One of the primary appeals of a new construction over existing is the ability for the buyer to customize the home. Many in the home building industry recognize this and, despite the continued economic downturn, have opted to continue design center operations, albeit with a few modifications.
"Design centers are a very tactile aspect of putting a home together," said Raul Rio, field design representative at Timberlake Cabinetry, a division of American Woodmark Corp. "People want to touch and feel the product."
Rio said he has seen some builders cut back in certain areas of the design center--and close down altogether is some instances--but for the most part, he sees them as being a huge part of the home building industry.
"Most builders are doing whatever it takes to stay alive," he said, noting that of the 30 clients he has in the Florida market, only three to four companies have closed their design center doors. "Unfortunately, I think this is short-sighted thinking on the builder's part because we will see a turn-around," he said.
Jane Meagher, president of Success Strategies, echoed Rio's remarks, stating that design centers are a very important tool in any market. "Despite where the market is today, when you look at the demand side, [customers] are still questing for individuality."
Meagher acknowledged that some builders are doing what they need to in order to survive, but she advised them to think of design centers as a tool to leverage sales, noting there are strong profit margins on options. Moreover, she asserted that the responsibility of selling options should not fall on the sales staff.
"Salespeople can not focus on selling options," Meagher said, citing the potential to "sabotage themselves, the buyer, and the builder." Not only would it take away from their core function, but the salespeople do not know the products, she said.
Builders who are determined to keep their design centers are focusing on what they can do to maintain them for the time being, in order to be best prepared when the market rebounds.
"We have found that design centers still have a place, but at a high operating cost," said Kim Whitman, sales and marketing director at Renaissance Homes, filed for bankruptcy in September.
"We have cut back on staff, and we now operate as consultants, by appointment only," Whitman added of the company's two design centers. "We are too heavily invested to just walk away. Right now, it is just a drag."
Whitman said the market will eventually come back, and when it does, buyers will still be looking for the custom touches that a design center unveils for them. "[Design centers] are a decisive marketing advantage," Whitman explained, noting that some customers will spend $150,000 in upgrades.
In order to keep afloat during the hard times, Whitman did say that the company is looking at unique ventures with the design center, such as making it available to smaller builders who are not considered competition. Renaissance, in turn, would make a modest profit from their use.
Brenda Gordon, who runs the design center in Charlotte, N.C., for Orleans Homebuilders, said profits have decreased, but not enough to bring it into negative margins.
"The first year we were open, 100% of our customers upgraded their kitchen in some form or fashion," Gordon said. Flooring upgrades were up more than 50%; stair features and/or upgrade railing systems increased 35%, and stone fireplace options have seen an increase of about 30%, she said.
"Unfortunately, with the market turn, we have seen a minor cut back of options," Gordon admitted. "Still 90% to 95% of our customers still upgrade their kitchen. Even though the spending is down about 25% or so overall, we are finding that our customers still spend a little more than they anticipated.
Added Gordon, "In light of the market, I have compiled several new value packages. We combined some features and bundled them as a package. The margins are still good, and the customers like feeling that they got a deal. This has helped improve some lagging sales in areas that were being impeded."
Getting into new strategies for using the space, Gordon said Orleans is renting out the space for Realtor events, "allowing them to bring prospective customers, if they wish." Orleans provides a comfortable atmosphere for Realtors and customers to tour the space, "giving us all the opportunity to show them how well we will take care of each of them," Gordon said.
Gordon also noted that Orleans has had to cut back on staff and switched from weekly guided tours of the center to appointment-based tours only.