Home Improvement Businesses Already Hurting

[sdrebear]

Was reading a link from someone elses post about some secondary markets to profit from in the housing bust. It got me thinking about some of my own experience with different suppliers to the housing market and the numbers do strongly support the end of the housing ATM.

I work with an Advertising Agency as a search engine marketer for several major national home improvement franchises (among several other companies). They span from driveway paving, to window coverings, to kitchen remodling, to floor coverings. Basically everything people have been sucking cash out of their homes to buy over the past 5 years with reckless abandon.

I’ve had the ability to track exactly how much demand there is for these types of products and how often this traffic converts into actual business for the client. Without much exageration, I can report that the level of both interest and sales are crashing quickly. While the level of interest is a slower decline, sales conversions have declined quite quickly in the last 5-6 months.

From speaking directly with some of the clients, they have admitted that other online efforts have been declining just as quickly. It would seem that the pain of the slow reduction in “easy” credit along with flattening/dropping equity levels is already hitting these secondary home improvement companies. So far, they have been quite oblivious to the possibility of being hurt by the bubble (or just afraid to admit to themselves that they are truly tied to it). The same marketing efforts that went gangbusters just 9 months ago, are now sputtering along with horrible results.

The real effect of this bust will be VERY widespread indeed.

[lindismith]

Can you give any kind of specific examples? I’m in manufacturing, and witnessing some of the same results (or lack thereof.) I thought it might just be the Dog Days of Summer….

What were conversion rates last 3 months? What are they now?

[sdrebear]

I can’t get too specific about the “who” as all our clients have NDA’s for their results, but I guess I can come up with some general results by category.

Keep in mind these results are for individual companies over time with the same marketing mix in place.
Over the past 6 months lead volume has dropped as follows:

* Flooring is down 70%
* Kitchen Remodeling is down 55%
* Window Treatment is down 23%
* Driveway Paving is down 10%

I wasn’t sure about the summer months either, but actually thought they’d increase some as (nationally) more remodel jobs are completed in the warmer months. However, I don’t have hard evidence for this and I wasn’t on these accounts last summer, so I don’t have direct comparison data to compare to.

There are certainly other factors that contribute to these particular results, but as a whole, things are slowing considerably for our clients.

[powayseller]

What a gem of a post. I think we all must face the recession, and position ourselves accordingly.

Did anyone read my post Sell Now? I wrote so many posts about the cutback in consumer spending, that I’ve lost track. To summarize in one sentence: 70% of GDP is consumer spending, which has been sustained by taking equity out of ever rising home prices since wages have been stagnant, and when housing prices flatten our economy will come to a standstill, and the export oriented Asian economies will suffer as well.

Commodities and global stock markets are dependent on American consumer spending, and both categories will decline.

lindismith, you might like Ahead of the Curve by Joseph Elliott (#1 ranked retail analyst for 18 years, formerly at Goldman Sachs). His website aheadofthecurve-thebook.com updates the book’s charts every few months. He found a few decades ago the business cycle works like this:

wages –> consumer spending measured by PCE–> manufacturing/production –> capital spending –> employment –> wages

Each stage is delayed 0-9 months off the prior stage. Thus, while consumer spending is now slowing, capital spending will remain strong and employment will remain low causing the market analysts to believe the economy is strong whereas it is already weakening.

The stock market prices feed off this loop. PCE, personal consumption expenditure and the other items are measured by year-over-year changes, not the quarter-over-quarter that is reported by the government agencies and in the news. The yoy takes out the noise better.

Market analysts make the mistake of seeing employment numbers and gauging economic health from that, whereas employment is the MOST lagging indicator. If you want to track the future of the manufacturing sector, look at PCE, and wages. By the way, he found that interest rates are correlated with PCE, not predictive. The best predictor is the first indicator: wages. His model does not take into account MEW, so I would include “rising house prices and ability to borrow against it” along with wages. His book provides a road map to where we are going. So does Sell Now by John Talbott.

Elliott’s charts indicate we are heading into a recession.

My friend is a salesman at a high end kitchen appliance store, and he told me it’s been very slow lately. Another friend got laid off his job as a window shutter company manager, and is now cutting hair full time.

It is incumbent that, armed with this knowledge, we position ourselves to remain financially secure, and to help others do the same. That is the part I haven’t figured out yet.

lindismith, how can you position yourself for the recession? Can you sell things which people need regardless of the economy? For example, people will keep buying toothpaste and gas, while cutting back on dining out and home remodeling. Sell your busines while it is at its height, cashing out? Diversify your products? Perhaps your line will be in high demand regardless of the economy? By the way, the 2000-2001 recession was only in capital spending; the consumer kept shopping, so the recession was brief and mild. This next recession will be much worse, because it will be consumer led. Also read The Dollar Crisis if you like that kind of financial stuff. I read it twice, just to make sure I understood it all.

Here’s a link from the bubble blogger section. Right on with the stuff I just wrote about Elliott. I am editing this post to include this from The Big Picture.

[lindismith]

This is great stuff PS. I’ll get that book this weekend. Also, this is just a quick post because I’m literally optimizing our website right now so we can get as many calls as possible in the coming months. (Based on the info I’ve gleaned on this forum, I decided to do a web overhaul last fall, and the site was just completed recently.) Since 90% of my new business comes from the web, it’s imperative we maintain a very strong presence.

I’m convinced some of my competitors will go out of business in the coming months, and so I’ll pick up their business. This has already been happening over the last 3 years (if not longer,) but I only began keeping tabs on them about 3 years ago.

To answer some specific questions – yes, I can sell my evergreen items consistently through a recession, although I’ll sell less of them, so the key is to make sure my phone keeps ringing. On more custom items, it’s actually the same; keep the phone ringing because only a certain % of the calls will turn into business, and in a recession there will simply be less calls and less business.

I just need to make sure my website is always coming up first in search results for the products I sell so I can at least get the calls.

My first job out of college was selling yellow page ad space to small and medium-sized businesses. It was during the recession of the early 90s. The businesses that stayed in business were the ones that ‘ignored’ the recession and kept up with aggressive marketing. (Most businesses are tempted to cut back on marketing to save money, but I saw first hand how that thinking really hurt them in the long run.)

As for my offshore production in China – I suspect the pricing there will get a little more aggressive, because they’ll be scrambling for work too.

The last thing I want to touch on, is most of my labor is Hispanic. Most likely I’ll have lay-offs, causing some of them to return to their families in Mexico. (Yes, they all have green cards, and yes we check their ss #s. If we didn’t our turn-over would be too high.) Yes, even though they are legal, they will leave the US.

[CAwireman]

“..while consumer spending is now slowing, capital spending will remain strong and employment will remain low causing the market analysts to believe the economy is strong whereas it is already weakening.”

PS, did you mean rather “unemployment” ….. as opposed to employment?

Otherwise, thanks for the lesson on financial cycles.

[UP IN ARMS]

My job relates to constuction. Yes it is down major.

[UP IN ARMS]

My job relates to constuction. Yes it is down major.

[powayseller]

Thanks for catching that. Yes, unemployment figures remain low for 9 months – 1 year after the consumer spending weakens, giving the illusion that the economy is strong, while in reality it is weakening. In the same way, when unemployment is high, and stock market prospects are poor, you can look for signs of rising wages or more consumer spending, and know that it is the early part of the next bull cycle.

Up In Arms, how much is it down? Will your job be okay? I hope that we can all regroup to keep our jobs and our financial security during this mess. Our income is dependent on government spendings, so we will be hit eventually.

[powayseller]

Stagnant to flat housing prices shut down the consumer ATM. There will be a 0-18 month lag, but signs are beginning.

Casinos, cruise ships,and retailers are feeling the pinch.

So we will see declining sales and falling stock prices in all businesses which serve consumers. 6-12 months later, we will see declining sales and stock prices in businesses which serve businesses, i.e. production and manufacturing. Next comes capital spending. Layoffs at each level.

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