Overall the show attendance was down noticeably, however, I would say that we had the good fortune to connect with lots of high quality companies that are the highest caliber business operators. These folks are focused on high value for their customers and that sounds alot like what we endeavor to provide everyday at iFLOOR.

As the building industry spun out of control for the last 5-6 years with every increasing housing prices, the costs for each of the building trades also increased. The framers wanted more money, the sheetrock guys wanted more money, the roofers and so on. And the builders would look at those increases and see the “demand” and just raise the price of the house to cover all the increases, plus a nice margin for themselves.

Frankly the prices we have sold at everyday at lower than most builders pay to their vendors. We have a high value proposition based on great prices and incredible people offering service excellence. That value proposition is something that resonates especially well today given the climate of cost cutting in the building industry.

Here are a couple pictures from that show:

I have seen this problem a number of times and I think the guidance provided by the crack staff over there was on the money. Bentley, Tad and Gene make a terrific combination.

The obvious part of the story about feeling let down because the flooring is not unsatisfactory is the main topic, but I think the situation is absolutely exacerbated by one of the things the customer said: $14.00 per foot to upgrade to this from carpet!!!!!

An average consumer 2.5 years ago could have purchased the exact same mannington laminate flooring including installation and all accessories for a price closer $7.00 per foot.

So why is the cost double that? Simple:

Builders in general hate to handle upgrades. They slow things down, they complicate the situation and they increase the likelihood of an error because it is outside the norm.

“Stick with the Spec” is the traditional mentality at most large builders and even commercial builders.

The part I don’t like is the solution to the problem. Customers demand the upgrades so builders are forced to work through the problem; but they solved it by making sure they get paid for it. By the way I totally get that and I understand the added complications and the need to be properly compensated, I just think it is excessive.

It has been very normal for a tract builder to basically double the price from the supplier they are using on the tract. That is a high price to pay for custom upgrades.

On top of the high price for the new flooring the credit allowance for the carpet, which was likely the original spec, is typically less than 50% of the original cost. Therefore they are making money on both sides. I am not positive that is a good deal for the homeowner. The flooring supplier doesn’t get a dime of the original allowance typically.

The other part of the equation is that the flooring supplier is almost always doing the spec part of the project at a low margin and they WANT the upgrades because that is the only place they make a margin. So the price they are charging the builder for that upgrade is already a “full retail” price which means when the builder doubles it the punitive nature of the process is really running at full steam.

And of course the homeowner can not shop it around – the only person that can do the work as part of the construction process is the builders supplier for a number of reasons. The biggest reason is the builder is reasonsible for the jobsite and can’t have just anyone show up there to work. Furthermore the builder is typically in a position to “roll in” the upgrade fees to the mortgage so the $14.00 per foot only feets like $30.00 per month x 30 years. (In other words in addition to getting a bad deal on the floors to begin with and getting virtually no credit for the original spec, you get to pay interest for 30 years on it too.)

btw – the price from iFLOOR on the same stuff that was a $14.00 upgrade with installation would have been closer to $5-$6 about 2 years ago. (so on a 1000 foot job the homeowner paid more than $14,000 – rather than $5000-$6000.)

One of these days I will make a worksheet that illustrates the total economics here, but let me say that it is not alot of value add for alot of extra money.

I would point out that remodeling contractors and custom builders have much more of a normal profit add-on because their building process is custom to begin with.

In closing it is important to understand that some homeowners actually go through the entire building process having the carpet or original flooring put in and take possession of the home AND THEN put in new floors. There is alot of material that goes to waste in that situation, but it is significantly less expensive if the builder won’t be flexible.

I have seen in the past 12 months that builders like Pulte, Centex, Shea, Orleans and others have started allowing customers to use companies like iFLOOR for materials and sometimes installation too. Given the state of the housing market I think it is good for everyone to think about delivering the highest value to the consumer.

The compounding effect of dissatisfaction in the performance of the floor due to the incredibly high upgrade cost is something that is tough to reconcile. Ok enough of my rant.

Anyway for the last 5-8 years there has been a ton of pressure on builders to make sure they continue to grow their businesses. At the very same time subcontractors have been pressured to keep up with massive growth across the country.

I was talking to the COO of a major southwest regional player (1200+ units per year) and he told me a story about price appreciation that came along with the pressures of growing and growing. Basically the story goes, one day he gets a call from his framers. All of his guys are going to walk unless they get something like a 20% raise + a retention bonus because a National Builder (10,000+ homes) made them the same offer. Well losing framers on a massive scale (think 20-30 crews) would be literally a show stopper. After verifying the competitive offer the builder agreed to increase the subcontractors rates to accommodate the higher labor costs.

I was talking to the CEO of a National Builder based in the northeast and he told a similar story about last minute situations where contracts were signed, but the subs basically walked off the job or would be terrible at scheduling until the contracts were increased to meet demand.

Now multiply this by every trade in every region for every builder for 4-5 years.

As each of the above described changes, increases or other price pressures came to light the builder be forced to bear the cost and then in turn would of course just increase the price of the home.

For years that worked.

Today’s situation is the opposite of the above stories. All of the capacity that was built during the boom far exceeds the current demand. Which means the price for services continues to drop which helps keep housing prices level or even in some regions going down lower.

The reason I mention it is because as the leading VALUE player in flooring we have alot of these types of businesses now becoming customers because they need to get more for their money. And happily that is how our business is set up. So for some the builder business seems slow – but for us it is exploding! (before builders were less about VALUE and more about getting someone to complete the job) Today they MUST have value. So in turn they must have iFLOOR.