It’s no secret that the residential construction market has been in the septic tank for the last few years, and especially the last two, with annual spending plummeting a staggering 34 percent in 2008 and then another 40 percent in 2009; the gravity of the situation has varied by region, but the Seattle/Tacoma area in Washington seems to have weathered this resi-tsunami better than most. The two cities, according to Moody’s Economy.com, have both maintained positions among the top five metropolitan home price markets in the nation, with Tacoma ranked first and Seattle fifth.
While electrical contractors there have suffered their share in this economy, they have also managed to put together an array of fallback strategies that continue to work. These include taking advantage of community stimulus-related energy-efficiency programs, expanding low-voltage installation capabilities, getting into insurance-related work, and that oldest of business battle plans—following the money and doing what they do best.
How bad could it get?
Even in this relatively fortunate enclave, it was clear that lack of financing was the core issue in the residential market, and contractors had to find out where the money was and what they could do to share in what was available.
“Our residential work wasn’t off that much in 2008, but last year, it was down drastically,” said Tom Boyle, president of CES Electric Corp. in Seattle. “Typically, we would get 15 to 18 calls a week for remodeling, but that dropped to one every three weeks in the first six months of 2009.”
Then, Boyle heard about an organization called SustainableWorks, a community-based nonprofit group focused on helping home and small commercial building owners to retrofit their properties to reduce energy use. The group, which has chapters in a number of states, coordinates available funding from the federal government, municipalities and utilities and puts together teams of qualified tradesmen and installers for the retrofit projects.
“The first step in the process is conducting property audits,” Boyle said. “We put our people through two weeks of training on doing the audits, which usually take four hours each. We cover everything electrical and work closely with the utilities, which provide the marketing materials we use. Generally, the utility programs focus on changing out lamps, ballasts and fixtures for more energy-efficient products.”
Unfortunately, Boyle said, many electrical contractors mistakenly believe these programs are only for the commercial sector, but they are not.
“Becoming involved in this work has definitely helped pick up some of the slack in our residential business, and I would advise contractors to investigate the potential of joining local or regional nonprofit alliances involved in this kind of work,” Boyle said.
Low-voltage, high profile
When times are tough, making it easy for the customer goes a long way toward getting his or her attention and business.
At Birch Electric in Lakebay near Tacoma, company president Kevin Canavan saw residential business drop off 50 percent, and instead of having the usual 55 residential electricians in the field, he had only six.
“We had to diversify into other aspects of residential work, not just roughing in cookie-cutter houses,” he said. “We put our people through new IBEW courses so that they were licensed to do low-voltage work as well. There’s a lot more going on in a home than plugs and lights and 200-amp panels, especially today with all the new sophisticated electronic equipment that keeps coming on the market and that people want.”
Canavan said that this diversification effort has had the additional benefit of providing the company with a new image and a highly useful marketing tool.
“Being able to offer a spectrum of capabilities and services as a one-stop shop is a big selling point,” he said. “We let customers know that our guys can take on any kind of job and that the commercial side of our company that does a lot of design/build work can support the residential side on virtually any kind of project.”
Having a well-trained, knowledgeable work force is especially critical these days, Canavan said, because this allows the workers to function as marketing personnel in the field and to identify potential add-on business possibilities when they see them.
Birch electricians regularly conduct walk-through home evaluations, discussing energy-efficiency retrofits instead of those based on budget, explaining load calculations in terms the home owner can understand, and doing this in the practical context of estimated electricity bill expectations. Each electrician carries a cell phone and is encouraged to call the home office on the spot to get immediate answers to customer queries.
Madsen Electric in Tacoma is another firm that has recognized the value of branching into low-voltage work.
“We started a low-voltage department that does security, sound and related work, and this has picked up noticeably, helping to offset some of our residential drop-off,” said Rocky Sharp, Madsen Electric president.
Another area that the company has focused on more lately is the installation of generators.
“We’ve done this kind of work before, but we’re concentrating on it currently because customers seem more amenable and interested in the concept,” Sharp said. “Our service territory covers a lot of the more rural areas where power outages are more common, and when you lose power, there typically you lose it for several days. People respond to the argument that this is an investment in preventive maintenance and are willing to put a $3,000 to $5,000 generator into a moderate-sized house.”
An additional source of nontraditional business income for Madsen has come from insurance-related projects. The company has been partnering with general and other contractors who operate as teams to do reconstruction and repair work after residential properties have incurred fire or water damage.
An important aspect of this kind of work is that it is immediate in nature. The customer is anxious to have the repairs completed, and the insurance coverage is an established fact.
Following the money
Regardless of how difficult the times may be, there are still customers out there who have money to spend if there’s something they really want, and contractors who can supply those needs stand to profit handsomely.
“With residential business off 50 percent in the last two years and little capital available, you have to find a niche where there still is some disposable income,” said Jerome Geissler, president of City Electric Inc., Tacoma. “One opportunity for us has been in custom work. Typically, these are smaller complexes of a dozen or so custom-built homes in an enclave. We have supplemented this with multifamily, apartment, condominium and larger mixed-use projects that we can utilize our residential electricians on.”
Custom residential work has also been a mainstay for Bowie Electric Service & Supplies in Seattle, according to its president, Blake Hoefer.
“We didn’t suffer too much of a decline because our residential market work is probably 90 percent remodel work, and the new houses we do are almost always custom, which are usually pretty high-end,” he said. “We’re also fortunate in that we have a large and diverse customer base and have been in the same community for 100 years, so we have a well-known and respected brand name. Probably half of our business is not with general contractors but directly with homeowners who know our reputation.”
A number of contractors agree that the amount of discretionary spending being done on luxury additions and major upgrades on homes is sometimes surprising.
“Our electricians have been doing a fair amount of work on the installation of pools, hot tubs, wells, generators and solar systems,” Birch Electric’s Canavan said. “This kind of opportunity is still out there if you look for it.”
This has worked for Madsen Electric as well, and Sharp said that approximately 10 percent of the firm’s residential work is in high-priced sound and home theater work and in the less expensive security area.
The conventional wisdom is that a number of factors are in place for a modest 8 percent uptick in the residential construction market this year; the housing supply is balancing with the number of people ready and able to buy, and real estate prices are becoming more affordable.
But electrical contractors still have to be wary, even with better days allegedly in sight, and should be realistic in terms of the probable nature and extent of the recovery.
“I don’t believe we will ever return to the extremely high level of residential construction we enjoyed in the past,” Geissler said. “There will be a more moderate, common sense pace of recovery, much lower key than in cycles of the past.”
Bowie Electric’s Hoefer cautions about the dangers of diversifying, especially in these times of change: “Stick to what you know, and don’t start trying to be something you are not. Contractors who have always done new construction, for example, often have problems when they try to do service work or remodeling.”
That having been said, the fact remains that as the slow recovery begins, contractors have to be constantly vigilant about new opportunities and be prepared to make the investments in time and training required to take advantage of them.
“Especially in times like these,” Canavan said, “contractors should be looking at everything under the roof and trying to figure out what kind of additional value and service they can provide to the customer.”
QUINN reports on a broad range of business and industry issues for journals in the United States and Europe. He can be reached at 203.323.9850 and firstname.lastname@example.org.