This is a transcription of my podcast. You can click on Google Play if you’d rather listen than read. You can also subscribe to my podcasts on iTunes.
Hello, this is Mark Mitchell from Whizard Strategy. In this episode of my podcast, I would like to talk about what has changed in the last two years. I finished my book three years ago and since then, I’ve noticed a lot of changes in the building materials industry that can affect building materials manufacturers. I found 11 of them I’d like to share with you.
Hello, this is Mark Mitchell from Whizard Strategy. In this episode of my podcast, I would like to talk about what has changed in the last two years. I finished my book three years ago and since then, I’ve noticed a lot of changes in the building materials industry that can affect building materials manufacturers. I found 11 of them I’d like to share with you.
1. Building Product Disruption
The first change and they’re all big but the really big one to me is the amount of disruption that is going on in the building materials industry, and it can be disruption with a product, and it also can be disruption with how products are sold and distributed.
The first example that we’re all probably familiar with is Nest Thermostats. So here’s a guy that designed or had something to do with designing the iPad and he leaves Apple. He decides he wants to invent his own product, and he looks at different categories, and he says, “Gee, the building materials industry is pretty much asleep at the switch. I think I’ll invent something in building materials because that would be a lot easier to succeed than if I were here in Silicon Valley trying to invent some new computer program or a piece of hardware.”
So he does his research, and he develops the Nest Thermostat. So here’s the product now that cost twice as much as another thermostat. It is sold in Apple Stores and other places that you don’t expect to see a thermostat, and it bypasses the normal distribution channel. It bypasses the HVAC contractor in which the HVAC contractor gets contacted about coming to install it. He isn’t making a recommendation. His voice isn’t heard.
So, there’s a big disruption right there. And then you start to look in the area of just the whole area of home automation and security and so forth in which there’s all kinds of easy to hook up cameras and of security systems that are happening and then we have Elon Musk who invented the Tesla car now getting into generators for homes and then all the different ways of distributing products where we’re continuing to see more things online where people are finding out information as well as ordering products.
So, the first area that I’ve really noticed is disruption, and I think you’re just going to see this grow exponentially. It’s just going to grow faster and bigger, and whatever product you manufacture, you should assume there’s somebody there trying to make you irrelevant with a new idea about how to develop a product that does the job that your product does better.
2. Building Materials Sales Moving Online
I mentioned earlier about the shift online and that’s the other next big disruption I see is how rapidly we’re shifting online. First of all for when you look at the research for how much people now go online to get their information, not just from the manufacturer but they get information from, if you will, media personalities, blogs, just people reviewing things, they’re sharing their experiences and then how you can literally buy anything on Amazon today.
Many manufacturers I work with will say, well, our products are not available online and then I show them that they are available on Amazon and they wonder how could that be, we don’t sell to Amazon, and I showed them how there’s an industrious, innovative dealer they have who just decided to start selling the products on Amazon and it’s pretty amazing sometimes that people ordering 4×8 foot sheets of building panels to be shipped. Somehow this makes no sense, but they’re doing it.
And then you see Home Depot and Lowe’s trying to grow the area of online sales as fast as they can because I think they look at Amazon and go, “uh, oh, we better get on with this” and then Angie’s List and other review sites that are telling you and recommending one contractor versus another as well as they’ll start to get into products and house and altogether online thing. So, this whole area of online is also something that has changed in the last two years since I wrote my book and it is also exponentially growing.
3. Consolidation in Building Materials
The third change that I’ve seen is just the continuing consolidation in the business. Your bigger customers are just getting bigger when you look at like ABC or Beacon Roofing acquiring smaller people. You see large builders acquiring other builders. You see window companies like Pella acquiring other window companies. You see Knauf insulation acquiring Guardian Insulation. You see Builders FirstSource. You see BMC.
All these people are growing not just organically, but they’re growing through acquisitions and mergers, and that means fewer bigger customers who on one hand can be good because fewer people to see. On the other hand, though, as they get bigger, they get more sophisticated. They get to be a tougher customer that the building material manufacturer needs to be prepared to deal with their level of sophistication.
4. Green Building Materials
The next change that I’ve seen that has happened has just been the continuing growth of and interest in green and the change in building codes because of the interest in green. And so, it gets a lot of press, but it still seems like a small segment of the market to many manufacturers, but it’s important, and it’s growing, and these people are very vocal.
If they believe in your product, they’re going to tell people about it, and heaven forbid if they don’t like your product or the ingredient that’s in the product, they’re going to also communicate that. So, it continues to be important to pay attention to your green message.
Every company has to have a green story today. It’s also about how you operate as a business that these people look at. It isn’t just I make insulation that saves energy, so I am a green company. Now, it’s how your company operates. It’s where you source the materials from and how green is the factory that you make things in. All of those things now are part of the total package.
5. Wall Street Landlords
The next area that has changed and this was a surprise to me that just kind of came out of the blue in the last few years and that was what I call the bulk ownership of rental housing.
In the past, it was literally not feasible to talk to landlords of single family homes. A guy might own eight of them or 12 of them, and maybe 20 and in terms of dealing with that person in terms of their maintenance needs, it wasn’t very practical but in the last two years, you’ve seen now some large investment group like Blackstone who was a big investment company decided that owning rental homes, not to flip them, but to be a landlord would be a good use of their money and they bought I think 44,000 homes in 14 markets that they are now renting to people.
So now I’m looking saying “gee” that’s 44,000 homes that need new roofs, windows, they need… broken toilets whatever. Every time that the tenant moves out, new tenant moves in, there’re some updates that need to be made. Every so many years, a roof needs to be replaced.
I think this is a great new opportunity for building material manufacturers to identify those facilities managers who maybe a national facilities manager or maybe like in the case of Blackstone if they have 14 markets with 44,000 homes, there’s probably a person in each of those 14 markets that’s the guy. I would be going after them.
I think the total I read is somewhere now over 100,000 single family homes are owned in bulk by investment companies, and I don’t see anybody going after these, so that says to me, “gee” there’s an opportunity where I’m not going to be one of three manufacturers competing for this business.
6. Inbound Marketing
The next area that I’ve seen grow or changed in the last two years has been the growth of inbound marketing, marketing automation, more sophisticated use of Salesforce and so forth but not just picking up the phone and calling people but pulling people whether it’s consumers, whether it’s contractors, builders, architects pulling people into you with the realization that they’re going online looking for things or once you have a relationship with them, to keep that relationship alive through things like email, newsletters, blog posts and things like that and this area continues to grow.
The companies that are involved in this are going to be way ahead of companies that don’t get involved soon and have to play catch up. And so, that’s another big area that I’ve seen grow in the last two years is inbound marketing or marketing automation.
7. Panelized Construction
The other one that has happened is the emergence in commercial construction of panelized construction. So in China, they built a 57-story building in 19 days. In New York City, in Brooklyn, they are building a high rise apartment in a similar way. And so what this… how these are built is they buy the land, they design the building and then close to the land, they literally build a little factory to build the rooms of the house much like a cruise ship is assembled and so they build if it’s an office building, they build conference room, they build bathrooms, and they build offices.
If it’s an apartment, they could build either the individual rooms or they could build literally here’s a one bedroom apartment basically ready to go. They put it on a flatbed truck, they drive it to the job site; a crane picks it up, and they bolt it in place. The electrical, the plumbing, and everything is there.
And so that’s a whole different way and that architect, that contractor has a different set of needs. It’s a small market, but it’s growing and especially when you look at the time value of money, this is very attractive. So if I were a manufacturer, I would be learning about this and see how you could be one of the companies that’s known to really support this panelized type of construction.
8. Growth of Design Build
Speaking of the speed of construction, the other market that continues to grow is the design-build market particularly in commercial construction compared to traditional architectural specification. Most manufacturers I talked to, in commercial, they continue to talk about calling on architects, doing lunch and learns, having CEU presentations and 50% of buildings today are built following the design-build process in which there’s an architect still involved, but the general contractor is now driving it.
And I don’t see building material manufacturers have awoken up to this and proceeding after this market. Now if you look at any general contractor that you will find in North America, you will find that five years ago they all added the word design-build to their logos, and they all added the word design-build to their advertising, to their websites yet it is really hard to find a building material manufacturer that has a button on their website that says design-build.
They have one that says architects, but you won’t find one that says design-build. I think that’s a real big opportunity that has popped up in the last couple of years that amazes me how few building material manufacturers have realized this, and it’s not just small contractors.
I mean Turner Construction, you go to their website. They have a section on design-build. They’ve built football stadiums and large hotels and all kinds of buildings following the design-build process. It’s not just a strip mall or small buildings as it was in the past.
9. Shorter Life of Buildings
The next one that surprised me is the shorter life of a building. I think what caught my attention was I read about a high rise apartment building being built in Manhattan, and they literally put in there the description of it that they had a projected life of 20 years. So here’s a person building and I don’t know if it was 30 or 40 stories but they’re planning that in 20 years that will be the end of the life of that building and I’m sure it’s based on the fact that they project in that period of time that there will be a better use for that land.
Maybe, they’ll build an 80-story building. Maybe, they’ll build a different type of structure. And then it got me to thinking about people who build things like strip malls. They could have probably not a long life span in their mind because they’re probably thinking at some point, there’s going to be a better more valuable use for this land.
And then I thought about fast food restaurants, convenience stores, and things like that. When you think about the average McDonald’s, it probably has a life of about 10 years before they either do a major remodel or tear it down and rebuild it and they do that either for branding or they do it because their research has shown if it’s laid out in a different format, sales will go up and I see this disconnect where so many manufacturers are talking about longer warranty.
So, that’s what they think that market is looking for is 30, 40, or 50-year warranties when there’s this another part of the market that isn’t looking for longer warranties. And I wonder, is there an opportunity for innovation there for a manufacturer to say we have a roof that will warranty for 10 years and it cost less because it’s only a 10-year warranty or windows or doors or HVAC and so forth that that seems to me to be another opportunity that has changed, and I think fast food and strip malls have been there for a long time, but when I saw this high rise apartment being built in New York City and in 20 years, they’re planning on that’s the end of the building, I went wow, something is changing here.
10. Installed Services
Another thing that has happened in the last couple of years is the continuing growth of installed services where you’re saying not just, “I want a new deck so I’m going to call a contractor.” Now, you see people like Lowe’s saying, come in and we’ll help you design and install a deck and they’re hiring contractors to do it for them or you see people like Champion Home Improvement doing more and more installed services.
So, you could see growth here of installed services and I think Amazon is starting to get into it and you’re going to see more of this and that makes me wonder about the role of the manufacturer and the role of the brand, do they become less important when other people are in charge of selling the project?
I would pay close attention to this if I were particularly in residential home improvements, watch installed services and just keep an eye on that and see if it’s going to be an opportunity or a threat.
11. Here Come the Europeans
And then the last change I’ve seen in the last couple of years is what I’m going to call… here come the Europeans and they’ve been coming, I just see more of them coming.
When I go to trade shows, I will see a lot of Asian particularly Chinese companies that have a display. They’ve been there forever. When I talk to them, they really don’t have anything to say. Their whole message seems to be, “I can make this cheaper then you can buy it today” and that seems to be the extent of their message but I’m seeing more and more it seems like European companies coming here to break into the North American market.
Now some of them are doing it intelligently and some of them are doing it not so smart but they keep coming and coming in my opinion and so it depends on what category you are in, you may start to see more competition from European companies.
And I always feel like European companies are more worldly than American companies who don’t pay as much attention globally as they should. So, it seems more and more European companies are coming. They don’t tend to necessarily understand the market and they don’t have good necessarily distribution or service. They just tend to have a product that is noticeably different than their American competitor. So, that was the 11th change that I’ve noticed in the last two years.
So, I hope this has been helpful for you to stop a minute and think about what is changing and how will it affect you and how can you be part of the change so that you’re on top of the opportunity instead of waking up one day and every day, you’re becoming less relevant. So, thanks again. I will look forward to talking to our next episode and if you’d like to grow your building material sales, feel free to contact me.
Subscribe To My Newsletter
If you like what I say, sign up for my newsletter here and get my weekly newsletter every Sunday night.
Thanks for the following comments. I’d like to hear your feedback and suggestions on how to sell architects.
“Love this!”
Andrew Lippman
Director, International Marketing
Lutron Electronics
