During a question and answer session at a recent industry conference, a home builder asked Moody’s Analytics chief economist Mark Zandi for his thoughts about the labor
Housing's Retail King
Houston-based builder David Weekley is housing's top dog in retailing.
In Houston, Weekley's 17,000-square-foot New Home Center houses three different retail business.
Just as in all retail stores, products must compete for display space by generating sales.
Design Center occupies 4,5000 square feet of the New Home Center's 17,000 square feet.
Houston-based builder David Weekley is housing's top dog in retailing. Always a flashy marketer, Weekley has been playing the design center game more intensely than anyone, while growing his company to the No. 22 ranked builder - with $948.6 million in 2003 revenue on 3,549 closings.
When other builders were feeling their way into design centers in low-cost warehouses or hard-to-find business parks, Weekley jumped into retailing with both feet - opening a 17,000 square-foot location on a Houston freeway in 1998, with three fully merchandised model homes behind it for added kick. Today, Weekley's 45,000 square-foot New Home Center (NHC) in the Dallas suburb of Carrollton is the industry's most impressive retail location. It sells much more than options and upgrades.
"One of the things we do differently is to put our centers on major traffic routes," Weekley says. "We want high visibility. But when we take on that level of investment in the site, we really have no choice but to find every way possible to use that facility to enhance sales."
Not Just Options and Upgrades
According to Weekley, his NHCs can't make it "merely upgrading the selections experience of buyers. We also use them as centralized sales locations, directing traffic to 50 communities around town. When shoppers visit a New Home Center before going to a community, our chance of closing them doubles.
"Then we add a third role, as the sales center for our on-your-lot operation," he continues. "The model homes out back are toward that end. They're larger, especially in footprint, than the homes we sell in subdivisions."
Sales prospects often go into the design center portion of the NHC to watch buyers going through their selections process, says Weekley. "They get excited about the finishes and level of options we provide. All three functions work synergistically."
Weekley cautions that a builder's approach to retail stores must align with the company's business model. "Ours has always called for presenting lots of options and the opportunity to make changes," he says. "If your model is to limit changes for the sake of value, a design center could create more problems than it solves."
In fact, Weekley's company is now in the midst of a debate as to whether its affordable housing affiliate - Imagination Homes By David Weekley - should channel buyers through the NHC design centers. "Houston does, Dallas does not," he says.
High Sales Volume Required
Weekley also cautions that a builder needs a very high sales volume in a market before taking the high-profile approach he favors in Texas. "You need to sell 500 to 800 houses a year to do what we do in Houston and Dallas. It's a risk. We own the land and the buildings, but we're writing them off very quickly - five years on the buildings. So we could sell them if we needed to. In our other divisions, we take a more conservative approach."
In Tampa, Fla., where Weekley recently topped 250 sales a year, the NHC is in an office park, without the dramatic window on a freeway. In Austin, Texas, the NHC has one model home rather than three.
Even with his multi-tasking approach, Weekley admits the most important reason to have a retail location is to control the option and upgrade process. "If buyers make a lot of selections, it makes sense to centralize the change-order process and pricing," he says. "But we quickly learned this is also a sales advantage."
How Weekley Works It
In Houston, the design center takes up about 4,500 square feet of a 17,000 square-foot NHC. When buyers sign a contract, they get a selection packet that shows what's included as standard at their community. "Their first visit to the design center is just to preview the upgrades available. Later, they get two meetings with a degreed design professional," says Rick Moore, Houston area president. "Each meeting is a couple of hours. By the end, the buyers have been through the house from front to back, picking out all the floor coverings, wall finishes, plumbing and lighting fixtures - every choice we offer."
The Houston NHC pulls in about 50 units a week in drive-by traffic, Moore says. "We also encourage our salespeople in the communities to send their 'wafflers' to the design center. It gives us a point of differentiation."
Weekley pays the design consultants a salary plus commission, with the average income falling between $60,000 and $65,000 a year. The Houston design center has six on staff. The most important metrics: total option sales and customer satisfaction.
Moore says option sales have doubled since the design center came into existence but points out another, more subtle change. "We now have so many options that our buyers use up their budgets on pre-priced options and upgrades. The level of pure custom and structural changes is way down."
Countertops, carpeting and hard-surface flooring grab the largest share of upgrade sales. "Every year, we look at what we offer and how we present it in the design center," Moore says. "How we use the square footage is always in debate. When we get new stuff we want to display, it's a process of elimination to find the space, just like in any retail store. There's pressure to add space - we could probably use another 2,000 square feet. We'll probably get that with an addition to the building at the end of the year."
The Houston NHC services 100 on-your-lot buyers a year. "That's the most profitable use of this building," Moore says.