Supplier Biz Suffers Development Demise

Over the past year Don Willard, manager of Bradco Supply Corp. in Lowell, has watched his payroll decrease from 23 employees to 17.

The employees left on their own Willard said, but slow business has allowed the store – which supplies builders everything from roofing materials to windows – to operate with fewer employees.

Hundreds of local business owners, like Willard, who operate behind the scenes to make building project possible, are watching the slowdown in construction wreck their bottom line.

“We are definitely seeing a decline in business from builders,” said Veldia Rideout, store manager for Metro Builders Supply in Springdale. “It’s hit us hard. We saw it coming and there were some things we were able to avoid but the decline has definitely left its mark.”

According to a 2005 economic impact study conducted by the National Association of Home Builders, the construction of 100 single family homes generates $16 million in local income, $1.8 million in taxes and revenue for local governments and 284 local jobs.

Sixteen different industries see at least $1,000 in revenue with the construction of 100 new homes, the study said.

During the area’s housing boom in late 2005 and early 2006, an average of 550 residential building permits were purchased each month, theoretically creating more than $88 million in local monthly income.

So when construction slowed in late 2006, the revenue followed suit.

Feeling the Pinch

In 2005, 6,638 residential building permits were purchased in the Fayetteville-Springdale-Rogers MSA, according to the U.S. Census Bureau. In 2006 the number of permits decreased by 18 percent to 5,452 permits.

For the first three quarters of this year, there have only been 2,715 building permits purchased in the MSA.

The difference in permits purchased from 2005 and 2006 equates to a $190 million loss in local revenue, and the area is on pace to lose more than $438 million compared to 2006.

Since the beginning of 2006, a total of $628 million in local revenue has been lost from the residential construction decline.

Most business owners said they knew the slowdown would hit, they just didn’t realize it would pack this much punch.

Now with fewer dollars coming in from residential contractors, local business owners and sub-contractors are buckling down for another difficult year and along the way finding new ways to make ends meet.

“It has become much more difficult for us to make money,” Willard said. “I know that long term this correction will be positive but it has been hard and I know there are still a couple of long, lean years ahead of us.”

The Ripple Effect

Based on data from the NAHB and the U.S. Census Bureau, in 2006, residential construction generated $872 million in local revenue and $98 million in taxes and local government income for the Fayetteville-Springdale-Rogers MSA.

The construction industry saw the largest chunk of earnings from the building. In 2006 alone, residential construction generated $402 million for the Northwest Arkansas construction industry.

During that same time the wholesale and retail trade industry brought in about $59.9 million.

Hundreds of businesses in Northwest Arkansas depend on construction for revenue and growth and for years the Northwest Arkansas economy profited from the success of the residential construction industry.

But when the building boom came to an end in late 2006, the revenue stream feeding local businesses began to run dry.

“Residential construction makes up a majority of our business,” Kevin Anderson, owner of Marks Electric & Plumbing Supply said. “We definitely saw this coming, but it is definitely a little more dramatic than we thought it would be.”

Business owners declined to share revenue numbers and the amount of business they have lost from the construction slowdown.

Because builders are not able to put up houses at the rates they used to, many contractors have turned to other opportunities for income.

And in some cases that has meant leaving the bills unpaid.

Willard said he’s seen a lot of his customers become delinquent on their payments or refuse to pay their bills altogether.

“We have a very aggressive attorney,” Willard said. “He knows all the state law and works for us to get our payments. We try to contest bankruptcy filings by our customers whenever we can.”

But many business owners have not been afforded that same freedom and must simply endure the hard times.

“We are trying to be smart about this and trying to work through the slowdown,” Jeremy Blakeley, owner of Expert Fence Co. in Bentonville said. “We are still working but we’re not making as much as we would be if the slowdown hadn’t occurred.”

Alternative Solutions

For years Anderson built his business and his product lines around residential contractors’ need. But changing times have meant changing business practices.

“Many of our customers have made the move to the commercial side so that’s a natural progression for us to follow them into that market,” Anderson said.

Anderson is not the only business owner trekking into new territory. When business slowed in the residential construction sector, many contractors made their way into new industries and markets and suppliers and sub-contractors have quickly followed suit.

Rick Maxwell, owner of Security Services Inc. in Fayetteville, said the residential slowdown hit him harder than expected. As a result he has begun using commercial work to fill in the gaps.

Business isn’t booming. But Maxwell said, every little bit counts.

For those business that were already in multiple markets, leaning on other sources of income has helped them keep up the bottom line.

“We have a three-pronged marketing approach,” said Chris Brothers, Northwest Arkansas manager for Pella Windows and Doors. “We traditionally work in the custom home market, we also have a commercial division and we do replacements and remodels. The custom home division has definitely taken a slump but we’ve maintained our business through focusing on our other two tracks of business.”

Jeff Collins, an economist and partner in Streetsmart Data Services Inc. in Fayetteville, said it is not surprising that people have moved into the commercial market. 

“My gut feeling is that it takes some of the edge off but I doubt it is big enough to make up for the decline in the residential market,” Collins said.

A growing remodeling sector has also pumped some much-needed revenue into the local economy.

Chuck Wade, regional manager for Meeks Lumber and Hardware, said many of the Meeks locations in Northwest Arkansas have seen a rise in the number of customers looking to remodel their existing homes.

“This fall has been kind of a pleasant surprise, things have perked up a little bit for us,” Wade said. “We’re predicting a pretty good spring for remodeling as well.”

And while the Northwest Arkansas housing market continues to struggle, other area markets are proving to be much more lucrative.

Willard said Bradco has begun expanding its service area and has found Branson, Mo., to be a slower but steadier source of income for the company.

Anderson said he has also moved into the music capital of the Ozarks and has found that business from the area has helped him make his bottom line.

Toughing it Out

The slowdown has been rough for all, but some are choosing to find the light at the end of the tunnel.

“It’s kind of like cleaning up after the party,” Anderson said. “It’s not always fun but we are taking this time to do all those things that we always wanted to do.

“We just opened our third showroom in Branson and added a high-end plumbing showroom in Springdale. I would have never had time to complete those two things if business had kept at the rates we saw last year.”

Wade said Meeks has also begun promoting their product showroom at the Springdale location.

For business that sale higher-end products, the slowdown has not been as rough.

Construction has not slowed as dramatically for higher-priced homes and business owners said they are seeing only a small decline in high-end product sales.

“It all really hasn’t affected us all that too much because we don’t do that much sales with the average homebuyer,” Aaron Smart, sales director for Schwartz Stone Co. in Springdale said. “We have a higher-end clientele base that is continuing to build despite the slowdown of the rest of the market. We continue to do well in this market.”

Collins said the slowdown has also weeded out those that were in the industry for a quick buck.

“We are seeing some people that needed to go away leave the market,” Collins said. “The market is a sort of cruel arbitrator of what works and what doesn’t work.”

Veterans in the industry said for the current correction will have long-term, positive effects on the market.

Willard said he has survived multiple market downturns and has always lived to see the better days.

“I was in Oklahoma City during the oil boom and bust,” Willard said. “I saw how deep it can get. I don’t think we are that bad here. In the long term the correction will be a good thing for the market.”

Looking forward, most business owners said they will continue doing what it takes to make ends meet until the housing market hits its stride.

But everyone said they are being realistic and hoping for 2004 sales levels to return, not the boom they experienced in early 2006.

“I don’t foresee the situation improving until 2009,” Willard said. “That means we still have a couple of rough years ahead of us.”