Contractors confront slow economy

Contractors confront slow economy

"We're dealing with a lot of people who are staying in their homes and fixing them for the long term."

For the first three quarters of 2007, Steve Elgin, co-owner of Personal Touch Services in Chesapeake, Va., saw record profits in his remodeling, construction, and fire/water damage repair business.

"I was on track to have my best year in the 19 years I've been in business," Elgin says.

But the housing bubble burst in late 2007, and since then his business has dropped by a third. Earlier this year, he was hit by another element of the current financial crisis when his bank froze his home equity credit line, which he had planned to use to pay for advertising bills that were coming due.

"It's all flowing downhill," Elgin says. "When you have banks pulling people's lines of credit, that reduces the money people have to spend. If I can't get any additional funding to cushion the debt I've already incurred in building the business, then I'm pretty much going to have to shut the doors."

In order to stay afloat, he's had to lay off 11 of his 18 employees, sell four of his trucks and watch expenses very carefully.

"It puts stress all the way down the line," Elgin says. "Especially as an owner, because an owner's got a lot more than just his family to worry about."

Elgin learned remodeling and plumbing from his father 30 years ago when they converted a farm to a hunting lodge together. He parlayed that experience and further education into Personal Touch in 1989. Now he co-owns the business with wife Lorrie, and their daughters, Stephanie and Dana, work in the office.

As the market tightens, Elgin finds himself in competition with more contractors than ever for fewer clients. He had hoped to pass on his business to his children, but now he says he'll be lucky if he lasts the year.

"We've had to give up a lot of things we planned to do and wait and see how this plays out," he says. "I've grown slowly doing all the right things for 19 years, but if nobody's out there spending their money, there's nothing you can do."

Finding the right niche

Not all businesses suffer during economic hard times, however, particularly if they offer a service that customers find valuable in a harsh housing market.

David Rich started his own gutter company in Eagle Creek, Ore., in 1992 and expanded into copper in 1998 as Copper-By-Design, which he now co-owns with his wife Tia. He constructs custom-made copper gutters, chimney caps and roof caps and ships them around the country. Even though fuel and copper costs have doubled in the last year, he says he's doing more business than ever.

"Many times homeowners can make a profit from the job," David says. "It increases the resale value of the house more than the cost of the improvement. And if you've got something nice on the outside made with better metals, people imagine that you've paid attention to all the details."

The Riches believe slow housing sales have contributed to their business. "We're dealing with a lot of people who are staying in their homes and fixing them for the long term," Tia says. "They're not staying for two years and leaving."

David says his interest in copper and its durable properties came from his observations those first few years working with steel and other materials.

"My grandfather was an inventor, and I guess I picked up a lot of his genetics," David says. "When you approach a project, it's telling a story. Eighty percent of the gutters I take down are rusted through, and that tells me a story right there. They're just not using strong enough materials."

Tia worked in the shop for several years before starting her own doula service. She still occasionally works on projects, but devotes most of her time to her own business. She credits her time in David's shop with giving her the confidence to strike out on her own. "I thrived on it, and never wanted to work for another person again," she says.

David says copper's permanence fits neatly into his own philosophy.

"Planned obsolescence infuriates me," David says. "I try to make products that will last a lifetime."

"We're still not out of the woods yet"

For some contractors, experience provides the perspective to take the long view. John Hushagen, who founded Seattle Tree Preservation nearly 21 years ago, has survived several economic downturns. Although business is down and expenses are up, he expects to weather this one as well.

"It's not the first time I've been through this, and it won't be the last," he says. "We live on the surplus and folks' discretionary income. Sometimes it comes our way, sometimes not."

He says the biggest dent in his business has come from falling consumer confidence.

"Most of my customers haven't been directly affected by the economy," he says. "It's not that they don't have the money, but what's changed is their confidence. People will call and need about $1,200 in work on their yard, and they'll buy $600 and put the rest off. A year ago they'd have bought the whole package."

Hushagen has been fortunate he hasn't had to cut any of his 20 staff members, although it's been a close call so far. If three crew members hadn't moved away recently, he would have had to lay some off.

"We'll try to keep full days in front of the crews as long as possible," he says. "We're still not out of the woods yet. It makes me nervous when work gets slow. I don't have a crystal ball into the future."

Hushagen has been particularly hit by gasoline prices, as his fleet of 18 vehicles and six wood chippers goes through nearly 500 gallons of gas every week."We've had to add a fuel surcharge to all our jobs, but people don't hesitate at all to pay it," Hushagen says. "They understand that it's totally out of our control."

He's compensating for the lost dollars by working longer hours, taking on smaller jobs and moving quickly to get new business.

"We have to reach down and not forget where we came from, to remember that customer service component," he says.

Despite struggling through the downturn in his own business, Hushagen believes that the challenges presented in tough times can improve service overall.

"Customer service in a recession often separates the wheat from the chaff," Hushagenhe says. "The marginal companies that don't return phone calls or give good service are the ones that shake out. You get what you pay for. People will start spending again as they become more confident."

 

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