A building year

Features - Cover Story: State of the Industry

The design/build sector is growing thanks to some consumers’ increased confidence, but economic and weather barriers hampered serious growth at most firms.

October 11, 2012
Kristen Hampshire

Clients are loosening their wallets a bit and more willing this year to spend on design/build projects, placing a priority on enhancing their outdoor spaces. There are fewer for-sale signs propped in yards, and families are reconsidering those big vacations. So some have coin in the bank for that patio space.

“We are seeing more restoration design/build work where clients have decided it doesn’t make sense to move – they’ll lose too much and take a financial hit on their home if they sell it – so they decide to stay and remodel or redo the landscape,” says Tracy Bertog, president of Bertog Landscaping, Wheeling, Ill.

But those remodeling decisions haven’t included entry-level, small potatoes projects for Bertog Landscaping. Those $2,000-$4,000 jobs have kind of disappeared. “The people who used to spend a couple thousand are too afraid to spend that now or are spending it on other things that are more important to them,” he says. “Clients in that range aren’t spending money.”

On the other hand, the larger-cap jobs are beginning to sell for Bertog. And clients are even willing to pay over budget a bit if they see the value. Bertog has come in $5,000-$10,000 over budget on some estimates.

“And if they love it, they find the extra,” he says. This generally happens on projects that are $40,000-$100,000-plus.

“We are up about 14 percent this year to date, but we are not close to where we were three or four years ago,” Bertog says of the company’s overall performance in 2012. “We do see that customers are starting to spend again.”

Kurt Bland, president of Bland Landscaping, Apex, N.C., says his business has a backlog several months deep, though this isn’t a reflection of the market. “This will be our best year in 36 years of business, and it’s not because of the economy,” he says. “It’s the things we’ve been doing to actively manage our destiny – focusing on growing and selling and producing quality work.”

It has been the best year for Bland, and the most difficult in his career. “Our employees have worked harder than I can remember, and I’ve had to solve more problems and deal with more challenges this year, but it’s paying off,” he says. All told, the company will grow about 30 percent in 2012. A large part of that is because of maintenance, as landscape installation (including design/build) makes up 20 percent of the company’s total revenues. But this number is up. At the lowest point of the recession, the installation division was down to 15 percent of the company’s total revenues. The ratio now is just where Bland wants it to be.

“Consumers who have the money to spend are like customers in any other business sector – they are being more discerning and looking at who they are spending their money with,” Bland says of the design/build sector in 2012.

“As a company with 36 years of history under our belt, we have a substantial workforce and resources, so we are fortunate to have that on our side. The people we want to work with and who are negotiating work with us respect that.”

A Stop-and-Go Year. Maintenance crews weren’t the only ones laid up during this summer’s drought conditions. Landscape installation teams also felt the burn.

At Bertog Landscaping, some clients benched projects at the last minute. “They said, ‘I’m afraid to move forward with these plants going into the ground – even if we water them, it will be too difficult,’” Bertog says.

That hurt Bertog for a couple of months. “Fortunately, we had some rain and things greened up so the phones started ringing again,” he says. “A couple of those projects we put on hold we are moving forward with now.”

Weather was a factor at Snow Creek Landscaping in Arden, N.C., but it didn’t really affect the performance of design/build. Tim Boone, president, says the company is down about 12 percent this year, mostly because of the lack of snow business. “But the size jobs that we are doing are steadily decreasing in size,” he says, adding that average sales are dipping steadily, too. “So, we have to do more volume.”

Boone says the average project size at his company is $7,000 – his new “sweet spot” is much smaller than it once was. And, there’s no large, new construction in his area like Bland is seeing in the Research Triangle, where some contractors are back on the new-build bandwagon (but not Bland).

Boone says that with fewer high-end residential clients spending, the company is tapping its existing client base for projects. So some of those former “big project” clients are adding on to their outdoor environments, but incrementally.

“We are doing more landscape lighting than in years past,” Boone says. “And more hardscapes including patios and little fire pits.”

Meanwhile, his company has provided bids to customers who don’t plan to spend for a year or more. “We are seeing people shop for price and get estimates, then just sitting back and looking to budget the money in the future,” Boone says.

Meanwhile, Bland says clients who have been sitting on the sidelines with projects in mind are coming forward with budgets to get them started. “Those who have done well and spent the past few years being frugal are not feeling confident enough to start taking on some of the projects they have deferred,” he says. “We started noticing that about 12 months ago.”

In Spite of Bureacracy.
Running a business has become more stressful than ever, and with potential tax increases on the horizon, the uncertainty of health care and a hotly contested election in November, no one feels settled.

“My biggest competitor is the government,” Bland says. “If they would get out of the way and let us do business….” The majority of his uncertainty is focused on tax policy. So this year, the company will make investments in equipment and trucks to take advantage of accelerated depreciation. Who knows what 2013 will bring in terms of tax law?

“Because we are having such a good year, we need to invest in our infrastructure,” Bland says.

Meanwhile, as the Bland brothers work through the final stages of buying out their father’s remaining shares of the business, their succession plan has a greater sense of urgency. “What happens if capital gains taxes change?” Bland asks, noting they are at historical lows. “That is a major catalyst for us to finish the transaction this year.”

At the same time, Bland Landscaping adopted E-Verify, an Internet-based system that allows employers to determine potential employees eligibility to work in the United States. North Carolina passed legislation in June 2012 requiring all employers with more than 24 workers to implement the system.

“It has dramatically changed the nature of our workforce,” Bland says, adding that labor is the company’s No. 1 challenge and hindrance to growth. “The impact this law will have on the industry in our state is, in my opinion, the single largest challenge we face.”

The economy continues to test businesses, and only the fittest survive. Bertog points out that many of the weaker firms that came out of the recession battered and worn down are up for sale.

He’s taking advantage of this opportunity. “We have done a couple of acquisitions in the past two years and we are looking at a couple more now,” he says.

While some spending has loosened up, and business owners face the unknown going into 2013, a focus on growth continues. Snow Creek Landscaping will ramp up its marketing efforts and continue to run lean, Boone says.

And all of the contractors we talked to emphasized nurturing customer relationships as a key to success. “When the economy starts picking up, we’ll have a tremendous platform to grow,” Boone says.

His company has ramped up volume because jobs have been smaller, and he considers the bright side to this. “We’ll have more referrals to pull from.”