Simplex Open House

Thursday, December 26, 2013

Maturity, Sunset and Death in Modular Housing....The 6% Solution

Two terms come to mind when talking about the modular housing industry….Mature and Sunset.

A mature industry is defined as a declining sector of an economy or one growing slower than the overall economy. It’s opposite of a growth industry.

As I look around at the modular housing industry this term seems to hit us right between the eyes. There are houses in my town that were standing 50 years before the Civil War battle on my streets. They are still functional and surprisingly they look very similar to homes that have been built recently. A bit smaller than the new ones but they have bedrooms, a living room and dining room. They didn’t have kitchens or bathrooms but they were added later. Your family could move into one of these 200 year old homes and live comfortably.

Innovation is not something that comes to mind when talking about housing. Even the modern prefab has it’s roots in homes that were produced over 50 years ago. Blu Homes with their patented folding house didn’t invent anything that was being produced by other factories decades ago.

The housing industry has been a mature industry for centuries and the modular housing sector, even though a relative newcomer and represents only about 3% of all home starts, is a maturing senior citizen too. Factories have been building modules, putting them on carriers, setting them on foundations for over 50 years and aside from improvements in construction techniques and product selection; they are built the same way they always have been. 

We, as an industry, have forgotten that in order to become more than just an asterisk or footnote to the annual housing report we must begin to find a way to promote ourselves. There is no modular industry marketing plan, no real organized effort to bring all the factories together to bring our homes to the attention of the home buying public and definitely no organization that has been able to congeal us into a force to be reckoned with.

We have the talent to do the job. We have the passion to see it through but we don’t seem to have a plan to do it. The modular home factories are beginning to use social media to promote themselves by putting pictures of homes being set, stories of awards won and letting everyone know about their open house tours. This is not what the prospective new home buyer wants to read. They want pictures of completed homes, stories about how new home owners love their modular homes and articles about green building and the energy savings that modular home are known for.

I rarely see pictures of manufactured (HUD) homes on the assembly line or pictures of house sets on their websites. I do see lots of interior shots of completed kitchens and baths which is what homebuyers want to see. Tract builders almost never have photos of their subcontractors putting on shingles or wiring panel boxes.

We can be a mature industry but it doesn’t mean that we have to sit back and eat oatmeal for breakfast and watch the large site builders turn their back on us. We can run faster than those huge Pulte Homes, Ryan Homes and other tract developers. We can turn quicker than them. We can innovate quicker. So what is stopping us? Too much oatmeal I suspect.

The second term I used is Sunset Industry and is defined as an older industry that continues to be important to an economy but is losing favor with investors due to its steadily falling employment generation, capacity and profits and comparatively higher environmental costs.

Residential housing certainly fits into this category. The big tract builders aside, which control the vast majority of housing today, small builders are in their sunset years. Finding it harder and more expensive to build homes, small residential builders are losing their way. Most of them are close to retirement. Yes, there are young builders showing up and doing great things. Unfortunately there are not enough new builders entering the market as there are builders retiring. And unless they build in disaster areas like the Midwest with its’ major floods and tornados or in the East with the rebuilding of New Jersey or Long Island, NY, these new builders are finding it hard to find buyers.

Many of them have turned to the modular factories for help. What they find in many instances are management staffs and sales reps ill equipped to help them make their business grow and prosper. Factories themselves are in their “sunset years.” Some are selling to larger factories with the result being downsizing and lose of identity. Others have closed their doors, either voluntarily or through bankruptcy. Others have become content to become pure custom builders that encourage sales directly through the factories’ own sales department.

A 3% share of anything is not healthy unless it’s the top 3%. That’s definitely not where modular housing is. It has been stuck in the bottom 3% for as long as anyone can remember. Can you even imagine how many new factories would have to be built, employees hired and builders fighting to join our ranks if we could just take the number to 6% of total home starts?

Imagine for moment that you are a new site builder and decide to give modular housing a try. After meeting with the factory rep and touring the production line, what do factories offer this “new to modular” builder? The answer varies from factory to factory but overall, it’s not much. No marketing plans or business plans are developed, no formal education about pricing or modular construction methods are given by the factories. One of the reasons for this is that a factory doesn’t want to invest a lot of time and money into training a builder only to find that they jumped ship and went to another factory or worse, went back to site building. Another reason given by many factory owners is that they don’t want to held responsible for something the builder does in the field and that is why they only want to supply the assembled materials and not have any connection to helping the builder if a lawsuit arises. This is lame. If a homebuilder, either modular or site built, decides to sue their builder, their lawyer will try to sue everyone involved including the Job Johnny people if they think there’s money to be made in doing it.

The final term that the modular housing side of our industry might want to begin preparing for after “Maturity” and “Sunset” is “Death.”


If we don’t begin to market our industry to the home buying public and home builders, the only customers the factories will have are the commercial developers where every penny is scrutinized and profits are measured with teaspoons. It’s not too late to begin to turn our industry into the 6% solution. All it takes is a couple of people to stand up and say “follow us.”

8 comments:

Anonymous said...

Another great article Coach.
As an insider working in management for a modular factory I see first hand how we work with builders. You are right about the sales reps not being trained to help builders converting to modular construction.
We encourage the sales reps to bring in new builders and get an order but we don't have anyone but the sales rep to help them with costing, marketing or lead generation and we push the reps to bring in new orders from builders, not babysit them.
There simply is not enough money to begin a training program for both our sales reps and the builders.
I really wish we could but we can't and that is why I believe that modular homes will never achieve the 6% you suggest.

Anonymous said...

Thanks for another great article, I totally agree with your premise, and in a recent article you talked about the manufacturers and their ability to get a builder to not only buy their first home but to get them to buy their second or third or more. The reality is that in most cases once the house is delivered, the relationship between the builder and factory almost becomes adversarial, I recently set a large home with a factory who I have not used before and supplied this to a site builder who was willing to try modular for the first time with my assistance. We have several issues which require service from the factory. First the service rep would not return my phone calls, once I finally did get them on the phone after threatening to call every 15 minutes, their answer was they didn't want to talk to me until they had an answer, how about just telling me you don't have an answer, so I have something to tell the client. After I told the service manager that my theory about service in a modular factory was the service depts. are designed to fail, the sad thing was he didn't disagree. Set crews no longer want to have there fees held as part of the invoice because they are tired of chasing modular factories for their money, it goes on and on, if as an industry we keep chasing the key people within the industry away, we will be end up with way below 3% market share

Anonymous said...

Mature and Sunset two words that capture the essence of our plight. No leadership, creativity or marketing being promoted. It appears similiar to the calculator, rotary phone or the typewriter. I might add Pontiac and Studebaker to that list.

Thanks for the analysis

Anonymous said...

Coach,

I think you're talking about us when you say "Others have become content to become pure custom builders that encourage sales directly through the factories’ own sales department."

What's wrong with being content? We have happy customers. Happy Employees. And a healthy business. . . . Am I missing something?

We've found great success in being a "local" builder and working direct with customers. We have a few (excellent) preferred builders, but most of our sales are direct to customer either as "module only" packages or "full turnkey". We're always at the table with our customer (even if a preferred builder is involved). It's a totally transparent process. Everything is on the table.

I think the fundamental flaw of our industry (factories) is that they demand a layer of builders between them and the customer. Why? I've heard plenty of car analogies about Ford and the Dealership but I just don't buy it. We don't sell cars. We build homes. It's an incredibly personal transaction. Why wouldn't the customer talk direct to the factory building their home? Why can't they ask design and pricing questions? Whey can't they have a contract direct with the factory? Why won't the factory complete the home once it's onsite? . . . . Why does the factory need to ship 500 miles (we rarely ship over 100) when 1000's of customers live a lot closer than that?

I honestly believe that the only way our industry will break 3% (FYI, we alone build 2.5% to 4.0% of the new single family homes in our local market) is if the factories start acting a lot more like builders and lot less like sales people.

Just my two cents.

Jason Webster
Huntington Homes, Inc.



Anonymous said...

Except for a modest few, the modular industry is archaic at best. Many hire only a sales person that will work for the least, they come from many different genres and what's worse most of the sales managers don't understand exactly how the home is built either nor could they erect one if their lives depended on it. Or worse yet they have no clue about any of the new regulations from State to State enabling them to pass onto the Builder, Salesperson or Set Crew prudent information. All anyone hears from them is sell, sell, sell.

Well that has worked for years but our builders are now different, they are open to new ideas and changes but they need more, not just (Hey, look at our offerings were the best). And a step further, the builders end client (the homeowner) is wise and intelligent too.
They can read between your lines. When Mr. or Mrs. homeowner calls, pick up the phone and answer, don't hide behind your position.

Anonymous said...

I think Jason gets part of the big picture. The only problem is if you follow his model the only way to do it now is big money. This is the manufactured home model with their own factory stores. Companies the likes of Clayton/OakwoodHomes, Palm Harbor, and Cavco do it on the mobile home side. No one is doing it on the modular home side. Now the real problem, the biggest impediment is building codes, not money, I think there are investors with money that could do it. On the mobile home side there is one building code across the country for ALL states. Once single Federal HUD code makes it easy. With home building, each township, county, and state can have a different version of the current code implemented along with local and very specific deviations.

Anonymous said...

Great article coach.

Product distribution is a huge problem in the modular industry that no one seems to understand and/or be willing to take on. My experience suggests that at its core, the modular industry is run by people with a manufacturing mindset, not a business or even a sales mindset. The vast majority of this industry has become so chained to the past that they are unwilling, unable, or afraid to explore new options.

Jason from Huntington Homes says we have to stop acting like sales people and more like home builders. I would offer a slight variation on his comment. I would say we need to stop acting like manufacturers and start acting like more like home builders.

I am not sure factories should get into the direct sale business. Instead, the modular industry, from factories to builders, has got to start coming together to develop growth strategies. Both groups are going to have to commit resources and trust each other. This will not be for all builders. It will only work for growth oriented entities. I think the days of mom and pop builders is coming to a close. A quick look at other industries that have a manufacturer-independent distribution network business model shows significant consolidation. The manufacturers are requiring the distributors to be bigger, smarter and more sophisticated. In return, the manufacturers are helping the distributors on many levels. I think the manufacturer that figures out how to do this might have a shot at Coach's 6% share.

Anonymous said...

Scathing indictment, Coach but a terrific synopsis! Until private equity ownership (of factories) commits to being part of the solution, including funding to get there, things will remain the same on the manufacturer's side of the equation.