as several previous attempts to receive approval for redevelopment had been unsuccessful.
Utilizing the information from this first meeting we met with our planners and created a plan for the development which, I believe, was as close to perfect as is possible. Every existing home in the community that previously enjoyed a golf or water view but now overlooked a rat-infested unkempt field would again have a premium golf or water view as well as substantial buffering from any new development. A 30 year old dilapidated clubhouse in need of major repairs would be replaced with a new and far more functional facility and all amenities would be new or refurbished. Our new purchasers would automatically become club members virtually assuring the ongoing country club operation that now was teetering on dissolution. And our new development, with home prices well above the median in the community, would revitalize the housing market and stimulate price growth for the existing residents. I truly believe that this is a “win-win” for all concerned – the existing residents, the city and my client. Read the rest of this entry »