I noticed a T-shirt worn by a customer at the next table at dinner last evening that read “Mess with me and you mess with the whole trailer park”. While humorous, it made me think about the messages that we send to other people, sometimes unintentionally, and the need to make certain that we are always sending the correct and well thought out message with the right picture if we are properly concentrating our efforts toward a clear strategy to sell homes and profit in the homebuilding business.
The economy is on the mend, the signs are unmistakable: consumer confidence is rising; business confidence is rising; new unemployment claims are dropping; GDP is up. Yet the stock market continues to show daily knee-jerk reactions with homebuilder stocks rising one day on a report showing builder confidence up by one single point (and a score of 17 is nothing to get excited about), then dropping the next when housing starts drop in a winter month. Where is the long-term view?
One of the larger national homebuilders recently announced that their goal is to be the biggest builder in every market in which they are active. My immediate response was “why?” Aside from bragging rights and a very slight potential cost savings through economy of scale (they are already large enough to be purchasing most components at the lowest possible cost), what is the benefit? Would not a better strategy be to become the most profitable builder in every market?
Another of the large national homebuilders is apparently taking the opposite approach. Active in markets around the country and with more than 20 developments in each of their larger market areas, they have only one active community in three of their markets and thereby have neither economies of scale in production nor efficient sales and operations. Is it any surprise that they have not been profitable lately?
The same inconsistencies are also apparent at the local level. In one of the markets that I have been following, an upscale local homebuilder that had achieved success in that market segment decided to take advantage of the apparent new opportunities in their marketplace by introducing a community of more affordable homes. Instead of creating a totally separate division or operation with a new brand to address this new market, they marketed the community under their existing brand so they diminished their establish reputation as an upscale builder. And as they used the same designers, estimators, field personnel, suppliers and subcontractors as they had for their luxury homes, they created a new product line that looked very similar to their previous homes, only smaller, and the homes were overpriced for their new target audience and did not sell.
Another community that I have been following for several years had seen their sales decline every year for the past several years. Originally targeted to an empty-nester market, their prospective buyers’ difficulty in selling their existing homes (or selling at a price they would accept) convinced the homebuilder to change the target market to the first time buyers who were not encumbered with existing homes. The community had originally been planned for smaller homesite sizes (50’ x 110’) and with the existing home designs of two and three bedroom ranch houses at affordable prices, they believed that community would be perfect for the new market. They created new ads and waited for the younger buyers who did come out to visit but did not purchase because the location lacked the activity (“heat”) that the younger buyers wished and the home designs lacked the excitement, design, utilization and features that this market desired.
I found an ad in this morning’s paper that to me epitomizes the concept of sending the wrong message. A local attorney who specializes in personal injury cases is soliciting new clients and, following the headline of “INJURED?”, has included a picture of himself smiling broadly. I do not know if that smile is in anticipation of the large fees that he is expecting due to your injury or if he enjoys pain and suffering in others but it would seem to me that a more appropriate picture would be one that showed a serious face expressing his concern for the client’s pain and suffering and his dedication in assisting clients through the complicated and lengthy process of recovery.
Let’s make certain that all of us in the residential development and homebuilding industry utilize proper analysis, strategy and professional execution to create the right picture and send the right message to sell more homes and maximize our profitability. But that’s just my opinion.
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