Builders knock the stuffing out of their merchandising budgets, but in a good way.

By Roberta Maynard

A decade ago, Pulte?s central New Jersey division could avoid building models. Builders were selling quickly and had enough supply to replace their projects, and they were selling out before the models were built, recalls division president Bill Webber. In today?s highly competitive market, Webber can?t sell homes until his models are up and merchandised. ?The market is up in price and sophistication,? he says. ?It?s a lot more necessary to fully merchandise to demonstrate how these homes live.?

Faced with the reality that models are an unavoidable cost of doing business, builders like Webber have turned their attention to re-thinking how, what, and where those models are built. And, in the process, they?re scrutinizing ways to lower the $25- to $50-per-square-foot merchandising cost without losing the power to woo and wow prospects.

Jim Walter Homes, for example, studied its formula to determine whether its model home investment was over the top.

?Typically, our parks had three to seven models,? says company president Mike Roberts, who is based in Tampa, Fla. ?Our Six Sigma study showed that four models got just as much benefit.? Since cutting out the fat, the company has already realized a savings of $500,000.

Likewise, Lennar has reduced its number of models, using one to three per community, down from three or four. With homes in 600 communities, the company gained a huge savings. Design centers and technology that shows options via the Internet have made that reduction possible, says Bob Strudler, Lennar?s vice chairman and COO. Years ago, he notes, ?You had to see your choices in models only.?

Re-using models is a cost-saving strategy that works for Forecast Homes when geography allows. The California builder, located in Rancho Cucamonga, keeps models open in a sold-out community when they?re close enough to be used in a new project nearby. Virtual models also figure into the builder?s future, according to Mike Dwight, Forecast?s marketing vice president. With K. Hovnanian?s acquisition of the company, he says, Forecast will begin making greater use of technology as a way to supplement its bricks-and-mortar models.

True to form, some big builders have found efficiencies by applying production principles to their model strategy. Don Anderson, president of Color Design Art, in Pacific Palisades, Calif., works with a Florida builder that saves on design costs by replicating models in several communities. Anderson says the builder is saving 15 percent to 20 percent by reproducing a set of three models in various markets and merchandising them all the same way. For a builder that wants consistency and offers a homogeneous product, he says, this is a money-saving solution, albeit an unwelcome one for merchandisers.

Leaner looks

When it comes to decorating, builders are finding that not every model needs to be a knock-your-socks-off showcase, particularly in hot markets. Hammonds Homes, which builds 900 homes yearly in several Texas markets, offers one or two models for the 17 to 20 floor plans used in most of its neighborhoods. One model is fully furnished, while the other is finished out with draperies, a few pictures on the walls, and some greenery. In addition, the inventory homes that Hammonds has for quick sale in every community (a typical feature in Texas) double as models.

MBK Homes, of Irvine, Calif., has its own variety of simplification. The company typically creates three models for a community and stratifies them as good, better, best. The bottom of the line includes only standard features, no upgrades, while the top features a full-blown presentation. The strategy saves tens of thousands in merchandising costs, says Timothy Kane, MBK?s sales and marketing vice president. And, he says, it provides ammunition against competitors like Lennar, whose ?everything?s included? strategy has earned buyer approval. ?It answers buyers? question: ?What?s really included in this price???

At Forecast Homes, Dwight?s team has examined the effectiveness of its models. ?In many cases, we?d gotten away from doing what a model home is supposed to do, that is to show the home?s interior architecture to its best advantage,? he says.

An example is window treatments. In many cases, Dwight avoided the heavy draperies typical of many models, opting instead to use a simple rod and minimal fabric to emphasize verticality and visually open the window area. Such a change, he has found, can take a dollar per square foot out of the cost of the home with no loss of sales velocity. ?I?d rather have the ?oo-wow? for the house than for the decorating,? says Dwight, who uses the same designer for all his Southern California homes, someone who understands what the builder wants to achieve.

His shift toward a more modern, less baroque feel fits with the trend toward a cleaner look in decorating. Indeed, simplicity is more doable because of improvements in the interior architecture of new homes, particularly in Southern California. And merchandisers say this makes their jobs easier. ?The use of niches, beams, and similar features takes the burden off of us to make an environment seem interesting,? says Anderson. ?When merchandising is the most demanding is when you have a box.?

Along with re-vamping its interior design, Forecast also found efficiencies by buying furnishings in bulk and using fewer original pieces. Dwight might buy four or five of the same end table, for example. The company has also captured a little cost savings by re-thinking the layout of its sales offices, creating the most efficient configuration possible and standardizing that formula. ?We?ve simplified what we?re doing, and it?s worked for us,? says Dwight, noting that all these efforts over the past three years have reduced his merchandising costs by 30 percent.

Buyer connections

Though builders are merchandising smarter, they may still be missing the chance to connect with buyers. For example, Anderson?s research shows that people want to live more casually, many choosing to make the living room flex space rather than a conventional parlor. Yet models continue to show a formal lifestyle, he says, speculating that the cause may be builders? feeling they have to create a design showcase. ?We struggle somewhat with that,? he says.

Recognizing this, Kane has spent time over the past couple of years applying psychographic principles to MBK?s model merchandising. After studying consultant Brooke Warrick?s four buyer types, Kane has a new appreciation for how to make people connect emotionally to a home environment ? and he?s working with his designers to tailor merchandising to match.

?Some people view their homes as a tranquil haven. Others consider them the hub of family activity,? says Kane. Some respond to curved streets, others to straight ones. Some find the plastic pies and plants on a kitchen counter memorable, others see them as clutter, he explains. Kane gives as examples Grace Slick and Hillary Clinton. The two women are a demographic match, falling into the same age, income, and education categories, he says. But their lifestyles would make their choices in home décor quite different.

As builders focus on paring down the obvious costs associated with model homes, they may be overlooking more subtle opportunities to push money to the bottom line. Several merchandisers report that lack of direction, turnover, and poor communication by bigger builders often delay merchandising decisions and not infrequently create duplicate work for designers, thus adding to the cost. By putting their own house in order, they say, builders could save even more.

Virtually untapped

Surprisingly few builders have made technology carry the load typically born by expensively outfitted, brick-and-mortar models. Among the innovators is Shea Homes? San Diego division, which has sold more than 300 homes through its virtual sales environment.

?We?ve sold three entire communities with no models,? explains Diane Rivera, the division?s director of marketing. ?All expensive, high-end homes. And we?re currently doing a fifth in the Chula Vista area.?

Virtual models offer a substantial savings over building the real thing. Even taking into account the up-front technology investment, the division saves as much as $200,000 for every model not built.

But it won?t work in every situation, cautions Rivera. ?It?s a business decision, based on the sophistication of the buyer, the condition of the market, and the complexity of the product type,? she says. The division tested its virtual sales program on buyers who are ?imaginative and who live on the Internet,? she says, noting that the homes in those first three communities ranged in price from $350,000 to $600,000.

Virtual models won?t work, for example, in master planned communities because they can?t compete with the real models that other builders feature there. Shea found the perfect application for the medium in an affordable project of 90 units. With 250 people on the waiting list, virtual presentations fit the bill for already-motivated prospects.

Rivera acknowledges that there are a few disadvantages to the virtual approach. ?In a live model, customers can touch and feel what they?re purchasing. When you take that away, it?s all two-dimensional, no matter how sophisticated the technology is. To overcome this, Shea encourages customers to visit the community under construction and walk through the type of home they?re interested in. Sales consultants are more attentive than when buyers view the real thing. They may want to point out the bull-nosed edging on the countertops or emphasize the height of the ceilings and other features that don?t come across on the screen.

The division builds between 600 and 800 homes yearly, and Rivera expects that about one-quarter of those will lend themselves to virtual presentation. It requires a careful study of the market, she says. ?It can hurt you big time if your buyers aren?t ready for it.?

Published in BIG BUILDER Magazine, June 2002