Consolidation Hurdles Because so few companies are in positions similar to Case and Paul Davis, most consolidation in the additions and alterations segment will likely be attempted by either large remodelers buying several smaller companies (as has happened in home building) or an outside investment group doing the same thing, despite the challenges facing newcomers. “There’s too much money in remodeling to give up,” Dwyer says of the latter.
There are some fundamental problems with these strategies. Richardson tells of a group of remodelers who, about 10 years ago, began meeting with the intention of creating systems they could all use in their own businesses, eventually marketing them to other remodelers. After a couple of meetings, however, the group realized that the individual cultures were too different. “We’d have had to reinvent one another’s companies,” Richardson says.
Baker likens buying up remodeling companies and running them under one umbrella to “herding cats.” He says that “if you try to bring a bunch of contractors who are used to being their own bosses under one organization, it’s going to be difficult to get the uniformity you need to be successful.”
On a local level, Dwyer says he’s already seen remodelers buying up their smaller competition for one purpose: labor. Then, regionally, he expects that the bigger remodelers will buy up smaller ones for labor and sales, looking to expand and grow. But nationally? “That’s harder to predict,” he says. Both Richardson and Dwyer point to the Remodeler’s Guild — an unfulfilled attempt to aggregate large, high-end remodeling companies — as an example of the difficulty of this strategy.
Silver Lining It may all sound scary to the smaller remodeler, but consolidation isn’t necessarily a bad thing. “Consolidation would benefit both remodeler and customer,” Turner says. There are a number of reasons why, and they all go straight to the bottom line.
The first reason is one of the biggest challenges facing remodelers today, and one of their biggest expenses, too: workers’ compensation and health insurance. Rates are at record levels, but you can earn discounts by implementing certain safety programs. The problem, says Turner, is that “it’s impractical for a small remodeler to have a safety plan in place that is adequate for a discount. But being part of a larger company with such a program could save $5 to $7 per $100.”
Secondly, being part of a large organization would give small remodelers more clout with manufacturers and distributors. “[Smaller remodelers] could develop efficiencies in buying materials,” Turner says. “Volume buying and direct distribution often aren’t offered to the little guy. They’re paying close to retail, and since the client has a threshold, the remodeler is losing gross profit.”
Being a big dog is also advantageous when a problem arises with an order. If you’re a bigger customer that has a closer, more substantial relationship with the manufacturer, you don’t have to worry about dispute resolution. “If you see something wrong, you can fix it, knowing the manufacturer will back you up,” Turner says.