Three Paths Are Emerging for Builders. For Dealers, All Routes Lead to Opportunities--and Threats
Spend time, as I did, with the futurists and business leaders who populate the construction industry’s spring meetings and it becomes easy to spot housing’s Emerald City in the distance. The problem is finding the Yellow Brick Road to get there.
I came away from those events concluding there won’t be any single path to the future. Instead, I see two new ones developing that will run parallel to the existing track. All three offer their own special implications for dealers.
The first involves the factory. Its poster child is Katerra, but you also can cite modular construction, production practices worldwide, and research projects like Virginia Tech’s FutureHaus among its believers. This group echoes Henry Ford’s model of controlling the entire process; Katerra architects design projects, its sourcing staff commissions private-label goods, Katerra mill hands manufacture cross-laminated timbers, and the company’s factory workers build trusses, wall panels, and even cabinets for delivery on trucks that are carefully loaded to make on-site construction as efficient as possible. The system relies on internalizing a slew of currently disparate functions and then assembling them into a coordinated, cohesive process.
The second is what George Casey of Stockbridge Associates has dubbed the “Super Sub.” Entekra is an example here, but so is the building material dealer that both creates and sells trusses, or that sells and then installs windows and doors. Value-added services like BMC’s Ready-Frame system are another example. Casey envisions a day in which Super Subs might handle multiple tasks in home construction, like providing drywall, painting, and cabinetry, all in one contract.
The third road is the one everyone uses today. Nobody expects it to be abandoned, but forecasts do call for particular groups to leave it as the other two alternatives develop. In general, it appears, the bigger and more standardized your work is, the more likely you’ll change. That’s why Katerra’s first clients are national builders of apartment complexes, and why the company looks likely to move next into student housing and assisted living; they all qualify for the factory approach. And it’s also why production builders are among the first to embrace Super Subs; single-family housing developments are a tad more complicated to build than apartments, but they can benefit from the off-site creation of components.
What are the implications for dealers and distributors?
* Disintermediation. Factory operations can buy direct from the manufacturer. To keep their business, you’ll need to show you ultimately can be cheaper and/or provide a logistics service that they don’t want to handle.
* Reduced Sales. Even if you do sell material to a factory or Super Sub, odds are that business will aim to boost profits in part by using its commodities efficiently. That contrasts with typical single-family framing packages in which you might factor in 10% more lumber than actually is needed because the framers are wasteful on site. If the factory’s wastage rate is 1.5%, then ultimately you’re going to sell less wood.
* Last-Mile Delivery. Entekra doesn’t have trucks or drivers; it farms that work out to independents. If off-site construction becomes the norm, your chief service to the builder might be reduced to hauling panels and trusses to the job site. That could force you into competing with common carriers.
* Material Take-Offs. The same Building Information Modeling (BIM) systems that design a home also can produced lists of materials needed. Depending on how the design process evolves, your role in estimating project requirements—and double-checking that the design actually is sound—could fade away.
* Hybrid Dealer/Manufacturers. LBM operations that already produce components are expanding their capacity and their range of goods offered. You also can expect more bids to buy private truss and panel plants. This contributes to …
* More One-Stop Shops. We have turned in recent years from the decades-long trend toward one-steppers and lumberyards abandoning sales of certain materials. Big dealers like BMC and US LBM aim to be a builder’s single source for all the products that go into the building envelope and a lot of interior stuff as well. Meanwhile, roofing specialist ABC Supply bought drywall expert L&W, Beacon Roofing Supply acquired Allied Building Products, and SRS Distribution created a subsidiary devoted to irrigation and landscaping. Even lumber-centric distributors like Forest City Trading Group say they could see themselves handling other products in the next 20 years.
If you cater mainly to small and custom builders as well as to remodelers, all this might seem to be irrelevant. And with good reason: Your customers are likely to be the last to exit the traditional road. A Home Innovation Research Labs survey last December found that, aside from buying trusses, fewer than 40% of the respondents were likely to start or continue using panels, pre-cut frames, or modular units anytime in the next five years.
At the same time, experts like Margaret Whelan believe enough factors are coming together to make the trend toward off-site construction something you can count on happening. The labor shortage isn’t going to go away anytime soon, components do help a house’s qualities, and new technologies keep advancing our capabilities. Even if some builders never embrace factories or Super Subs, construction is evolving in ways that will change what dealers do.