There have been countless casualties during the housing recession, including suppliers of products and services that hitched their wagons to fast-growing builders only to end up stranded when those builders failed.
Many of America’s largest manufacturers, distributors, and dealers point to the recession as the cause of their companies’ current financial instability. Several of those same suppliers are now owed hundreds of thousands of dollars by bankrupt builders that are reorganizing or liquidating under court protection from their creditors.
A case in point is Creative Touch Interiors (CTI), a business unit of the giant wholesaler HD Supply. CTI offers turnkey supply and installation of interior products as well as design center and interior care services. The Orlando, Fla.-based company claimed in the past that its clients included 24 of the 25 largest home builders. Now, though, most builders, large and small, are struggling to survive. In their bankruptcy filings, two builders—Village Homes of Colorado and WL Homes—each lists CTI as one of its largest unsecured creditors, with respective claims of $445,636 and $151,698.
Tom Lazzaro, CTI’s president, concedes that this is a tough time to be trying to maintain relationships with builders, some of which his company is now taking a “cautionary” approach towards. “When the water starts falling, that’s when you see where the rocks are.” The recession has forced CTI—which operates 73 design centers (about 20% of which under its builder-clients’ banner), 47 dispatching centers with warehouses, and four countertop fabricating centers—to scale back its districts to five from nine, and slash its overhead by 50%.
However, the downturn may actually be bolstering CTI’s market position. Lazzaro has assigned CTI’s vice president, Andrew Liebert, to evaluate the company’s customer portfolio to determine which builders will be a long-term fit for CTI. As a result of this process, “we’re having more high-level strategic discussions with builders than we’ve ever had,” says Liebert.
CTI, which celebrates its 50th anniversary this year, has been able to stick it out with troubled builders, partly because of its connection with HD Supply, “which has the resources and the balance sheet that other companies might not,” says Lazzaro. BusinessWeek recently reported that HD Supply ended 2008 with $700 million in cash. And earlier this week its former parent, The Home Depot, disclosed that it would pay HD Supply $22 million to settle Depot’s 2007 sale of the distributor to a consortium of three investment companies.
“We continue to work with our customers as they work their way out of financial trouble,” Lazzaro tells BUILDER. For example, CTI recently joined other unsecured creditors to petition a bankruptcy judge in Colorado to prevent Village’s lenders from foreclosing on the builder’s homes as a way of collecting debt.
CTI has the flexibility to “go where the builders need us,” says Lazzaro, and his company has recently placed facilities in Minneapolis, Boston, and in Texas to accommodate builders’ needs. Lazzaro and Liebert also note that CTI’s Total Choice Advantage program, which it rolled out a year ago, is gaining traction. Total Choice Advantage offers products and services that are customized to a specific builder’s customer base. It includes price protection plans, a model home program, and guaranteed product availability. Total Choice also offers a rebate program that’s pinned to a builder’s ability to get its customers to purchase product upgrades.
“We’re taking more of a partnership role.” Lazzaro estimates that during the housing downturn, his company has picked between 5 and 10 percentage points of market share.
Despite the market’s turmoil that has crippled many of the industry’s largest builders, Lazzaro says CTI’s growth strategy going forward would continue to focus on servicing big builders. “As the only national player out there, we’re built for that,” he says. However, he and Liebert expect market conditions to worsen before they improve, even as they have seen “pockets” of improvement in California (CTI’s biggest market), the Maryland/Washington D.C. area, and the Carolinas. For the time being at least, CTI is seeking out more commercial accounts.
When asked how CTI is protecting its own balance sheet from being submerged by any future builder failures, Lazzaro says that “execution and discipline” will be required. “Manage our working capital. Manage our processes. Rinse and repeat.”
John Caulfield is a senior editor at BUILDER magazine.