The New Normal
Santa Barbara Glass completed the glazing on many buildings within The Collection retail complex, including the recently opened Whole Foods, pictured.
During a meeting of California glazing contractors this June, Dan Hope, president of Santa Barbara Glass Co., joked with other executives about trying to describe the “good ‘ole days” to young employees. The good ‘ole days they were referring to were those pre-Great Recession days, when backlogs were strong, the new construction and remodeling markets were booming, profit margins were reasonable and banks were lending. “The Millennials entering our industry see us old-timers complaining about how hard it is now, and how it never used to be this tough to do work,” Hope says. “It’s the opposite of the story our parents told us, about walking to school, uphill in a snow storm.”
When the construction market plummeted in 2008-09, it started a chain reaction in the glass and glazing industry of bidding wars, decreased profit margins, layoffs, and ultimately, company closures. Today, the market is reversing course, with economists at Reed Construction Data predicting incremental growth through 2013 and 2014. Total nonresidential construction, for example, is forecast to increase 5 percent in 2013, and 7.2 percent in 2014.
However, the current market is still markedly different than its pre-recession self, as are the glass and glazing companies that survived the downturn. Among them is full-service glass company Santa Barbara Glass, sbglassmen.com. Now leaner and smaller than it was in 2007, the company is poised for growth after making some tough decisions the past few years. Glass Magazine recently sat down with Dan Hope, president, to discuss his company’s story and what business is now like in the “new normal.”
The Chain of Events
For Santa Barbara Glass, it all began when the floor fell out of the construction market —first residential, then nonresidential. “There were not as many negotiated jobs, and eventually, the market virtually dried up,” Hope says.
Commercial construction starts dropped 26 percent in 2008, and 43 percent in 2009, according to the Construction Outlook 2010 report from McGraw Hill Construction. Companies desperate for work began chasing after jobs in other areas that saw activity. “Privately funded commercial jobs started to become extinct. Contractors who played only in that arena jumped into the public sector with no clue as to how hard those jobs are to manage, and the paperwork involved,” Hope says.
Fewer jobs meant more competition, and with more competition came increasingly low bids. The large number of bidders “created a feeding frenzy and drove the prices way down,” Hope says.
|Santa Barbara Glass employees fabricate the framing systems for an H&M clothing store at The Collection shopping complex. Photo courtesy of Dan Hope.|
That chain of events created a big squeeze on glazing contractors: glass companies began to feel increasing pressure from general contractors, banks, bonding companies and suppliers.
As the slow construction economy lingered, the practice of low bidding caught up with subcontractors and general contractors, and many operations closed their doors. This created a second wave of challenges to already-struggling glass companies: Banks tightened up lending practices, and bonding companies became more stringent with their requirements.
“When you hear that banks aren’t lending to small businesses, it means they are cutting back on the loan amounts for our line of credit, and for some businesses they are not renewing those lines at all,” Hope says.
The closures of many glazing contractors created a tightening from glass and metal suppliers as well. “Our suppliers [were] burned by so many of the ‘biggest losers,’ and they watched their competitors go out of business. Some [began requiring] deposits up front, and all of them started calling you at 30 days [for payment],” Hope says.
The New Normal
In the “new normal,” as Hope refers to it, it’s a buyers’ market. Before the recession, many general contractors would use a team of preferred subcontractors on projects. “In good times, we would bid to only a few general contractors, and they would only have a select few qualified subcontractors bidding. Now, we have eight to 12 general contractors bidding, and they all bring as many subcontractors as possible to the table,” Hope says. “We see mass emails and mass faxes of bid invites going out to everyone they have ever done business with.”
This practice drives bids down, Hope says. “There is no such thing as the lowest ‘responsible’ bidder,” he explains. “We now see bid spreads that are not explainable. And even though the owner and the general contractor know the subcontractor has blown his bid and is really the ‘biggest loser,’ they continue on and wonder why he goes broke, or the bonding company has to take over his scope and massively delays the job.”
In order to re-establish relationships with general contractors, Santa Barbara Glass has been completing pro bono work. “We find ourselves doing more pro bono work [for] general contractors and their staff in hopes of gaining back that loyalty we once enjoyed,” Hope says.
As cost concerns continue to hold bid prices down, Santa Barbara Glass has also shifted its focus to lower-cost solutions for customers. “We have to look at every job with the thought of, ‘how can I save this customer money and give them the best value at the same time?’. This might mean using a high-end supplier’s entry-level products,” Hope says.
On residential projects, many homeowners are taking the time to become more educated before they invest. “Now, residential customers go online to find out all they can before purchasing a high-end shower enclosure,” Hope says. “I find that many people believe that prices on the Internet are always going to be the best prices. We decided to invest in our website and upgrade it to try and capture some of this market.”
Now, the company’s website allows users to request quotes for any residential glass project, from broken glass, to custom projects, to showers and mirrors. The company also offers free home estimates and design consultations.
“If your company has survived to this point and not gone into massive debt to get here, you must have had good foresight and preparation,” Hope says. “You most likely cut every overhead expense possible, and committed to working harder than you ever had for much less money than you ever expected to. But, you made it to this point, and [you] will survive.”
During the recession, sales fell by about 50 percent at Santa Barbara Glass, forcing executives to make a series of painful cost-cutting decisions.
“As a company, we have had to make so many changes [since 2008]. I would say, the most difficult [decision] was laying off key staff who had worked for us for years, as was moving key staff to lower positions,” Hope says. “We were forced to lay off union glaziers who had not been [laid] off for many years. We also had to furlough the office staff that remained.”
Since 2008, the company has reduced its staff by half. Prior to the recession, Santa Barbara Glass employed 34 people—nine office staff and 25 field employees.
The company currently employs five people in the office, with a fluctuating number of field personnel, depending on job schedules and backlog. Currently, the company has 11 people in the field. “We had to cut our overhead in every aspect possible,” Hope says. “We cut everything from the size of our trash dumpster and the number of days a week it was dumped, to officer salaries, and everything else possible.” The company also looked to reduce facility costs. “As time went on, and as our market share reduced, we realized the only portion of our overhead that we could not cut was our lease, and that was a large chunk [of our overhead],” Hope says.
Hope and his business partner investigated reducing the square footage of their warehouse space, moving to a smaller building with the hope of purchasing, and even opening multiple locations. In the end, the company opted to move from its downtown Santa Barbara, Calif., location to a warehouse space in nearby Carpinteria—a difficult moving process that began in April 2013 and wrapped up the end of June.
“Making the final decision to go for the move was not an easy one. It included many lost nights of sleep,” Hope says. “At the end of the day, we have a newer building with more square footage, and a lease with an option to buy, in a nice location with an ocean breeze.” However, the moving process was far from easy. “Moving a company, and doing it all yourself, is no easy task,” he says.
During the downturn, construction was halted on The Collection, a 650,000-square-foot outdoor shopping center in Oxnard, Calif., a major project for Santa Barbara Glass Co.
The challenge for Santa Barbara Glass was more than just making cuts, Hope explains. It was knowing when to make those cuts.
“It wasn’t something you could look up. You couldn’t buy a book that would tell you how to do it, and what you needed to do to survive. We did reach out to other professionals for advice, but ultimately, my partner and I created an emergency action plan on our own. This was our guide, our map, for how to try and survive.
“If we had not looked to the future, and not created our emergency plan, we would not be in business today,” Hope says. “It is critically important for all small businesses to constantly look in the mirror and make sure they have done all they can to continue to survive. You need to have your own way of evaluating your financial strengths and weaknesses in your unique market. You have to know your business and try to project what the future may or may not hold for you, and be brave enough to make decisions—good or bad—based on those projections.”
Today, things are looking brighter for Santa Barbara Glass. And, it’s not just the ocean air or the view of rolling foothills and avocado groves from the company’s new location. The challenges of the last five years—and the resulting business decisions—have left the company poised for growth in the post-recession construction economy, Hope says.
“Because we took action early on, and continued to cut our overhead at every level and every line item, we have positioned ourselves to survive,” Hope says. “Not only will we survive this economic downturn, we have learned some very valuable lessons that we would otherwise have not. It’s impressive to look back and see some of the waste we used to think was normal. We are now operating about as lean as possible, and as sales improve, this will only help our bottom line.”
The company’s backlog is increasing, and the economy is beginning to pick up, Hope says. “We are hiring back some of our people, and finding new and very talented people who were let go from other companies,” Hope says. “We are very much looking forward to a healthier economy in our new location, with fresh talent, operating in the ‘new normal.’”