Matthew Kaplan

Last week at the Builders' Show, we sat down with Chris Klein, CEO of Fortune Brands Home & Security. (Fortune manufactures plumbing fixtures, locks, cabinets, doors, and windows; its holdings include Moen, Master Lock, Kitchen Craft, Therma-Tru, and Simonton, among others.) Klein shared observations about what home buyers want, why new housing starts are inevitable, and why house keys will become a thing of the past.

Builder: What have the biggest changes in demand been in the last five years?

Chris Klein: In 2006, at the peak, consumers were spending a lot on upgrades, using borrowed money as opposed to saved money. They felt a bit freer. Today they’re focused on value. That doesn’t mean lowest price. It means getting the most for their money. Consumers still view the home as a place to put money into, but the difference now is they want to upgrade the home to enjoy it more, not necessarily to improve its value. I think that’s the biggest change in the marketplace. We’ve downsized our company—restructured and taken out about 40% of the capacity—and most of our competitors have, too. The industry has shrunk.

Builder: What’s the consumer demand that has most surprised you?

CK: In spite of hard times, people are still focused on style. I’m surprised by how resilient consumers are. We did a survey in the summer of 2009. What was encouraging and surprising to me was that people were still passionate about their homes and still really wanted to have home be a showcase for their personality, the place to show off their values, and the place where their friends all get together.

Builder: You assumed the recession would deflate confidence.

CK: For a little while people talked about being mad at their house. They were angry that the value fell and frustrated that they’d put money into this home, that they put themselves into this position. Eventually people got past the fact that the value had fallen, they realized that as long as they’re living in the home, they might as well enjoy the home, and that investing in it still makes sense. It’s not because you’re going to sell it again. It’s more of a permanent view: As long as I’m here, I’m going to enjoy it.

Builder: What’s the aspect of the housing crash that most surprised you?

CK: The time it’s taking to come back. The period from 2006 to 2009 was obviously a very severe drop. The market for new construction was flat across 2009 to the end of 2011: 600,000 housing units—single family and multifamily—and a little bit of a burst from the new home buyer tax credit in autumn 2009 and first part of 2010. The crash itself wasn’t surprising because we saw the volume of new housing construction go up so high that we knew there was excess capacity. But when it dropped off as hard as it did we had to work through some of that. The fact that this is still such a slow-growth environment is surprising.

Builder: Has the small-home movement affected your business?

CK: A little bit; in cabinets more than anything because smaller kitchens need to utilize space in the most efficient way possible. We put a lot of thought into our storage systems so people can use every inch of that cabinet space—even the corner that’s really hard to get to down low and in the back. Otherwise, in smaller homes we’re seeing a couple fewer windows and fewer bathrooms.

Builder: Has the trend toward multifamily had an impact?

In multifamily units there’s a big churn. You’ve got renters moving in and out, so the kitchens and bathrooms get rehabbed frequently. There’s a lot of thought that goes into what the right product would be. On the single-family side, there’s also more rental going on right now and more refurbishing. There’s product churn there, too.

Builder: How have multi-generational households affected your business?

CK: We look at that in terms of how it affects household formation and the demand for new housing. Multi-generational households have retarded the formation of new ones. There’s a backup. When the economy gets healthier and the unemployment rate falls, there will be people who have reached an age where they should be on their own, and they’ll go and form households. They’ll go into rental first and then into single family. The important thing is that they will form a household. That’s data we look at very closely. Looking at rentals gives a good gauge of the amount of new housing activity that’s going to follow.

Builder: When you think about new product development, what do you consider?

CK: The first is fashion for the home—finish and hardware for the cabinets, hardware, paint colors, draperies, door styles--and making sure that we’re on trend in a broad sense. We look at women’s fashions, too, and ask ourselves which are current fashions that won’t have a very long "short life" but that some people will want, and which are more enduring, sustaining trends. From a technology and engineering standpoint, we’re trying to marry design and style with improved functionality, because when you get that right, consumers get excited.

Builder: When you say "not a very long short life," how long is that?

CK: About five years. There are some modern-looking cabinet styles and wood species that are popular today but might not be five years from now. Some consumers say, "That’s great. I just want it to be contemporary. I just want it to look very ‘now.’" It happens most often in a smaller space—a condo that’s going to get sold or rehabbed. But most consumers are more traditional, especially in an American market, and want something that will still look fresh 10 years from now.

Builder: What’s the single biggest home trend right now?

CK: Consumers coming back into the market and shopping hard for value. That permeates everything. If you’re thinking of redoing your kitchen, once upon a time you may have asked for two or three bids. Now people are getting five, even six bids on a project—they’re doing their work beforehand, using the internet and social media to help them understand choices. When they’re serious about a remodel, they’re trying to figure out what’s most important. What started being especially noticeable about two years ago is that consumers are educating themselves. Maybe it’s social media or maybe it’s everything we’ve been through in the last five years, but they’re really attuned to not getting burned and not doing something silly. They want assurance that they’re getting the best value they can, and they’re coming in educated. It’s a more intense environment than it was a few years ago.

Builder: Am I going to see a change in the way I lock my house?

CK: Eventually you will, yes. I don’t know how long it’s going to take, but keys will go away over time. An interface between a smartphone and the lock on your door, as well as your HVAC and lights, will become a lot more common, and integrated electronic control systems will be a lot more comfortable to use. We’re working with our Master Lock business now in thinking beyond mechanical locks and keys, trying to figure out what consumers want and what’s a better safety solution. That follows the trend toward do-it-yourself: Traditionally you would have had a third-party security system that you’re trusting to take care of your home. Now people are willing to take that on themselves. Technology is supporting self-security.

Amy Albert is a senior editor at Builder.