Building materials companies frequently focus on the big picture such as housing starts or commercial construction being up or down. To be more effective with your sales and marketing efforts you need to look a little deeper into what is really going on.
I’m not a fan of getting lost in data but if you look just under the surface you will uncover nuances that can help you be more effective than your competitors. As always more effective means making your customer more successful.
Here’s an example of a nuance.
Home sales this quarter have our jaws dropping and our minds filled with pleasant surprise. KB Home is up nearly 15%. Lennar Corp increased orders 23% this quarter. These numbers give us a new found optimism in the housing market. But can we really trust what we are being told? Kris Hudson wrote an article for the Wall Street Journal recently, shining light on the truth about the market.
As it turns out, what looks like gains in the housing market may not be reality. Recall the tale of 2013. While home sales were strong and steady in the first six months, the market took a turn for the worst come July. Interest rates rose one-percentage point and home builders watched their customer base dwindle. With low benchmarks to beat from last year, it is easy for companies to boast about their increase in sales this quarter.
The market flop a year ago at this time isn’t the only factor giving rise to building companies’ illusive numbers. The Wall Street Journal uses an ideal analogy for the situation. Take a retail store – let’s say Target. Imagine Target opens new stores in locations lacking a Target or a Target equivalent. While sales remain stagnant at their existing locations, Target is bringing in additional revenue from these new stores. In today’s housing market, builders are posting gains in sales because they are opening new residential developments rather than selling more homes in the communities they have built in the past.
These home builders are spreading themselves wide, but not deep. I don’t mean to be too pessimistic here. The increase in home sales is real, but it just may not be as extreme as it seems. Chief Executive John Johnson of KB Home says that in the past month, even though the traffic didn’t pick up, “people just decided to buy rather than browse”.
Building material manufacturers who look a little deeper will have a better understanding of the market and make smarter decisions.
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