Has the buck stopped here? Economic outlook 2003

Enron, WorldCom, Iraq, Martha Stewart, September 11, North Korea … unless you’ve been living in a cave for the past two years, you’re well aware of the forces conspiring to make the road to economic recovery anything but smooth.
But what does it all mean for builders? Has a depressed stock market and unstable global picture forced contractors to cut crews in order to preserve profit margins? Or have builders simply hummed along like a well-oiled machine, their balance sheets oblivious to the tumult outside?
A quick look around the post-frame industry reveals a little bit of both. Some builders have been unaffected by the downturn, or needed only a slight retooling to keep things profitable. Others have been hurt by budget-conscious customers or an unstable labor situation.
Kelli Kinney of All American Barns in Weatherford, Texas, says business was better for her in 2002 than in 2001, and, ironically, she thinks the terrorist attacks at the tail end of 2001 may be a reason.
“It anything, the tragedy of 9-11 made people more willing to spend money on their own properties, sort of hunker down and be safe at home kind of thinking,” she says.
All American Barns recently bought commercial property for expansion and new offices, and increased the size of its work force by adding additional crews. The company specializes in custom horse facilities and residential horse barns, and that market looks strong in Kinney’s area of the country.
Similarly, the Shenandoah Valley area of Virginia has not been as negatively affected by the economic downturn as other parts of the country, according to Larry Willis. In 2002, Willis’s company, Virginia Frame Builders & Supply, took on smaller jobs — “The small, basic projects that make good business sense to continue with,” he says — but did more of them to compensate.
“We were able to better control our projects and make a little better profit percentage than on the larger and often more competitive jobs,” Willis says. “We also have expanded our work area and the types of work that we do.”
Willis thinks 2003 will be a good year for his business, as early inquiries and commitments are on target for modest gains in sales. The company has added a fifth full-time construction crew and hired an inside salesperson for its staff.
Gary Hockman’s Virginia Building Systems used the opposite strategy to hold steady through the storm. In 2002 the Staunton, Va.-based firm secured a handful of big contracts to help pay the bills.
“We had only a few customers, and they were fairly large contracts,” says Hockman. “One is a larger ski resort, they’ve done fairly well. The other is a high-end hotel/resort in West Virginia, and (the economic slowdown) seems to have affected some of their expansion plans, perhaps. For the most part, things are going strong, our customers seem to be doing pretty well.
“2003 looks quite good for us, we’ve got some nice contracts, and a couple others look like they’ll come through.”

Established firms have advantage
Thirty years ago, when Hos-Cot Builders started up in Hoosick, N.Y., many of the same economic conditions existed as do today — global tensions, a stock market swoon, volatile oil prices. It was a difficult time to start a new business.
“We had kind of tough sledding when we first started building up a clientele, it takes awhile,” says Hos-Cot’s Sam Cottrell. “For a company just starting up today, I would think it would be extremely difficult. I’m glad I’m not in that position.”
Hos-Cot started out doing subcontracting work, moved into general contracting, and has evolved into a turnkey outfit. The company has an agricultural division and a commercial division, and the diversification has helped keep things steady during turbulent times in the past.
Cottrell runs the agricultural side, which relies heavily on the dairy industry. A typical job for the company is a freestall barn for 300 cows.
“It’s not like we get our pick of the job, but we get a shot at anything of substantial size in our area,” Cottrell says.
Lately, though, the dairy building business in upstate New York has been threatened by a decline in milk prices. In upstate New York, the price farmers could command for 100 lbs. of milk has dipped from near $17 to $11.50 in the last 1-1/2 years.
“Sometimes we think we’ve got it tough in our business, but boy, when you’ve got to sell your product for less than you make it … it affects some of them, but other ones it doesn’t affect,” says Cottrell. “There are two different schools of thought. Some say ‘I’m not getting as much for my milk, so I have to make more of it, build more freestall barns to milk more cows.’ Others say ‘There’s no sense in putting up more barns if I’m going to sell it for less than it costs to make.’”
To navigate these choppy waters, Hos-Cot relies on a lineup of repeat customers compiled from three decades in the business. “It’s an easy sell if you did a good job the first time around,” Cottrell says.
Not too long ago, a larger pre-engineered metal building firm just down the road went out of business. That fate shouldn’t befall Hos-Cot any time soon. The company has plenty of work on its hands, with the agricultural division booked until September, the commercial division booked until August.
“I can’t complain at all,” Cottrell says. “We’re in the middle of winter and all our crews are working. It’s a good thing.”

Not all good news
But even some of the best-run businesses have experienced tough times in the past few years. On top of nationwide trends, regional influences and normal business cycles can conspire to create a harmful hat trick.
In the past six months, Rasche Brothers in Taneytown, Md., had to let office staff go for the first time, and turnover has ravaged the company.
“Our business was way off from (2001),” says Tom Rasche. “Actually, it has been on a general downturn for the last couple years. Most of our problem stems from within. Our sales have been down because of salesperson turnover and finding qualified construction personnel.”
Not all the news has been bad for Rasche. The company competes in the suburban, commercial, and ag/equestrian markets. Suburban is active, according to Rasche, but is competitive and margins are low. The commercial sector is showing positive signs, but the ag/equestrian market, which is the company’s focus, has been down. Although lead generation was off in 2002 from the previous year, the company hasn’t had any cancellations of building orders.
“We are slowly regaining momentum, but I don’t see us returning to our level of business that we should be doing until 2004,” Rasche says. “It has been increasingly difficult to manage a small business in the past three or four years.”
Midwest Structural has also come upon challenging times. The Nevis, Minn.-based firm subcontracts to major post-frame companies to construct their buildings, but the phone wasn’t ringing off the hook in 2002.
“2002 brought us some surprises,” says Midwest’s Brad Akre. “We are usually swamped with buildings to construct and have to turn down several contracts a year. This past year we had to actually scrounge for work at times, contacting post-frame companies out of our normal area and traveling to surrounding states to keep busy.”
Midwest Structural did not expand in 2002, but did not have to lay off any crew members. The company’s big projects were few and far between, and on the projects the company completed, buildings were downsized, and extras such as wainscot, cupolas, and mansards were eliminated, a sign to Akre that customers are watching their budgets more closely.
The down times opened a door for several upstart post-frame package companies in Akre’s area.
“The major companies in our area did not sell their normal number of buildings, which allowed the small, lower-quality ‘sideline’ peddlers to take advantage of the down economy and sell buildings that were not up to standards to uneducated customers,” Akre says. “We were contacted by these companies to build for them and were shocked at their construction practices — no concrete pads, 2×4 wall girts, substandard materials, 20-pound roof loads. We declined the work and chose to travel.”
Ultimately, the current climate could force some companies to hit the road entirely. The possibility of Darwinian struggles descending on the industry would leave a much different landscape for builders.
“It may be a year that decides who survives and who does not,” says Akre. “The little guys will come and go like the wind as they always do, but the major players have their work cut out for them, and will need top-notch salespeople to successfully compete in a slow market.”

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