Franchising Insight Building Demand Aids This Franchising Niche

Provided by

The nesting craze has been a boon to franchisees in business to help homeowners with projects, as mortgage refinancings keep the money flowing into repairs and improvements.

On a cold morning in January, California Closets franchisee Lisa Cote, age 40, is talking closets with Nicki Mancini, 37. For two years, Mrs. Mancini, her husband, and two children have lived in a 100-year-old-house in Evanston, Ill., with charming arches, elegant moldings -- and almost no closets. Her husband, a physician, stored his suits and ties in a closet in the downstairs den, and daughter Mallory, six, made do with a dresser and wardrobe. Now, as part of an extensive remodeling, Mrs. Mancini has three new closets and was looking at $4,500 worth of hanging systems, cedar-lined sweater drawers and customized tie racks to finish them off.

When Mrs. Cote asks, "Do you think Mallory would want a jewelry drawer for her earrings and a bin for her Beanie Babies?" Mrs. Mancini says, "The poor thing isn't used to anything. Sure, let's add them."

That attitude is what's driving what the Census Bureau calls a $158 billion home-improvement industry and is fueling the success of 100 or more home-improvement franchises who refinish kitchen cabinets, redo bathrooms or redecorate entire homes.

"People are nesting," says Dennis Carroll, 46, president of The Ryan Group in Hawthorn Woods, Ill., a company that produces home-improvement shows. "They're thinking about changing things around the house, whether it's a new kitchen or just replacing that leaking window in the family room."

Riding the Wave

Money for improvements has never been so available. Mortgage rates are at their lowest in 30 years and the appreciation in home values means that homeowners who refinance can take out extra money for $30,000 kitchens with granite countertops, $15,000 bathrooms with sunken tubs -- or $2,000 closets with special racks for a six-year-old's fancy dresses.

Home-improvement franchisees also sell into the new-home market. According to the National Association of Home Builders (NAHB) in Washington, D.C., 942,000 new houses will go up in 2003. In the first 12 months after purchasing a newly built home, owners spend an average of $8,900 to furnish, decorate and improve it, the NAHB reports.

Nationwide Floor & Window Coverings in Milwaukee is among the franchise companies benefiting from the trend. It started franchising in 1992 and has grown to 100 units from 33 in 2000.

Jeff Stewart, 53, of Hinsdale, Ill., bought his Nationwide franchise 18 months ago after the metals mill where he'd been an operations manager closed down. In 2002, Mr. Stewart's average customer spent $2,500, and he did three floor installations a week. But so far, he's not making a profit from his $100,000 investment ($33,900 of that is the franchise fee).

Part of the problem might be his own fault, he says, laughing. Franchisees estimate the cost of each installation themselves, based on guidelines provided by their franchiser. "We target 35% margins," Mr. Stewart says, "but sometimes, when you've been selling someone draperies for 3 ½ hours and it's quarter to 10 in the evening, you can make a mistake. I used to brag about my math skills. Now my wife will pull out a folder and say, 'How could you make $3.15 on a $1,200 job?' "

Because most of his customers come through referrals, 70% of them order something from the hundreds of samples of carpeting, laminate flooring, ceramic tile and window treatments that line his "mobile, shop-at-home" van. Mr. Stewart plans to buy more sample-equipped vans and hire dedicated salespeople to run them. Greg Schmich, president of Nationwide, says that for franchisees that have more than one van, each van should bring in sales of $1 million a year.

Handymen in Demand

Handyman franchises are another beneficiary of the home-improvement craze. These franchises target homeowners who want to change something in their houses -- from faucets to wallpaper -- but need help with the installation. As most homeowners know, finding independent repairmen and handymen can be difficult. House Doctor, which started in 1985, has 157 franchise units.

Nick DiNardo, 36, of Joliet, Ill., a former trader on the Chicago Board of Trade, says that one of his first jobs as a House Doctor franchise was for a woman who wanted a ramp for her arthritic dog -- and no contractor in town would agree to build it. It was too small a job. "After we completed the job, she cried," Mr. DiNardo says.

Like most home-improvement franchisers, Cincinnati-based House Doctor gives its franchisees -- who don't have to be handy and include a former rabbi and a retired minister -- great leeway. Mr. DiNardo invested less than $75,000 (House Doctor franchisee fees range from $13,900 to $29,900), estimates all jobs himself, and lets his three employees use their own vans and tools. But fellow franchisee Robert Woods, 66, of Buffalo Grove, Ill., a retired financial executive from AT&T, has invested more than $250,000, hired a full-time estimator, and purchased four new, tool-equipped vans for his crew. Both franchisees say the hardest part is finding handymen, even though they earn about $1,000 a week and, working for Mr. Woods, get to drive shiny new vans.

Customer Focus

Fred Berni, 51, president of Dynamic Performance Systems Inc., of Toronto, a consulting firm that helps franchisers find and train franchisees, says the key to running a successful home-improvement franchise is attitude -- you must always be positive and respectful around both your employees and your customers. And because you don't operate from a retail setting where customers find you, "you have to be out in your community at all times talking about the business."

Mr. Schmich would concur. He emphasizes to Nationwide franchisees the importance of developing relationships with building contractors, interior designers and real-estate agents. Mr. Stewart says he's had success with this approach. "I couldn't prosper if I had to make cold calls to homeowners," he says.

Home-improvement franchisees also find customers by exhibiting at home shows. Several are among the 150 exhibitors who have paid $800 each to rent space at Mr. Carroll's Spring Home Showcase at the Tinley Park Convention Center outside Chicago in March. Steve Cohen, 45, chief executive officer of House Doctor, feels home shows are so important that he'll ship a display booth to any of his franchisees who sign up for one.

Busy Schedules

Back in Evanston, Lisa Cote is snapping her tape measure around Mrs. Mancini's new closets, pointing out the best locations for belt racks, pants hangers and toy baskets. "Our literature says to allow an inch of space for each hanging garment, but you can squeeze in three to an inch," she says.

Mrs. Cote should know, because in the past 17 years, she's designed thousands of closets for customers of other franchisees and for California Closets corporate locations, plus 15 for her own family. Her husband, Bruce, 40, also worked for the company (they met at a sales meeting). Last year, when the couple wanted to buy out an existing franchisee whose territory stretches from Chicago's northern suburbs down into the city, "the price was way beyond us," Mr. Cote says. California Closets parent, the Franchise Company, in Toronto, offered to put up part of the money and act as a silent partner. They accepted.

In October, the couple took over their new digs in Wheeling, Ill. -- 14,000 square feet of offices and a manufacturing plant where workers turn mountains of particleboard into stacks of shelves and drawers. They have two showrooms, 25 employees and eight vans whose drivers install 100 to 150 closet systems a month at an average price of $2,500. In a few months, says Mr. Cote, they should turn an annualized profit of about $200,000.

Most home-improvement franchises, not even most of California Closets other 100 U.S. locations, will never get that big -- or profitable. But Anthony Vidergauz, 47, CEO of California Closets in San Rafael, Calif., predicts that the demand for his franchisees' services will only increase. `Because husbands and wives are both working today, there's a lot of stress, and mess, in their lives. In just one day we can put some of that chaos into order and make people happy," he says.

It might be a while before Mallory Mancini is happier and more relaxed, her fancy dresses and stuffed animals nicely organized. The home-improvement craze has the Cotes so busy, it will be weeks before they can fit the Mancinis' closets into their installation schedule.

From StartupJournal.com
Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved