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Hearth & Home February 2018

Give Builders a Chance!

By Bill Sendelback

If you’re a hearth dealer, your best opportunity to grow your business may be in establishing strong relationships with local builders.

Most hearth product dealers continue to search for new products, new product segments, or new markets in order to increase their sales. For some, but certainly not all, selling to homebuilders has been a profitable business. That is especially true now that new home construction is making a strong comeback after the fall-off during the recent recession and economic downturn.

In 2016, single-family housing starts increased to 722,000, up 68% from 2011. By the end of 2017, that number reached 877,000, up another 21% from 2016, according to the National Association of Home Builders (NAHB).

“We are seeing solid, steady production growth that is consistent with NAHB’s forecast for continued strengthening of the single-family sector,” said NAHB chief economist Robert Dietz. “As the job market and overall economy continue to firm, we should see demand for housing increase as we head into 2018.”

Builder magazine reports that single-family housing starts for 2018 are expected to rise by 9% in dollar volume, and 7% in units.

Allen Downum, co-owner of Fireplace United, Denver, North Carolina, has been selling to homebuilders since 1985, and through those years, builder business has been a solid complement to his retail business. Today, 60% of his total sales are to homebuilders.

“Not only is builder business generally counter-seasonal to our hearth business,” he says, “it can be steadier and more constant, and it’s absolutely profitable even though it may not reap the same margins as retail.”

Single-family housing starts were at 877,000 by the end of 2017.

It’s critical for a dealer to make personal contacts and establish credibility with builders, according to Downum. “When you establish that credibility, builders actually want and seek your input and advice.”

In Downum’s case, homebuilders send their customers to his store to choose products. He uses his store to educate both homebuilders and their customers. “Every day builders send their customers in,” he says. “That’s a very important part of this business. It allows us to show new products and sell against the cheaper models that many builders try to push.

“When we show customers the cheap stuff, and then the upgraded products, it gets them thinking. But we want to quickly get the homeowner through his (or her) decision, and it’s important to put all the needed info into one document.”

Fireplace United installs “99.9 percent” of its jobs with homebuilders. “Our builders prefer that because it takes the liability off of them,” he says. Most of the builders Downum sells to pay in 30 days, while slow-pay by homebuilders is a frequent gripe from other hearth retailers. “If you are not careful, some will take you out 45 to 60 days,” he says.

“Relationship, relationship, relationship” is the biggest key to Fireplace Warehouse’s success with homebuilders, according to Mark Humphrey, vice president. With stores in Denver, Colorado Springs, Fort Collins and Frisco, Colorado, builder business now represents 50% of the company’s sales; it represents “multi-million dollars” in sales.

“Strong relationships with your builders can get you the jobs even if your prices are not the lowest,” says Humphrey, who has 12 years experience selling to homebuilders. “The margins are lower than retail sales, but they are not bad. But you have to have sales volume for it to work. So we have to operate on a lean basis with a staff of dedicated people who work quickly and efficiently. Many retailers fall down on this, because two guys working out of a truck, as an example, are not efficient.”

Unlike Fireplace United, Humphrey tries to keep builders’ homebuyers from coming into his showrooms. “High-end customers do come in, but production builders take our retail prices and build in their margins, so that can be confusing and disruptive to homeowners who come into our stores and see our pricing during their builds.” Humphrey suggests that smaller “mom and pop” retailers pick higher-end, custom-home builders rather than volume tract builders.

He sees his builder business growing and progressing. “Three years ago, homebuilders were leaving out fireplaces to save money, and the few fireplaces that were being installed were cheap 36-in. models. Fireplaces are now back in with 75% of the new homes in our area, at least with one fireplace, and now they are higher-end 42-in. linear models.”

Getting homebuilders to pay on time is not a problem for Humphrey. “Our good ones pay us twice a month,” he says. “Some try to take as long as 180 days, so we just add 10% to their bill. Don’t work with builders that don’t pay on time.”

“We can’t seem to avoid dealing with homebuilders,” admits Gene Henry, president of Georgetown Fireplace & Patio, Georgetown, Texas. “Our higher-end customers keep dragging their builders in.” Today 50% of Henry’s fireplace sales are to homebuilders, and more than half of that number is a direct result of the homeowner going into the showroom.

“Some builders are our allies, but for some, it’s more important for them to get it cheaper. So for us, it starts with the homeowner. They don’t want what the builder wants to install. Some builders want to do it the way they want, but when they see the results of working both with us and with the homeowner, they become an ally, and they come back to us for future jobs. Now, most higher-end houses end up with high-end fireplaces or multiple fireplaces. Frankly, lower-end houses are a waste of time for us.”

Receivables with homebuilders are not a problem for Henry. “Our builders expect to pay on time. Our fireplace jobs can range from $6,000 to more than $10,000, and sometimes the consumer pays 100% up front. But you better not screw up. The job better be right. The customer remembers when the job is not done right, but he (or she) doesn’t remember the cost when that job is done right.” For that reason, Henry’s staff is very much involved in the installations.

Margins for Henry’s builder business are “similar” to that of his retail business. “But you don’t want to deal with tract builders because they will drag out payments 60 days and there goes whatever margin you may have made.”

There’s an attractive upside to the builder business.

Sean Rosser, owner of Hearthside Fireplace & Patio in Warwick, Rhode Island, and Holliston, West Port and Northbridge/Whitinsville, Massachusetts, formerly was a one-step distributor selling to homebuilders. But when the builder market tanked during the recent recession, he expanded into retail.

Today, his retail sales are four times that of his builder business sales. Yet Rosser says his builder business is “great” and it’s his fastest growing sales segment. “But it’s tricky to do both retail and builder business, so we have split out our builder efforts at our locations.”

Comparing retail to builder business, Rosser says a retail customer makes an average $3,500 purchase maybe once every seven years. “But while a builder may purchase a product averaging only $1,500, those sales over the lifetime of your relationship with that builder can total from between $500,000 to $1 million.

“Plus, in retail with hearth products, you twiddle your fingers all summer while that’s a key season for homebuilders. To do builder business, you have less overhead; you don’t need a showroom or much inventory. You need a warehouse, installers and trucks.” On the builder side of Rosser’s business, he maintains his own installers, while he uses some subcontractors for retail installations.

“Builder business is very attractive, but it’s hard for most retailers to manage,” he says. “The average hearth retailer is better suited to sell to custom and semi-custom homebuilders because spec builders use the cheapest products. On the other hand, sales of $7,000 to $8,000 are not uncommon with higher-end homebuilders.”

Rosser encourages his builders to use his showrooms as their own. “We develop long term relationships with our builders,” he says. “After we ‘educate’ them, we don’t need a lot of communications. They simply tell us what models to install, where and by when. When you tell a retail customer when you will be there, you better be there. But, interestingly, there is more time flexibility with our builders since they are busy juggling their subcontractors.”

While some hearth product manufacturers sell to homebuilders through one-step distributors or even builder-direct, most encourage their retailers to sell to builders. Some even back that up with assistance to their dealers.

“We have robust, professional websites for our Heat & Glo, Heatilator and Majestic brands,” says Jeni Forman, senior vice president of Retail Sales for Hearth & Home Technologies (HHT). “These offer a wealth of architect and designer resources, and also include dealer locators directing builders, architects and designers to our dealers in their area.”

HHT also hosts a bi-annual Summer Event for its dealers and distributors that includes courses focused on the best practices for selling to builders. “We also offer Hearth Expert Professional Builder Sales training, instructing our dealers on how to sell to builders,” she adds.

Napoleon Fireplaces also works with its dealers to help them call on and work with homebuilders, according to John Czerwonka, vice president of Hearth Sales. “Some don’t know how to do this, but builder sales are a great opportunity to remove the seasonality from hearth sales. It may not offer the same margins as retail, but some of our dealers are installing from five to 20 fireplaces a day for homebuilders.”

Two years ago, Napoleon contracted for an extensive consumer study to learn how key home areas and attributes impact homebuyers and their purchase decisions. Called “Hot Spots Research Study,” it identifies the emotional connections that are made with various areas of the home, researches what makes a “hot spot” in a home – whether it’s relaxation, social or functional – and then provides dealers the tools to use that information to close sales with satisfied customers.

Homebuilders also can use that research and its tools to offer more satisfying options to homebuyers. Obviously, much of this research and information is used to sell fireplaces. The “Hot Spots Research Study” and “Hot Spots Design Guide” are available from Napoleon Fireplaces.

Dealing with homebuilders may not be for all hearth products retailers, but they represent a very significant portion of total hearth sales, and an opportunity for hearth dealers who have yet to give that segment a try.

P.S. Oh, and by the way, those new-home owners most likely are also in the market for patio furnishings, outdoor kitchens or barbecues, and perhaps even a hot tub.

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