Uncharted Waters

Since the beginning of March, the country has been working to contain the spread of the coronavirus and, as a result, the economy has seen its worst performance since the Great Depression. In many instances, the results are not as dire as had been predicted, but that doesn’t lessen the aggressive impact this slowdown has had on the industry.

The coronavirus pandemic has disrupted the normal course of business. Industry experts weigh in on the current business environment

By Paul Deffenbaugh

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Metal Construction News asked five industry experts to weigh in on what was happening in the industry.

How long do you think it will take the industry to bounce back?

Dale Nelson: I am of the opinion that we will not have an immediate bounce back. I think it will be the early to middle of next year before things return to a steady state. There are just too many variables for the market and consumer confidence to quickly return to a long-term comfort level. When will COVID-19 social distancing end? When will a vaccine be available? Can we resume safe travel? How do we get people back to work? Election season is here and what are those implications? Will racial tensions be calmed? I do feel confident that overall business optimism remains good, and most folks I talk with feel the economic hit we have taken is short term.

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Chuck Howard, PE: In our retrofit roofing industry, the demand never drops off. Existing roofs do not heal themselves. Over the years and through all types of industry highs and lows, the retrofit roof market has remained basically steady. Now, the funding for this type of work goes through cycles that tend to follow the major economic indicators, but when these indicators impede, money funneling into retrofit roof projects merely temporarily suspends the ability to move forward with a project, not cause it to disappear as a potential project. In the case of the current pandemic conditions, that time should be in the one- to two-year arena. However, there are still plenty of projects and funding during that time to maintain a reasonable amount of work. Of course, for a contractor or manufacturer that is not heavily into this market, expanding into this industry will be an additional revenue source, which could help to fill in any gaps that might occur in their traditional markets.

Todd Miller: I believe that different segments of the construction industry will bounce back differently. Certainly, jobs currently under construction for the most part will be completed. I am hearing that new construction still on the drawing board of most all types though is on hold, and I really think that it could be two to three years to see that sort of work bounce back. The future is just very uncertain right now for all but a few types of new buildings and expansions.

As far as residential remodeling, I think it will come back quickly. We are seeing significant interest in our products and a lot of bidding—particularly for very nice, large homes. I think mid- to high-end consumers are anxious to make investments and get the economy rolling again. Major remodeling projects including even metal roof and wall panels are typically investments where a large portion of the cost remains local. Construction projects typically benefit local economies far more than if, say, that homeowner went out and instead bought a nice luxury vehicle. We need to tell the story of how quality building materials are a great pathway to economic recovery because of the need to hire local workers to install those products.

Metal Construction News conducted three surveys about the impact of the coronavirus pandemic between the end of March and the middle of May. (You can find complete results at www.metalconstructionnews.com/coronavirus-survey.) Over just more than a month, attitudes and tactics among contractors, architects and manufacturers have evolved. There is little that better showcases the increasing acceptance of the situation than the changing attitudes toward the coronavirus threat. In the first survey, 58.4% of respondents said the coronavirus threat was very dangerous, but a month later that had more than halved to 23.8%.

The most notable change is among those who view the coronavirus as not very dangerous or not dangerous at all with 27.6% of respondents in the May survey claiming that compared to just 7.8% in the March survey.

Jim Tuschall: Based on construction in the Chicago area, I think a significant rebound will occur sometime in the first quarter of 2021. Real estate investors and developers will be cautiously analyzing how the recent shutdown is affecting downtown apartments and office usage, and will move forward in all sectors with new distancing ideas.

Daniel Miller: Depending on the market sector, some parts of the industry will take a few years, while other parts a few months or not impacted at all. Overall, similar to past recessions, the industry will likely take it’s time bouncing back. It will also probably bounce back differently for different companies.

Business owners who were forced to dramatically downsize during the past quarter will likely struggle with growth and be leery of capital expenditures or taking on debt to build. Owners who were less impacted by the economic shift will likely hold off on construction as they wait and see when the best time is to build or expand their facilities depending on an opportunity cost analysis. Any owner that grew because of the market shift will continue building and expanding their company while benefiting from the now excess capacity of the construction market.

Unfortunately, there are probably more businesses in the downsize category than the growth category. With the recent industry impacts, many construction companies were forced to downsize as well. With less competition, this could help the market bounce back faster for those of us who were not impacted and continue to grow. Sure Steel continues to be fortunate to have a strong backlog of work with dependable clients in growth market sectors.

As business people, what is the greatest change we’re facing as a result of the coronavirus?

Nelson: Many businesses have had a significant loss of revenue as a result of being shut down for several months. Many will basically have only a nine- to 10-month revenue year with 12 months of expenses. I would expect several construction projects to be put on a temporary hold until things re-stabilize and revenue streams become predictable. High unemployment will reduce overall demand for consumer products.

Our greatest challenge will be to manage the fear of returning to a business as usual position. The public has had a big scare of being infected by a “killer” virus. Establishing acceptable protocols for interactions with the public, our clients and employees will be key in returning to regular business activity.

Howard: Initially the greatest challenge was the inability to travel to meetings, jobsites and sales calls to conduct business as usual. We adapted very quickly to teleconference and videoconference meetings and webinars. We then had to adapt to the challenges of knowing how this media source works. While we are all still adapting to this method of communication, we are realizing that this way of conducting business will be more efficient in all aspects of our businesses.

While attitudes about the threat of the coronavirus itself declined considerably, the concerns about its business impact did not alter much at all. Across all three surveys, more than 90% of contractors, architects and manufacturers were very worried or somewhat worried about the business impact.

Within that cohort, there has been a shift, though, from 62.9% saying they were very worried at the end of March to only 41.9% expressing the same concern in the middle of May.

Todd Miller: I think the whole idea of social distancing is a huge change for an industry that is typically very personal and relational. How do you build those relationships when it’s hard to meet face-to-face or, if you are meeting face-to-face, when you can’t see their face because of a mask? The reality is these sorts of things may be more commonplace in the future so we have to figure our way through it. Transparency, empathy and authenticity are, in my opinion, the three most critical keys to building relationships while social distancing. We have to be prepared for the likelihood that things will not revert back to 2019 standards in the near future and, with the speed of change, in fact, they probably will never go back to 2019.

Tuschall: Keeping employee morale and office safety in check to reduce fear among staff.

Daniel Miller: The health and safety of our employees is our top priority. Each contractor and owner we work for has approached jobsite regulations differently to keep workers safe. How we, as the construction industry, collectively resolve the best way to be safe will change the trajectory of how we build and manage our businesses in the future.

Have we solved the labor shortage issue? Why or why not?

Nelson: We have gone from full employment to 20% unemployment in two months by mandate from our health officials and local governments—a real gut punch to us all. What real demand for our products and services will look like between now and next year is yet to be determined. This will drive our labor needs.

Another uncertain component will be the re-patriotization of our overseas manufacturers. How many will return and what does their workforce need to be in terms of education and numbers? I think it is pretty clear we need a capable and educated workforce. Providing that workforce will begin with the school system, trade associations and corporate training programs to transition new and currently unemployed workers back into the system where they will no doubt be needed.

Howard: The labor shortage is temporarily not the main topic of conversations in our industry due to the coronavirus epidemic caused layoffs in other industries. This does not mean that the construction industry, and in particular the metal building and roofing industry, will find itself in the same dilemma as the epidemic effects on construction decrease. Now is when we need to expand our training and hiring policies to attract qualified individuals into our industry by making ourselves look more appealing to them as a career job.

Todd Miller: I do not believe we have solved the labor shortage. The labor shortage was never so much a shortage of warm bodies as it was a shortage of warm bodies who saw fields like construction and manufacturing as viable career opportunities for them personally. High unemployment numbers will drive a few folks to our industry but by and large we still need to be ringing the cowbell about the value of careers in our industry. We are dealing with a new generation that has not spent a lot of time outdoors nor doing construction projects with their families. I think of things like the “Build a birdhouse with your parent” Saturday morning events at big box stores are actually great ways to get the next generation thinking of construction as a career choice.

The left side of the chart represents the percentage of contractors who haven’t postponed any jobs and the right side indicates those who have postponed all of their jobs, with a continuum between them. Comparing the results of the May survey to the April survey, we can see that contractors have become more likely to postpone jobs, with the largest percentage of them (33.1%) saying they had postponed less than 10% of their jobs.

The number of contractors postponing a large percentage of jobs—greater than 50%—declined over the month between the two surveys. As contractors work through the backlog, they are also figuring out how to do the work under the new social distancing restrictions.

Tuschall: Not at all. We are still struggling to hire qualified union labor. The extra unemployment benefit is also interfering with some individuals coming back to work. There has been a shortage for quite some time and the unions have not been able to attract member growth.

Daniel Miller: Yes. Market growth over the past decade has given a lot of construction companies opportunities to grow, which resulted in the labor market shortage. With the recent industry impacts many construction companies were forced to downsize, increasing nationwide construction unemployment and offsetting the labor shortage. Sure Steel continues to be fortunate to have a strong backlog of work with dependable clients in growth market sectors. As the market continues to shift, we are looking for talented individuals to join our team. We are hiring.

What is the best tactical move you’ve made to address the changing market?

Nelson: Tactically speaking, I fall back on my years of sailing experience and remember the old adage “Sail in the wind you are in.” All the forecasts about upcoming headwinds, tailwinds and shifts are meaningless until they happen. We are looking at several economic possibilities and discussing plans of action to adjust when or if they occur.

Currently, it is difficult or impossible to meet with clients face to face, so finding which best digital medium or even the basic old-school phone call that works best for your company is important. Contact clients and remind them you are still here and are willing and able to serve their needs, then ask what they are experiencing.

Read a lot for a broader perspective of what are other businesses are experiencing. Watch for the return of travel activity and ultimately prospect attendance at tradeshows. We are placing more emphasis on timely content in our newsletter. Most importantly, be ready to change when you need to. If demand flattens or slows, identify what planned improvements or equipment needs can be postponed. If demand jumps, how will we bring more production back online quickly? Will we have enough material on hand? How quickly can we bring needed labor back and train them for our needs?

Howard: Our engineering company has completely modified how we are doing business as it relates to owner sales meetings, project job meetings, sales webinars and general communications with owners, contractors, manufacturers and company personnel meetings. Leaving the office, or asking others to come to our office for such meetings, is being severely reduced, saving time and travel costs for all involved.

Todd Miller: Our primary business is providing specialty metal roofing systems for mid- and high-level residences. We believe that, increasingly, those customers are going to make purchasing decisions based on referral and reputation. We do not believe that they will continue to invite six contractors to their homes then choose the low bid. Ultimately, that seems like a good thing for us. They will instead focus on working with companies they know and trust.

So, Isaiah Industries has really upped its social media game and its web content in order to gain mindshare and positive perception from homeowners and contractors. We also instituted a COVID-19 response program of producing and giving away more than a million flexible metal nose strips to mask makers (www.metalnosebridge.com). This has helped us a great deal with brand awareness and perceptions.

Finally, I think that solar will continue to be a critical component of the residential roofing market. So, we’ve been working on the development of integrated solar as well as components that can be used with traditional solar systems.

While contractors were slightly less inclined to postpone jobs, they were more inclined to cancel them. In the April survey, 62.6% of contractors said they had not cancelled any jobs, but in the May survey, 55.6% made the same decision. However, if you compare contractors who report they have cancelled more than half their jobs, you get similar responses between the April and May surveys.

Tuschall: We closed our office for almost three months and provided electronics as needed so office staff could work from home. A few employees came to the office on an as-needed basis in a limited rotation of no more than two at a time. Working from home enabled daily tasks to be completed. During some downtime, we asked staff to reach out by calling, emailing or texting favorite customers and suppliers, which strengthened relationships. We also actively added project pictures to our LinkedIn company site to remind our followers of our capabilities.

Field staff was well-armed with proper PPE and continued to work with caution. The general contractors have been doing a fabulous job of assisting and coordinating work to maintain proper distancing.

Daniel Miller: I think the best advice that I can give is for companies to look inward at what they do and whether or not the value they provide is still in demand. If it is, their business will weather this storm. If it isn’t, I suggest getting the right people in their business into a room to recalibrate their strategy.

What is the most important thing that needs to happen to get us back on track? Access to capital? Consumer confidence? Leadership? Other?

Nelson: For many business people and certainly for myself, I think stability is key. The politics of our government can really do a great deal to set the tone going forward. We currently operate in a business-friendly environment, so there is a comfort level that once we get through the pandemic, we can get back to focusing on our businesses. Nationally, moving back toward full employment as soon as possible will help bring back consumer confidence and spending. The re-opening of our country—in a responsible way—will help re-energize all of us. We have all learned from this unpleasant experience, and that knowledge will help guide us should we be confronted with something like this in the future.

Howard: The short answer to those questions is patience, planning, diligence and, most importantly, the willingness to do whatever is necessary to move your business forward. You must have faith in how your business has succeeded in the past, but also be open to modifying this process slightly—or heavily—as new opportunities and ways to do business appear. On a personal note, in 1979, when the interest rates were approaching 20% and you couldn’t give away a new metal building project, I developed a method to retrofit flat roofs and convert them into sloped metal roofs. That move launched a new industry and has given me the opportunity to traverse through many economic ups and downs for over 40 years. Keep what is still working and supplement with new ideas that make sense, but never stop moving forward and, most importantly, never, ever give up.

Across the board, the types of problems contractors are facing as a result of the coronavirus threat have been more prominent since the April survey with two exceptions. Respondents are less likely to cite slower payments and reduced leads. About 50% of contractors say they are experiencing slow payment issues, which is down from 64.2% in the April survey. For reduced leads, the percentage of respondents reporting that issue dropped from about 50% in April to 37.9% in the most recent survey.

Todd Miller: People build and buy based on emotion. I know that this is not the easiest of times to invest in developing new products but I do think that new products with enhanced features, more contemporary styles and colors, and also with integrated solar will be the things to get people excited about building and remodeling again. For higher-end customers, this has not been a huge financial crisis. They still have the funds to build and renovate. We just have to get them emotionally excited enough that they want to make those decisions now rather than wait for some undefined future moment.

Also, in some cases, the products are already here. We just have to do a better job of getting them in front of property owners and the design community.

Tuschall: Definitely consumer confidence. Investors need to feel safe about using their capital on construction projects that will give them a safe return with minimal risk.

Daniel Miller: High level, I believe the root of getting back on track is found in building consumer confidence. Though, all of the suggested solutions above, and more, are co-dependent to improving the current situation.

In more detail, the health of the U.S. construction market, like other markets, is dependent on the global economy. When consumers have confidence, they spend. The economy benefits from business goods purchased and sold domestically and internationally. Jobs are added. Businesses reach critical mass as they react to the demand for their product. Then follows capital improvements which benefit the construction market and what we do. As contractors, the demand for what we do is built on the foundation of consumer confidence.