Status of the Remodel Economy, November 2009

Here's the view from my corner of the world: East TN, Western NC, and North GA.

Things are slow, but the quality tradesmen who had diverse sources of work are still active. Remodel contractors and kitchen showrooms seem to be mostly holding on and likely to be able to do so for some time to come.

The picture seems gloomier for businessmen who had made large investments into the remodel economy. Two cases in point:

  • The largest high-end custom cabinet shop in my area is way, way down. I personally know that “critical” core people have been laid off, which sounds like desperation. I also know that there is debt from key equipment purchases over the past few years, so there's a possibility of them going under.
  • Granite (etc.) countertop guys are in a tough spot because of the investment required to do this at a high quality level (less attractive alternatives include having it cut in China and waiting 13 weeks to get it). I spoke with a major player who has operations reaching 150 miles in all directions and he painted this picture for me:
    • He invested 2.5 million USD in a CNC (probably including a laser templater?) cutting system sometime in 2007.
    • To fund his debt, he must run minimum of approx 900 sq ft of stone per week, this has forced him to expand his territory, sometimes leading to jobs where transport costs overwhelm profits.
    • He says that every month “a few stone guys go down and a few more pop up”
    • A major competitor of his is now facing prison time for trying to hide/sell assets in the midst of bankruptcy

Summary: For those who made major investments on the assumption that things would continue at the pace of 2005 and before, the only way to stay afloat is to expand. But this can only happen if the field of competitors thins, and that doesn't seem to be happening yet. Unless the economy turns quickly, it seems that a lot more players will have to close shop. But will they be the bigger ones or the smaller ones?