Two of LBM’s leading research and marketing groups are urging manufacturers and dealers to plan now for a 2023 business environment in which how goods are priced will matter more in construction supply than whether the product is available.
The reason for worrying about price isn’t related to worries about a shrinking market or persistent inflation, leaders from The Farnsworth Group and Venveo say. In fact, they argue that sales conditions will be better than many headlines suggest. Rather, they believe price will be a greater challenge than usual because technology has made it much easier to know a product’s cost long before the customer ever visits a dealer or manufacturer.
How this shift to price will affect you varies on how hard it will be to make and stock a product. Lumber is easier to source today, for instance, while windows remain up to six months out, and it can take a year to get appliances. But once that ends, Farnsworth and Venveo researchers believe price will supplant availability as the top concern, if only because price always has been front-of-mind for builders. Even today, with all the shortages, checking prices and price-shopping is the No. 1 reason why home builders and remodelers search online.
“We understand that manufacturers are usually hesitant to list pricing on your website for a wide variety of reasons,” Farnsworth and Venveo wrote in their 2023 Building Products Customer Guide, distributed during their Building Products Customer Insights Workshop, held Oct. 12-13 in Denver. “The harsh reality is that if you are not providing pricing information, then they will look elsewhere, which greatly increases your likelihood of losing the lead and/or sale.”
Even if you don’t want (or can’t) give exact prices on your website, you can help the visitor by using a scale, such as one to four dollar signs, noted Venveo CEO Beth PopNikolov. Then fill the space nearby with touts that go beyond the product’s usual features, such as whether it's in stock and where to find videos showing how to install it.
“It’s not about being cheapest if you can communicate what you get for the higher spend and you deliver the values that customers want,” Farnsworth Group President Grant Farnsworth said.
Demographics drove much of the speakers’ arguments. Seventeen percent of millennials purchase building materials through Amazon, versus 12% of Gen X and 8% of baby boomers. The younger the buyer, the more likely that person will search online, and the more that person will look at reviews before making a decision to buy.
Another big conclusion from the conference is that dealers and manufacturers can expect to stay busy. “Typical build cycles are 1-6 months for remodels, 9-12 months for home builds, and 2-3 years for multifamily and commercial projects,” according to the guide. “Therefore, manufacturers and suppliers may continue to see strong top-line sales deep into 2023.”
Indeed, when asked to rate their 2023 sales outlook on a scale of 1 (weak) to 5 (great), the majority of attendees at the workshop pegged their prospects at 4. Single-family starts are widely forecast to drop, but speakers at the conference predicted a relatively shallow decline, even if mortgage rates are double pre-pandemic levels. "The headlines out there are crazy negative, but when we go out and talk to groups we find they are generally positive," Farnsworth said.
“Mortgage rates don’t need to drop to 5% for things to improve,” said Alex Wheeler of Century Communities, a top 10 production builder. “They just need to stabilize.”
Remodeling expenditures, meanwhile, could run about 6% ahead of this year—a slowdown from 2020-2022, but still a positive number with good potential to grow in 2024. Stephen Kim, an equities analyst of Evercore ISI, figures it will take a year for the millions of people with mortgages below 3% to make a conclusive decision about staying where they are and thus improving where they live. And when they do, those people can draw on $7.6 trillion of equity in their home created just since the pandemic, said Mischa Fisher, Angi’s former chief economist.