Jim Kuenzi has seen how new-pool prices have dropped, and he’s had enough.
Several months ago, the high-end builder decided to pull out of construction for a few months until the bidding-war dust settles and he feels like he can make a decent living building the way he believes is right.
“I could see reducing my prices 5 percent, but I can’t see 20 percent,” says the president/owner of Corinthian Pools in Benicia, Calif. “I don’t think that leaves much margin for error.”
His decision is partially grounded in principle. “The only way for me to be able to get down to that level would be to change my building technique,” he says. “And I’m not willing to compromise the quality that went into my pools.”
The discouragement is widespread. Many builders report that their own price per pool is between 5- and 10 percent lower than before the economic downturn. But they find themselves competing with others charging 20 percent less.
“The jobs almost go up on an auction for what you can do them for,” says Steve Chandler, president of Custom Pools & Patio in Boise, Idaho.
And the high-end market is not immune. “You may sit down with somebody who says that they want to buy quality, and there may be three quality builders at the table,” says Steve Toth, owner of Acclaim Pools, LLC in The Woodlands, Texas. “But then [the homeowner] knew someone who knew someone who knew someone who used this other pool builder who’s not quality-oriented. They may come up with a nice design and an excellent way of presenting it. Before long, you may be looking at a $100,000 project, but they’re saying that this is a $60,000 project.”
Here’s what’s happening and how builders are responding.
The change in consumers
The drop in demand and rise in consumer expectations have caused prices to sink to astonishing levels. Ken McKenna knows this firsthand.
“We just had a customer call and say, ‘You gave me a quote two years ago for $38,000. I figure I can get it for about half that, right?’” says the president of Tampa Bay Pools in Brandon, Fla. “We had to explain that we’re not a market-driven business. Pools didn’t get inflated by 50 percent [like homes did]. People don’t seem to understand that pool prices are based on the prices of concrete, steel, pipe and labor.”
The convergence of low prices and an unrelenting credit crunch has introduced a new customer to the market — the thrifty middle-class couple looking to reap the rewards of years of saving by getting the pool they always wanted.
“We’re selling to nurses and police offices and people who have maybe government jobs,” says Cecil Fraser, owner of Swan Pools , in Lake Forest, Calif. “They have some security in their employment, so they can afford to do this, but they’re doing it without financing. And people spend less when they’re taking it out of their savings account than when they’re financing.”
Many of these customers have legitimate concerns, and it’s reasonable to ask for a discount. But some are so fixated on price that they take the lowest bid, even if they know it’s risky. “I had a client who had four bids,” says Mark Ragel, president of Patio Pools & Spas in Tucson, Ariz. “One was about 22 percent lower than the lowest of the other three. He went with the lowest guy and said, ‘I’ll take my chances. If he goes out of business, I’ll have enough money to hire you to finish it.’”
Sometimes customers exaggerate price differences to try beating a builder down. McKenna was infuriated once to hear that a longtime competitor whom he respected was charging less than he could imagine. “I called [the builder] and asked how he was doing the job for that price,” McKenna says. “He said, ‘I’m not. [The customer] told me you were.’”
The change in the industry
A number of industry conditions have lead to the pricing crisis, too. For starters, many subcontractors no longer get work from the pool builders who used to employ them, so they strike out on their own. At a time when starting a business seems inconceivable, some individuals are doing just that.
“I know four or five who have popped up in the last year,” McKenna says. “What you notice on the permit log now is it’s a much longer list.”
But the lower prices don’t only come from these new firms. Many established pool companies are drastically cutting their bids in the hopes of picking up enough market share to see them through the recession.
Builders who have been able to review competitors’ bids say their lowest-priced counterparts either list inferior equipment or downgraded practices, or simply fail to specify those things at all.
“They’re downscaling the size of their PVC pipe, they’re moving the pool equipment closer to the pool in an unsightly place,” Kuenzi says. “They’re changing their steel schedules and then changing masons, using real standard, cheap-looking tile.”
Unfortunately, pointing these things out often doesn’t work. “When we ask the client to bring in a quote, we actually do an apples-to-apples comparison. We explain that in order for this to be a fair price shop, a number of things need to be clarified,” Ragel says. “Sure enough, they find out that it wasn’t the same controller, it wasn’t this and it wasn’t that. Then they say, ‘Well, you’re only 10-percent higher — but I’m not willing to pay that.’”
What to do?
Builders who can’t or won’t lowball their prices must find other ways to compete.
When a local company goes out of business, Doug Staples will post the information on a wall. “When we’re talking to our clients, we can say, ‘He’s gone and he’s gone. This is not an automobile; you can’t trade it in. You’re stuck with it. After this many years in business, if we didn’t give a fair product for what we charge, we wouldn’t be here,’” says the president of Cimarron Circle Construction Co. in Tucson, Ariz.
Rather than lowering their prices, others will throw in an optional item for free. This way, you still maintain your base amount, even though you give something away.
For his part, Ragel, has responded by advertising low prices. “They start out at $15,000, but nobody ever buys that. They always want it bigger and they want more options.”
High-end builder Staples considered playing by the new pricing rules. Earlier this year, he and his team planned to design a template pool that would sell for about $20,000. The shell would be built essentially the same, but it would be pre-designed and have few extras. He abandoned the idea when he saw other builders dropping their prices even more as the year went on.
“Whoever is the lowest, you can find somebody else in town who’s lower that week,” he says. “I don’t want to chase them. That doesn’t make any sense.”
Some high-end pool firms have gone in the opposite direction. They cut prices a bit by streamlining, but now charge design fees to help screen out serious customers.
“We’re saying $450 for a design or we’re not going to put it together for you,” Toth says. “Everyone says quality is important, but if you’re not willing to pay $450 for a design fee, then it really must not be about quality — it must be about price.”
If the homeowners hire him to build the pool, the cost is applied to construction. If not, they have a completed set of plans that they can use to shop around.”
This method seems to be serving Toth well. He’s gone without a paycheck like many company owners, but his 25-percent boost in average pool price has helped offset his nearly 50-percent drop in volume. And his close-to-lead ratio has doubled.
Regardless of how these builders ride out the economy, they all believe that more companies will fall by the wayside — starting with the low bidders.
Scott Cohen isn’t shy about letting customers know just that. When consumers hold a lower bid over his head, Cohen doesn’t discourage them. “If it’s 20-percent lower, I tell them, ‘See if you can get them to do it for 30-percent less,’” says the president of The Green Scene Design & Construction , in Canoga Park, Calif. “I want [that builder] gone. Let them take it.
“The fact is if you’re going to charge 20 percent below market, I don’t need to worry about you for too long. I might even get some expert witness work from your pools down the road.”