INTELLIGENCE REPORT: The Great American Staycation

Cue up any one of Home and Garden Television’s landscape shows – “Landscapers’ Challenge,” “Get Out, Way Out,” etc. – and there is no mistaking that the keen consumer interest in outdoor rooms has grown roots.

In fact, a 2008 Propane Education & Research Council survey revealed that 42 percent of homeowners have a finished outdoor room, an increase from 35 percent three years ago. Of those who have these retreats, 64 percent are spending more time in them – 75 percent use their outdoor rooms two or more times weekly and 30 percent use these spaces daily to relax, cook, dine and entertain.

The landscape is an extension of the home and design-build contractors have profited by providing clients high-end, wow-factor features (fireplaces, waterfalls, tiki bars equipped with flat screen TVs, etc.).

In today’s more challenging economy, the project well has not dried up by any means. In fact, 57 percent of the 304 landscape architecture firms surveyed recently by the American Society of Landscape Architects reported average or above average billable hours in the second quarter of 2008 – slightly higher than first quarter results.

The reason? Many households cut back on summer travel this year – a Rand McNally survey found two-thirds shortened or cancelled summer road trips. As gas prices continue to climb in a belt-tightening economy, many Americans are spending even more time in their backyards.

Still, designers like Scott Cohen, whose projects at The Green Scene Landscaping in Canoga Park, Calif., range from $500,000 to $800,000, notice that even clients with money to spend are keeping a lower profile.

“A client signed a $250,000 contract for a backyard remodel and asked me not to put up one of our signs that says we are doing this job,” Cohen says, noting the marketing tool generally creates buzz in a neighborhood, which reels in more business. “I asked why,” Cohen continues. “They felt uncomfortable spending this money, knowing what’s going on in the economy. They didn’t want to show off to the neighbors.”

Compared to commodity services like landscape maintenance, design/build has proven more resilient, though no less challenging, some firms say. Professional Landscape Design conducted its first Design/Build Intelligence Survey this year to find out how firms that offer this custom, attractive service – one that inevitably comes with larger price tags than other landscape offerings – are doing in spite of the economy, housing market, rising fuel prices and consumer tip-toeing.

Design/build was the fastest growing service for 37 percent of design/build firms who responded to the survey, with maintenance falling close behind at 32.5 percent. When we polled all companies (even those that do not offer design/build), the design/build sector still came in strong with 24 percent of respondents reporting it will be their fastest growing sector in 2009, behind maintenance at 36.7 percent. With the average design/build business boasting revenue at $875,282 ($137,865 higher than landscape contractors offering other services), and a total net revenue increase of 10 percent expected this year, design/build companies are not faring too poorly despite dipping customer confidence levels amid negative economic headlines.

In general, design/build business owners sum up their bread-and-butter sector as challenging, but promising and “as good as you are good,” all as long as new construction isn’t the company focus.

SLOW TO DECIDE. Most design/build companies agree consumers think twice before jumping into a project more today than they did before.

Doug Freer’s average job and work backlog have both shrunk as a result of job loss and a sunk housing market that the president of Cleveland Heights, Ohio-based Lawn Lad calls “a double whammy.” Design/build work that used to be booked four to six weeks out is now down to a week or two.

While customers who want to rebuild patios; renovate backyards; and add walkways, fire pits or water features are still calling, they aren’t making fast decisions. “The sales cycle is longer,” Freer says. “Before, when they were more flushed with cash, they were at ease with making a decision sooner. Now, it’s, ‘I’ll probably not do this until fall.’”

Fall sounds good to Freer if that means he’ll eventually win the business. “The seeds we are planting now will be harvested next year,” he says.
 
Fifty percent of Professional Landscape Design survey respondents said residential customers are scaling back construction projects, while only 22.5 percent said commercial customers are doing the same. Only 28 percent of design/build businesses reported residential and commercial project cancellations. On the commercial side, nearly half of respondents (48.8 percent) said customers sent work out to bid. And, while work may be slowing in some segments, 45.3 percent of respondents report making 10 percent or greater profit margins on design/build projects.
 
In the greater Washington D.C. area, design/build becomes a bigger part of Bill Trimmer’s business every year. “We are booked out as far as we were last year and the year before, and we keep at least a couple of months backlog on the books,” says the president of Professional Grounds Inc. “It’s certainly growing faster than our maintenance department,” he adds, echoing survey results. 

Daryl Schauss, president, Cedar Run Landscaping, Aldie, Va., expresses similar views about the Capital City market, and he’s earning the same profit margin on jobs he did last year – anywhere from 10 to 30 percent. The difference is, clients are asking about phase work more often and are signing on for smaller jobs. His average project is about $10,000; before it was closer to $30,000.
 
Interestingly, Dalton Hermes, CEO, Hermes Landscaping in Lenexa, Kan., says his company has completed $30,000 jobs in neighborhoods that generally aren’t calling for big-investment services. “Owners of smaller homes are spending larger amounts than we’ve seen before,” he says. Hermes offers financing to assist (see “Money Talks” on page 7).

NEW CONSTRUCTION SUFFERS. Most firms report renovation business is still strong, even if contractors are taking on more jobs to meet last year’s revenues. The new construction market is another story. While Hermes’ leads are up 50 percent, “those aren’t new construction,” he clarifies.

“While the majority of landscape architecture firms reported steady or increased work, the housing troubles have certainly slowed some segments of the market – especially major real estate developments,” says Nancy Somerville, executive vice president and CEO of ASLA. “Landscape architecture firms have turned to high-end residential work, commercial development and public sector projects to mitigate most of the slowdown from the housing market.” 

In Andy White’s opinion, “if you are aligned with the building industry, you are going to suffer more,” explains the president, Wayside Landscape Services, Asheville, N.C., who has made it a point not to align with builders in his 25 years in business. “I never wanted this company to be pushed around by the housing market. We go after people with money to invest, and when the conditions for investing are poor, they invest in the things they know and feel the best about, and that’s their homes.”

Hermes prefers to gauge his company’s success by measuring what he can control. His design/build department will grow by 25 percent next year because of improved execution and sales, particularly more customer follow-up from designers and accurate pricing from estimators. “We are more sensitive to price resistance on a select basis,” he says. “By doing a good job with things we can control, we marginalize what we cannot control.”

Rather than riding economic highs and getting bruised during downtimes, Hermes focuses on efficiencies. That’s what successful design/build contractors will have to do this year and next to maintain profitability. As Cohen says, simply: “We’ll work smart and play it tight.”