Future vision: the year 2030 might seem like a long way off, but market forces are already redefining the building materials supply channel and shaking up the status quo of the entire construction industry

Prosales, Dec, 2005 by Rich Binsacca

Imagine this scenario: A builder in your market is concurrently engaged in a large-scale, single-family subdivision on the outskirts of town, an infill project of urban townhomes, a mixed-use complex on a converted industrial site, and a high-rise condo tower in the center of downtown. The builder's wholly owned truss, panel, and millwork plants, shipping products through a network of wholly owned regional distribution centers, supply the bulk of the company's LBM products, supplemented by national contracts among a limited selection of brand-name appliance, cabinet, roofing, and plumbing manufacturers, all of which is then installed by a legion of payrolled workers.

If this vision appears far-fetched, open your eyes (and mind) a little wider: It's already happening to some extent among the largest home builders, and it will change the entire structure of the building products supply chain and the role of every link within it.

Or not. That's the problem with making predictions or proposing future scenarios for an industry with a long history of evolution than of fast and dramatic upheaval. No one really knows for sure.

Clearly, the signs and statistics support a sea of change in the supply channel, driven by the individual and cumulative impact of continuing and more diverse forms of industry-wide consolidation and integration, the scarcity of traditionally abundant labor and materials resources, the advent of technological solutions to increasingly acute paper-based problems, and the rise and importance of brand development and marketing on consumer purchasing decisions and habits.

The trick, of course, is distinguishing long-term meaning from a passing fad. "Everyone anticipates a dramatic impact from whatever they're pushing as the next great thing," says Michael Dickens, CEO of BuildIQ, a housing industry education and training resource for builders and consumers and a dedicated advocate of more efficient, higher-quality housing. "They have to believe it'll change the industry, but it rarely meets that expectation."

Instead of looking ahead to 2006 and fighting through the current clutter of the latest and greatest solutions that promise to shift the status quo within a calendar year, perhaps a broader view is in order. Let's look ahead a whole quarter-century, to 2030, and consider the cumulative influence of consolidation, scarcity, technology, and branding on the supply channel.

Consolidation and Branding

The largest builders will leverage strong brands to develop national recognition.

Welcome to your Martha Stewart home. Don't laugh; the Living legend is partnering with Los Angeles--based national builder KB Home to offer a private-label series of single-family homes, initially in the builder's Twin Lakes community in Cary, N.C.

Why would a builder get in bed with Martha, or any other brand? Two reasons: Nationally recognized brands sell product and attract investment money, and builders--even those attempting to deliver 100,000 new homes a year by the end of this decade--have yet to achieve that status.

To underscore that dilemma, a 2004 report issued by Interbrand, a global brand consultancy based in New York City, found that 58 percent of consumers are likely to buy from (and twice the number of investors are willing to risk their money on) a strong and positive brand; meanwhile, research conducted by Bloomfield Hills, Mich.-based Pulte Homes, which operates in several hundred communities in dozens of metropolitan markets nationwide, found only 3 percent of home buyers could name a "national" builder, and less than one-third knew the name of the builder from which they'd just purchased a home.

As industry consolidation continues to the point where the top 10 builders will command 40 percent or more of all annual housing starts by 2013 (according to NAHB Economics predictions, among others), twice their current share, they'll be looking to leverage brand names to attract buyers and investors.

It's already happening, of course. "Look at how some builders play up their ranking by J.D. Power & Associates," says Sandra Kulli, president of Kulli Marketing, a housing-focused firm in Malibu, Calif., referring to the annual customer satisfaction survey conducted by the global marketing and information firm. Attaching the J.D. Power brand, she says, "is more recognizable than the [building] company itself."

Another boost to builder brands, albeit a byproduct if not a primary objective, has been the recent popularity and proliferation of home-makeover television shows, led by Extreme Makeover: Home Edition and its estimated 17 million weekly viewers. "They've had an enormous and positive impact on the housing industry" says Kulli, as such shows expose a mass audience to both goodwill efforts and brand-name products used by builders, thus helping nurture strong national reputations.

Dealers are in the same boat as builders, experiencing consolidation that creates ever-larger "national" companies, yet maintaining a dependence on local reputations to compete with independent, homegrown operations. As the future unfolds, dealers can certainly help themselves by stocking and servicing the brands that their big-builder customers (and presumably consumers) recognize and want.