In most years, replacement contractors outpace sales of their full service remodeling brethren, but in 2016 the split looks to be dramatically more pronounced, according to results from this year’s Remodeling 550 survey of the largest firms.
The 150 contractors on the list predict they’ll bring in 27.2% more revenue this year than 2015. In sheer numbers that means they’re expecting $3.03 billion this year vs. the $2.38 billion they earned in 2015.
In contrast, the 445 full-service remodelers on the list predict only 4.9% growth — 22.3% less than replacement contractors. That means remodelers expect sales to reach $1.54 billion, up from 2015’s $1.47 billion. The 100 biggest companies expect even less growth at 1.3%. The 17 insurance restoration firms on the list predict 2.5% growth.
Industry experts say the massive gap between growth expectations of replacement contractors and full service remodelers is a surprise.
“Twenty seven percent definitely sounds strong—incredibly strong,” said Abbe Will, research analyst with Harvard’s Joint Center for Housing Studies, who focuses on remodeling market trends. “We’re not projecting anywhere near that for overall growth.” She was referencing the JCHS’s Leading Indicator of Remodeling Activity (LIRA), which predicts around 8% growth.
Bill Good, CEO of the National Roofing Contractors Associations was equally taken aback by the numbers. “I would expect replacement contractors to fare better than full-service contractors, but not by such a wide margin,” he said.
And historically, replacement contractors aren’t known for being overly optimistic. For example, they predicted 7.8% growth last year and actually reported 7.3% growth. On the other hand, full-service contractors predicted 12.4% growth but only saw 8.8%.
So what’s behind the gulf between the two of this year?
Will suspects it comes down to labor shortages, which have plagued the industry since the 2008 downturn. The difference now, she said, is that remodeling demand has returned, but the supply to complete those jobs can’t keep up. “Full service contractors just might not have much more room to grow,” she said. “They’re got their book scheduled out and projects already lined up. They might not be even capable of doing any more with their labor force.”
In contrast, she said, because replacement contractors specialize on specific jobs and volume, they’re able to scale up more quickly using the existing labor force they have. “But it is curious that they wouldn’t be impacted in the same way,” she added.
While an improved contracting market may be bumping up against labor shortages, Good said there’s more to the gap. He pointed out that the home building industry is still almost 50% off from its peak of 2006 and 2008. But he also said replacement contractors’ specialization gives them an edge, along with their targeted marketing.
Additionally, replacement contractors may be benefiting from the trend among millennials away from home buying and toward renting. “This suggests more repairs and replacement (including roofs) rather than full service work,” he said.
Whatever the reasons for the uptick in business, both said contractors would be wise to capitalize upon it. Good recommended paying close attention to social media and earning positive reviews on the various contractor review sites. He also suggested using selective targeting to of customers.
Finally, he said now is the time for contractors to raise prices. “Sell up,” he said. “There are plenty of opportunities to add value and demonstrate professionalism.”