Expect slow recovery, Kohler president says

BY ROBERT P. MADER Of CONTRACTORs staff KOHLER, WIS. A handful of builders will control the U.S. housing market by 2011, Ron Pace, president of Kohler Plumbing North America, told plumbing contractors meeting here Sept. 19. Right now the Top 100 builders perform 26% of all housing starts, Pace said. By 2011, 20 builders will build 75% of the houses, with some of them building 50,000 houses a year,

BY ROBERT P. MADER

Of CONTRACTOR’s staff

KOHLER, WIS. — A handful of builders will control the U.S. housing market by 2011, Ron Pace, president of Kohler Plumbing North America, told plumbing contractors meeting here Sept. 19. Right now the Top 100 builders perform 26% of all housing starts, Pace said.

By 2011, 20 builders will build 75% of the houses, with some of them building 50,000 houses a year, he said.

Pace addressed members of the Construction Contractors Alliance, an enhanced service group of the Plumbing-Heating-Cooling Contractors - National Association.

“The average home size is 36% larger than it was in 1975,” Paced noted, “and it’s now more than 2,000 sq. ft.”

It is common for a home to have 212 or three bathrooms and master bathrooms are averaging 136 sq. ft., he said. Pace also commented about retail sales of plumbing products, the pace of the country’s economic recovery and Kohler’s own strategy.

Contractors shouldn’t get overwrought about retail sales of plumbing products, he said, because most sales are not do-it-yourself — they are buy-it-yourself with the installation done by an independent contractor. Contractors have to jack up their labor rates high enough to make a profit and never offer a warranty on a product supplied by the customer.

Pace said the situation is analogous to auto parts. Years ago, he noted, a consumer couldn’t buy auto parts unless he knew someone with connections to a “jobber.” Now auto parts stores abound. While consumers may know the “real” price for an alternator, dealer mechanics have not gone out of business and charge exorbitant rates.

In another analogy, Pace noted that carmakers only offer options collected in “packages.” Similarly, plumbing contractors should offer upgrade plumbing products to home builders and buyers in packages, he said.

In regards to the economy, expect a slow recovery, Pace told the contractors. The economy is driven by consumers, government, industry and the balance of trade. The economy is being dragged down by low consumer confidence and by a factory utilization rate that has dropped from the low 80% range to less than 75%. All the other indicators look good.

Over the last decade, employment has risen from 110 million people in 1993 to 130 million today. Unemployment peaked at 6% in April and has started to go down. Inflation hovered at 3% for most of the 1990s and has only been around 1% for the last couple years. There are no shortages of oil or steel. And mortgage rates are only about 6%.

Pace expects new housing to peak at 1.65 million units this year and drop to 1.59 million in 2003. He thinks existing home sales will hit 5.64 million this year and fall to 5.27 million in 2003. Unemployment in 2003 should be 5.4%, Pace said, and gross domestic product should grow 2.8% this year and 3.7% next year.

For its part, Kohler wants to be viewed as No. 1 in delivering value to customers, Pace said. Consumers are well informed, he noted, so a brand has to lay claim to performance advantages. Customers have to perceive that they are understood and valued.

For its trade partners, Kohler is working on improving shipping, delivery, reducing cycle times and reducing cost. The company’s goal, Pace said, is “perfect order fulfillment,” which means on time, intact, 100% complete and works as expected.