Pulte Strives to Dominate Home-Building Market

Bloomfield Hills, MI, May 4--Pulte Homes Inc. is already a major player in the home-building industry and a Wall Street darling, according to the Detroit News. Now, under CEO Richard Dugas Jr., the company is looking to become a nationwide power in the order of Wal-Mart, Coca Cola or McDonald's. "We control between 3.0 and 3.5 percent of the home building market, but our goal is to get to 20 percent (in the next 20 years)," Dugas said over lunch recently at Pulte's headquarters in Bloomfield Hills. Such growth may sound ambitious, but Dugas believes the home-building industry will continue to consolidate, mid-level players will be squeezed out and a handful of large companies will dominate the industry. To meet its goal, Pulte is focusing on a few key areas: quality, marketing, R&D, and land grabs. Last year, Pulte garnered top honors in customer satisfaction in 12 of 17 markets surveyed by the ratings firm J.D. Power and Associates. In marketing, Pulte has identified 11 buyer segments. A new target is "active adults," those 55 and older whose children have left the nest. A division called Pulte Home Sciences is studying better, more efficient ways to build homes. And in terms of land grabs, the company is using its financial strength to scoop up prime real estate in areas throughout the country. But the Bloomfield-based builder, founded in 1950 by chairman William J. Pulte in Detroit, faces stiff challenges. Land is scare. Interest rates could rise. Municipalities are eyeing growth suspiciously and home buyers are becoming more choosy. Thirty years ago, builders typically offered a three-bedroom ranch or a four-bedroom colonial. Today's buyers are asking for starter homes, attached or detached condominiums, manor residences along golf courses and mid-rise and high-rise offerings in urban districts. "We want to be the dominate home builder in America, no question," Dugas said. "If you look at the home improvement business, Home Depot and Lowe's are grabbing marketshare at the expense of small hardware stores." At 38, Dugas is the youngest CEO of any company on Forbes magazine's listing of the top 500 U.S. companies. Dugas joined Pulte in 1994 after stints with PepsiCo and Exxon. His job is to take one of America's fastest-growing large companies and help it accelerate. Pulte built 32,700 homes nationally last year, including 1,150 in Metro Detroit. Its net income increased 39 percent in 2003 to $617.3 million, compared to $444.6 million the previous year. Its 2003 total revenues were $9 billion, up from $7.5 billion in 2002. Its stock, up 218 percent over the last 10 years, closed at $49.17 a share Friday on the New York Stock Exchange. Pulte also has been on the prowl for acquisitions. In 2001 Pulte paid $1.8 billion for Phoenix-based Del Webb Corp., the nation's largest developer of retirement communities. Other companies are being considered for acquisition by Pulte, but Dugas declined to identify which ones. The Del Webb purchase was considered a coup by some for the opportunity it provides Pulte to control the richest segment of home buyers -- older consumers looking for a place to retire. Around 40 million U.S. residents today are aged 50 to 70, but by 2020 close to 80 million people will approach or be at retirement age, based on U.S. Census figures. In turn, about 50 percent of active adults pay cash for their new homes. "The active adult market is a key component of our growth," Dugas said. "Communities love them because active adult developments typically don't impact schools, roads or municipal services as much as growing families." The company also has been successful in placing various housing styles in one subdivision. For example, family homes are paired with a pocket of starter homes or attached condominiums targeted toward young professionals and retirees. "In the past, when we came into a community with a large, single-family home community, it was going to impact the schools," said Jim Bagley, president of Pulte Homes of Michigan in Royal Oak, a Pulte division. "But if we bring in a mixture of family homes, condos and starter homes, there won't be as many children in a given community and not as much impact on the schools," he added. The cross-generational communities also are loaded with common amenities, such as walking trails, clubhouses, swimming pools and tennis courts, Bagley said. "People are more pressed for time and if we can offer a great clubhouse, it sometimes makes the difference in closing (a sale)," he added. Perhaps the most striking component of Pulte's growth strategy is a recent trend of building mid-rise and high-rise residences. Growing density in popular urban areas is forcing companies such as Pulte to use steel and concrete to build on smaller lots. "We are looking to do more mid-rise projects where it makes sense, and even high-rise units," Dugas said. "Our strategy is to grow in existing markets as opposed to opening new markets," Dugas added. "There is a greater opportunity for us to grow in our existing markets where we already have the expertise. In new markets, we have to start from scratch."

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