Spokane Journal of Business

Housing-slump ripples far reaching

Suppliers to home builders look to other clients, retail to stay afloat

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Businesses here that supply goods and services to the home construction market say as home building slows, theyre looking to other markets within the construction industry to help sustain them during the downturn.

Commercial construction, remodeling projects, and retail sales are buoying Spokane-area companies that supply heating and air conditioning systems, flooring, appliances, and furniture, among others, but landscapers and nurseries have been hit especially hard.

The combination of a long winter, rising fuel prices, and a softening economy resulted in slow sales at the start of this year, and while business perked up when the weather improved, businesses that have been hurt by the new-home construction market slowdown say they expect that sales to that market will remain sluggish until the latter part of 2009.

They say theyre comforted, though, that theyre faring better than their counterparts in other U.S. metropolitan areas.

We all saw it coming, Randy Hastings, president of Spokane-based R&R Heating & Air Conditioning Inc., says of the housing slowdown. We put money away and have built up our advertising for retrofits so we can market toward that, and were also being more aggressive on the commercial side.

Hastings adds, Now, well just buckle down and hang on for the ride.

Revenue from new-home projects is down 37 percent so far this year at R&R, Hastings says. Its retrofit, replacement, and add-on air conditioning business, however, is up from last year, which Hastings says is fairly typical when new-home construction slows.

Within the companys new construction jobs, business is stronger for custom home projects and homes priced above $400,000, while work on homes priced below $300,000 have slowed significantly, he says.

The smart builders are putting the brakes on, he says.

R&R has about 55 employees, which is 10 fewer than it had a year ago, and Hastings hopes to stay at the current level. He says demand peaked in 2006, and he hasnt seen business this slow since 2000. In addition to the cooling housing market and rising gas prices, election years like 2008 also typically cause a decrease in demand, he says.

Hastings says he expects that sales will pick up again next year, although not to the levels of 2006 and 2007.

Everybody is doom and gloom about the economy, but the Spokane market has always been a little bit different, he says. Were doing better than other places. Go check out California or Arizona if you want to see where its really bad.

John Spring, owner of Spokane-based United Floor Covering Inc., says the companys high-end home business is very strong, and as a result its doing considerably more work with hard surfaces such as stone, tile, and hardwoods, while sales of less-pricey products such as carpeting for homes priced between $200,000 and $300,000 have dipped.

He says the company was backlogged with work on homes in that price range in 2006 and early 2007, when some builders were constructing more than 100 homes a year, but demand started dropping off last fall, and now the builders he works with are developing less than 60 homes annually.

It started in September, when all of a sudden my builders went, Whoa, we have inventory, and they finished up what they had and then pulled the plugs and stopped putting in foundations, Spring says.

Since that section of the market has slowed down, United Floor Covering has focused more on commercial work than it did before, and its remodeling business has picked up, he says. Still, the companys revenues are down 10 percent so far this year, he says.

Mike Dobson, co-owner of Carpet One stores on the North Side and in Spokane Valley, says he, too, started seeing a dip in new-home starts last fall. While home-building activity has slowed, he says retailers here also have been hurt by consumers fears about the economy.

People are listening to all the bad news out there nationally, and thats been affecting the Spokane market more so than in the past during national downturns, Dobson asserts.

In the face of sagging business from home builders, Carpet One has had to focus more effort on retail sales and on expanding its client base, he says. One benefit of retail sales versus builder sales is that the ticket prices for items generally are higher for the former, he says.

So far, the companys strategy has helped sustain it during the downturn, and its hitting the same revenue levels this year that it reached last year, he says. Dobson expects that building activity will pick up again in the second quarter of next year.

Troy Varness, general manager at Freds Appliance Inc., says that the companys sales are up compared with last year, although sales of appliances to builders for homes priced between $300,000 and $600,000 have slowed.

Were hearing from our builders that the presold, build-to-suit homes are doing okay; its the spec homes that are hurting everybody, Varness says.

He says the long winter hurt sales more than the softening housing market, and demand started picking up in April and has increased steadily since then.

To help offset the decline in builder sales this year, Freds Appliance has been trying to develop new markets by establishing relationships with builders in towns north of Spokane and in North Idaho and Central Washington. Varness expects to see the companys builder business pick up as a result of that strategy by the end of this year and into 2009.

Hopefully, consumer confidence comes up a little bit, because Spokane is weathering it a lot better than others in my buying group who do business in Arizona, Nevada, Southern California, and even Portland, he says.

Varness adds, Really, 2005 and 2006 were unrealistic. It was too much growth too fast and there were too many builders in the market. The market needed to make an adjustment; it has, and we can move forward now.

John Case, president of South Regal Lumber Yard Inc., says the long winter hurt sales, but since the weather has improved, the company has seen a steady stream of customers.

Its work with do-it-yourselfers and remodeling contractors started picking up this year, so its volumes havent missed the mark too badly from what they were at this time last year, he says. The dollar volume of sales is down, though, because the prices of some building materials, such as wafer board and dimension lumber, have fallen by between 10 percent and 25 percent compared with a year and a half ago, he says.

Its all about supply and demand, Case says. Less demand brings the price down.

Keith Walker, manager at the Dania furniture store downtown, says sales have started to pick up recently at Dania after a slow start earlier this year.

He expects the store will at least match last years revenues, and says its relying on its strong base of returning customers, including real estate agents whom it works with to stage homes, to sustain its sales levels.

January and February were a nightmare for us, because of the bad weather, Walker says. Im not saying Im thrilled with the way the economy is going right now, but all things considered, Spokane has been good to us.

Although competition is heated among furniture retailers and some here have folded, Walker says he expects the dealers that have survived so far will be able to outlast the current economic conditions.

My gut feeling is that the businesses that are here right now have tightened the belt so that they have the capital to make it through these soft times, he says.

The housing slowdown and the long winter have been particularly tough on landscaping and nursery businesses, says Jay Penick, president and CEO of Spokane-based Northwest Farm Credit Services. Builders that still are developing homes arent spending as much time and money on landscaping as they did when the market was bubbling, and are either buying fewer plants or lower quality, less expensive ones, he says.

Its a significant reduction in market potential for nurseries, Penick says. The number of new homes has been reduced and thats having a major impact, and consumers are struggling, so theyre cutting back on what they do in their yards.

Cody Keeley, owner of Spokane-based Alpine Ridge Landscape Construction LLC, says business started to slow down really fast this year after peaking in 2007. He says hes hoping demand will pick up in 2009, because at this point hes not holding out much hope it will improve this year.

The phones just been dead, both in terms of the existing and the new homes, Keeley says. The extra months of winter we had didnt help matters, but the economy is whats really hurting us.

Representatives at Spokane nurseries such as Mels Floral & Gifts and Ritters Florist & Nursery couldnt be reached for comment.

Contact Emily Proffitt at (509) 344-1265 or via e-mail at emilyp@spokanejournal.com.

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