Homebuilder Panel: FloorExpo members discuss the state of new home construction

Interview by Jay Smith, FloorExpo

Last month, Floor Focus asked Jay Smith, president of the FEI Group, parent company of FloorExpo, to host a panel discussion. He reached out to members of the organization, residential flooring contractors with operations in different regions of the country, about developments in the market, including flooring trends, the labor situation and other issues, as well as their confidence level for 2015.

Joining Smith in the discussion were three prominent flooring contractors: from the West Coast, Jim Gunckel, president of Residential Design Services (RDS) based in Anaheim, California; from the Midwest, Mike Benjamin, co-owner of Indianapolis-based Kermans Flooring; and from the East Coast, Steve Wilson, director of Coleman Floor Company, who covers the mid-Atlantic market, the Carolinas and Florida.

Smith: Before starting our discussion on 2015, let’s take a look back at 2014. Nationally, it is clear that the builder market underperformed expectations. What was 2014 like in your market?
Gunckel: The builder market exceeded our projections for 2014 in southern California. With the resurgence in opportunity for first time and move-up buyers, to the investments from international buyers, RDS experienced a busy and successful 2014.

Benjamin: Here in the Indianapolis market we were only up slightly in 2014. It was not quite the year we expected.

Wilson: We serve the builder market across 11 locations from Pennsylvania through South Carolina and Florida, so it varies a bit across individual markets. We were able to grow as we continue to add marketshare in individual markets, but overall, I agree with Mike—the builder market was not what we expected. We opened in Ft. Myers, Florida in 2013, and that market seems to be bouncing back pretty well. Also, apartment new construction and remodel has been a good segment for us in select markets.

Smith: How do you see 2015 shaping up?
Gunckel: RDS is continuing to prepare for growth and looks forward to another vigorous year. We’re looking forward to seeing more available homes on the market, fewer investors and a more traditional homebuyer in California. The builders are responding by offering richer option programs with more packages that allow for customization. That is a welcome development to us.

Benjamin: Well, it’s never easy to read the tea leaves, but in talking with our builder customers we feel 2015 will be similar to 2014.

Wilson: I agree. I’m more confident in 2015 overall. However, I don’t see anything dramatic with starts. We are looking for steady growth. 

Smith: Let’s talk about the different product categories. What trends do you see in hardwood, tile and carpet in the builder market?
Gunckel: The hard surface trend stays strong and will continue for 2015 with hardwood or the hardwood look in demand. Buyers are interested in oil rubbed hardwood in wider planks up to 7”, medium tones, with less distressing. Laminate sales continue to rise as performance advances, costs lower and the digital imagery improves. Tile, which persuasively resembles wood, is also a top seller as homebuyers demand more transitional styles, clean lines and a color palette of whites, greys and taupe. Homebuyers desire patterns as their carpet fashion with anything from loops to bold patterns.

Benjamin: We’ve seen strong growth in wood and tile, especially tile in showers. Let me add that we’ve appreciated the help that FloorExpo has given us in finding the right products for this growth area. For carpet, we’ve seen an overall decline in the yardage per house. We expect this trend to continue.

Wilson: We continue to see increases in the use of hardwood and tile flooring. We’re seeing more of a shift toward the use of 1/2” engineered wood in our markets in the past year.

Smith: Luxury vinyl plank (LVP) is super hot right now in the apartment space. Do you see your builders becoming interested in it?
Benjamin: We’ve seen no increase in the use of LVP in this market. Our LVP usage is flat. Our builders are just not interested. They want wood and tile.

Gunckel: Although LVP has gained popularity, it’s not a huge seller for RDS unless it’s featured in a model home. But as you say, we’re having great success with this product in our multi-family projects, where it has become pretty much the standard in main living spaces such as living rooms, dining rooms and hallways. 

Wilson: LVP is getting some attention, yes, but we haven’t seen a lot of volume with this product up to this point. We still see it primarily in the commercial or apartment market. 

Smith: It has been well documented that quality labor is in short supply. How acute is the shortage in your area and what impact is that having on your business?
Wilson: Labor is a big part of what we offer, and, yes, the challenges are there. We have great leaders who manage our labor force, and we work very hard to be a good partner. It continues to be an ongoing challenge to recruit, maintain and develop our labor force. We want the best, and it’s one of our key differentiators. Finding good tile installers is one of the biggest challenges, based on the intricacies of doing good tile work.

Gunckel: I agree with Steve. Quality labor has always been in short supply, even during the lean years, and we’re doing everything we can to manage through it. As market conditions continue to improve, this will continue to be a challenge for growth. 

Benjamin: Well said, Jim. We also have seen a labor shortage in all flooring categories, but tile seems to be the most acute. The shortage has limited our ability to expand. We’re working it, but it’s a central challenge in construction today.

Smith: What steps are you taking to ensure that you have an adequate supply of quality installation labor?
Gunckel: We’ve started hiring craftsmen with minimal experience, but who show a strong desire to be in the trade. We’re developing a mentor for each new employee accepted for hire and training them ourselves. We still see challenges, however, because of the cycles in our business. This labor challenge is not a problem that is going to go away anytime soon.

Benjamin: We have raised our rates and are actively recruiting installers and trainees.

Smith: Has the labor challenge had a positive impact on your ability to price your goods and services at a reasonable margin level?
Benjamin: I wish. We have not been able to use the labor shortage to expand our margins. Margins are still much tighter than I would like.

Gunckel: Yes, I concur with Mike. We have yet to factor in the labor shortage and turn it into a benefit. Because we do have a very expansive labor force, we continue to meet the demands of our customers without delays, and we’re able to deliver our homes on time. For us labor is not as much a profit center as the product itself. Much of our margins are made through negotiated product pricing. 

Wilson: Labor challenges and selected increases have not created a real competitive pricing advantage. However, our overall quality is a selling point—from quality of install to quality of supervision. 

Smith: Design center activity seems to be picking up. Tell me about your design center and how you are selling and managing upgrade selections. 
Wilson: We have design centers in each of our markets, but use of design centers by our builders varies by market. For instance, we see a much greater percentage of our builder customers using our design centers in the Northeast than we see in the Southeast, Raleigh being an exception. But our designers are great at spending time up front to get to know homebuyers’ styles and interests, so we can target the best upgrades. 

Gunckel: The RDS design center format is expanding to several new locations, such as the Central Coast, with added personnel as support to manage the builder commitment. Additionally, we’ve recently created our own internal systems to increase productivity, changed our sales strategy to address the buyers’ concerns for value, and added training to accommodate the international cultural differences. We’ve added to our sales presentation, utilizing more conceptual displays to assist homebuyers in visualization, including inspirational boards, and iPads to access Pinterest, HGTV and Houzz, and of course the FloorExpo DesignEd platform during the appointment.

Benjamin: We have continual training in our design centers to educate and drive upgrades. We try to place value-added products (upgrade pads, grout additives, tile decos) in the design centers as they benefit the homeowner and increase our margins. When we put better goods in the home, everybody is better off.

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