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
Hovnanian 'Gallery' Sets Benchmark
If you're looking for an efficient design center to use as a model for entry into this business, a trip to Hovnanian Enterprises' facility in Edison, N.J., makes sense.
If you're looking for an efficient design center to use as a model for entry into this business, a trip to Hovnanian Enterprises' facility in Edison, N.J., makes sense. What you'll see is a building with 3,000 square feet of offices and 17,000 square feet of showroom space set up to support eight design coordinators, who marshal all of Hovnanian's buyers in the Northeast through a carefully choreographed upgrade selection process.
"We serve customers from New York, New Jersey, and Pennsylvania," says Kara Opanowicz, the home design gallery's director. "Last year, we handled selections for 2,200 homes. This year, we'll top 2,700."
Customer may drive two hours or more to reach the gallery, and they have to do it as many as three times - once for an initial 45-minute tour, then once or twice for a three-hour selection session with a design coordinator. The bigger and more expensive the house, the longer it takes.
"But 99% of our buyers say it's well worth the time," Opanowicz says. "Our customer satisfaction scores have gone up since we've had the design center. The personal attention of the design coordinators is very important. They handle the selection process so much better than sales people, who have selling houses, not options, as their top priority. Helping people make these selections can be a complicated task."
See It, Touch It
Buyers get an option list with pricing in the sales office when they go to contract. But they don't see the choices until they get to the design center in Edison. "We have all the standards and options displayed," Opanowicz says, "and that's the critical advantage of the gallery: People appreciate the quality of an upgrade so much better when they can see and touch it. We've increased option sales by 25 percent to 35 percent since opening the gallery, depending on the community and price point."
Design coordinators are paid a small base salary and a commission percentage of the options they sell. Approximately 75 percent of their income is commission. But there's an interesting twist here: They do not know the margin on the items they sell, just the price. "Their job is to make the customers happy by helping them maximize the impact of their budget," Opanowicz says. "We don't want them to push options people can't afford. Right now, the way the market is, the margins come naturally."
Built-ins and carpentry items that carry a lot of skilled labor content are the highest margin items because they're hard to duplicate from any other source. "You can't go to Home Depot and buy a built-in," Opanowicz says, laughing. People invest the most money in the kitchen, followed by flooring selections, then master baths. "Flooring is really coming on in the Northeast because we're now seeing a lot of investment in wide-plank hardwood floors," she reports.
Hovnanian now is working hard to develop a Web-based system that will soon allow buyers to select options online after they see and touch them in the gallery. "We think that may eliminate one trip to Edison," Opanowicz says. "There's a lot of software available to show products online, but it will never replace the in-person, see-and-touch experience."
Customers For Life
Hovnanian already sees its gallery in competition with retailers such as Lowe's and Home Depot, and in the future, that competition might be even more direct. The company is investigating storing materials and products in warehouses, which would allow it to offer remodeling options to past buyers.
"Think about it," Opanowicz says. "We have the ability to database the plan people purchase and all the selections they make. After 10 years, we could bring them back and offer them a chance to pick out a new kitchen."
"We already beat Home Depot's prices on most things, even though ours is an installed price, not do-it-yourself," she continues. "We have to get our enterprisewide system in place before we can get into this. We'd need the warehouses. It's not something we'll do this year or next, but in five years, I think it just might happen."