The lightning fast sales growth that the cabinet industry experienced from 2001 to 2006 is gone. New housing starts are down over 25% from 2005, total kitchen and bath remodeling spending declined slightly in 2007 and the tightening credit markets mean money needed for new homes and kitchen and bath makeovers will be hard for consumers to get.
Total spending on kitchen and baths in 2008 will still be impressive from a historic perspective, however, the industry experts expect little or no year over year growth. The heady times of the past few years has gotten many of us into some bad habits – like depending on sales growth to make us profitable – and now is the time many business gurus are calling for businesses to re-invent themselves.
I disagree. I think all businesses should be continuously re-inventing themselves. I use a simple four quadrant matrix to help me decide what re-invention strategy a company should use based upon current market demand and the businesses’ financial strength. The Re-invention Matrix looks like this:
Let me give you examples based on situations four of my clients have faced:
- Increase Efficiency – The Company had expanded rapidly over the past few years and in 2006 experienced both record sales and a significant financial loss. Employees had been added to keep up with demand but they were making costly mistakes. As the market slowed in 2007 the company cut overhead by 15% through centralizing its purchasing processes and eliminating two activities that had several people re-keying data all day.
- Increase Margins – The Company operates in a large, affluent metropolitan area where demand is strong. Over the years the company did well and it stood on firm financial ground. However, both gross and net profit margins seemed to shrink over time. In 2006 the company reinvented itself by implementing systems that increased their control of sales peoples’ quotes and helped them identify unprofitable customers. Their net profits increased by 50% after they fired some unprofitable clients and implemented a system which guaranteed their sales reps would quote the correct margins.
- Add Capacity – A large building supply chain had 50 sales people located in 20+ branches. They quoted kitchens frequently but the sales volume never grew at the pace they desired. After investigating the situation, they discovered that sales people frequently spent most of their time calculating quotes, placing purchase orders and searching through paperwork. The company added capacity by investing in tools that sped up the quoting process, centralized purchasing and put all job related information at their employees’ fingertips. Salespeople were able to quote more in less time and uncovered many additional sales opportunities.
- Diversify Markets – A very profitable and successful cabinet distributor focused for 14 years on dominating the new construction builder market. 2007 looked like it was going to be a challenging year. However, they leveraged the business systems they built during the boom to move into new cities and begin serving the retail trade. Their efforts in new markets have allowed them to grow despite a declining new construction market.
As I stated before, my personal opinion is that every cabinet dealer should have continuously been looking for ways to re-invent themselves; however, I also realize I should always eat right and get plenty of rest – something I rarely do. The tightness of my belt sometimes reminds me to get back to doing more of what I know I “should” be doing.
The current market tightness may be reminding you that you should now be re-inventing yourself. Remember, there is no one strategy that is right for everyone – the right strategy depends on your local market and your financial condition. The re-invention matrix can guide you from there.
Take a few minutes and think about where you want your business to be a few years from now. Your planning doesn’t need to take that long or be an overly complicated process. Just spend a couple of minutes to decide on what you want – and the steps you need to take to get there. Otherwise, especially in these market conditions, you’ll likely find yourself in a place you don’t want to be.