Like their stick-built counterparts, factory-built housing firms have struggled in recent years. “We’re not immune to the marketplace,” says Steve Scharnhorst, president of Excel Homes, a modular housing manufacturer that saw its production drop by nearly half in 2009 compared to 2008, to just 470 homes. “The market has taken a horrendous downturn.”
Just look at Fleetwood Enterprises, formerly a manufactured housing powerhouse. It filed for bankruptcy in March 2009, selling its military housing assets to Berkshire Hathaway–owned Clayton Homes and its manufactured HUD-code home business to Cavco Industries.
Overall, factory-built firms shipped 49,800 manufactured HUD-code homes in 2009, a 39 percent decrease from the year before, according to U.S. Census Bureau data. The government does not track sales of modular homes, which are constructed in a factory, but are typically financed using conventional mortgages and often sold through builder partners to buyers that own their own land.
That means that unlike many stick-built firms saddled with empty unsold specs and high-priced land, Excel had the freedom—and the foresight—to spend the downturn developing innovative products that combined energy efficiency, appealing home design, and low prices. The result? Excel’s “starting lineup,” which includes bungalows, prairie homes, and more—priced as low as $60,000 in some markets when it was introduced in 2010.
Excel wasn’t the only modular builder opting for innovation to drive traffic, sales, and buzz. In 2009, Tennessee-based Clayton Homes introduced the i-house, a modern-style prefab home that starts at $100,000 for 991 square feet.
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Consumers have responded. “Our website traffic alone topped 100,000 customers per day during this campaign,” says Lance Hull, Clayton’s vice president of sales and marketing. He says the company plans to continue its new product momentum by introducing a “new line of high value, competitively priced modular homes in May 2010.
According to company data, Clayton built more than 23,000 factory-built homes last year, of which 1,995 were modular.
Smart modular firms were also examining their operations for time efficiency and cost savings. After carefully reviewing Excel’s inventory turns and consulting with vendors and suppliers, the Camp Hill, Pa.–based modular firm improved its performance by more than half. Instead of stockpiling five to six weeks of inventory against sales, Excel now maintains just two- to two-and-a-half weeks’ worth.
In a year when the housing tax credit made for lumpy sales—and inventory management headaches—for builders, Scharnhorst says he wasn’t worried. “The key here is that we were able to do it in conjunction with the supply chain, so it didn’t impact us negatively” in terms of constructing homes in an unpredictable market, he says. “If we’d done it without working with the vendors, then I would have been nervous. If we’d just driven [prices and the production cycle] down, we would have failed.”