The Finish Line: EIFS and the Economy
September 26, 2008
It’s pretty obvious that the U.S. economy is now in a depressed mode, and that home sales, and building construction in general, are two of the many affected industries. Over the last several decades when the construction industry slowed down, EIFS was less affected than other claddings. This, of course, is good news for people involved with EIFS-at least compared to people involved with many other wall products.
But why is this? Doing market research as part of my EIFS consulting business has provided me with some interesting insights as to why this happens. Read on for some encouraging information about the effects of the current national economic situation on the EIFS business.
Why Do People Buy EIFS in the First Place?
After 30 years of dealing with EIFS, I am convinced that most EIFS specifiers, such as owners and designers, do not use EIFS for many of its technical virtues, but do so mostly for various other reasons. The exceptional energy efficiency of EIFS, for instance, is not nearly so much of a factor in specifying EIFS as is cost, good looks and design flexibility. Selecting EIFS as the cladding for a specific building is thus based on a number of factors, and mainly is a result of EIFS being a “good overall value.” In other words, EIFS provides a lot of bang for the buck.
The bottom line in selecting EIFS is often simply price. As people in the EIFS industry know well, sometimes it gets down to pennies-per-square-foot. This includes when the economic times are good, and when the times are sluggish. This needs to change.
So what happens when the economy slows down? Owners and specifiers want their projects to be completed and look for ways to make that happen. They look to lower cost alternatives and for similar looking products. For example, it’s hard to tell the difference, from a visual standpoint, between a precast concrete panel wall with a textured coating on it, and an EIFS panel. So when the specifier is looking to “value engineer” some money out of a project, EIFS gets a hard look as a less expensive alternative to more expensive materials.
But the question begs: “If the building is already specified with EIFS, then how do you switch to something even less expensive?” It’s hard, as there isn’t anything, with all EIFS’s advantages, near the price. This is good, as the job remains an “EIFS job,” and the show goes on in terms of completing the project.
Selling Versus “Order Taking”
A bit of history: when EIFS first came into the North American market, the reception was lackluster-oil was cheap and energy efficiency was not a big deal. In other words, EIFS was a tough sell. Also, people thought EIFS was “cheap” in the sense of not being a durable product-it was inexpensive and wasn’t substantial. To sell an EIFS project you had to go out and persuade (aka “sell”) the use of EIFS. Things have changed. EIFS is accepted now and is mainstream-a commodity if you will. Being a commodity, however, changes the dynamics of the EIFS business.
That ‘tough sell’ situation of the early 1970s changed dramatically when the oil embargo occurred in 1974. All of a sudden EIFS became a ferocious tiger in the marketplace, garnering market share from all sorts of traditional claddings. Energy savings was “in,” at least for the short term. This surge in use of EIFS did not make the brick (and other) industries happy-and the still-ongoing struggle for market share continues.
Below is a graph, care of the EIFS Industry Members Association, of sales in the U.S. over the last decade or so. Note the steady rise in square footage sold per year.
But EIFS still had an Achilles’ heal-EIFS was still the new kid on the block in some specifiers’ minds. Less adventuresome specifiers liked the idea of sticking with traditional, proven materials, and to them EIFS was not a proven product, yet. That changed quickly as large numbers of impressive, big EIFS projects were completed. The EIFS industry blossomed. Why?
The reason is simple: EIFS was sold, not just ordered. It was not a matter, back then, of simply getting a good price per pail. The advantages of EIFS had to be explained-or “sold”-if you will. Fortunately, EIFS has a huge number of positive features, and smart specifiers soon realized that it actually was a proven product (with decades of successful use experience in Europe) and that it did a great many things well.
Things have changed since then. EIFS is virtually a commodity now, and price often rules in selecting EIFS brands. This is sad, as the many advantages of EIFS are quite sellable, even though, honestly, it’s hard to tell many EIFS products apart.
So when times get tough, the ability to sell EIFS becomes more important. Now is such a time.
I’ll be the first to admit that I am a bad “closer.” I like to sell products on their merits, not price, and no one can out-talk me on the technical merits of EIFS. But I do not have the gift of sales gab, and don’t have the gift of a sales personality in my psyche. So sometimes I get brought in to help close a big deal involving EIFS-as the “nerd with the answers.” It’s satisfying and a lot of fun to be part of the selling process.
In these sluggish economic times it is important to realize that EIFS does have a lot of advantages, and to get back to the basics of a more technical sale. Things like good local sales, technical, and field support, are critical. Most of the people in the EIFS industry that I know have been very close to their customers and suppliers and earned their business. Such relationships can last for decades. In particular, finding and nurturing relationships with quality installers is critical for a handmade product like EIFS. And some unique EIFS products themselves do have individual sellable features that differentiate them from other EIFS products-so product knowledge can help make the sale.
The Price Issue
I think one of the problems that the EIFS industry has now is that prices are too low for what you get. This means low margins for all those in the construction food chain: producers, distributors and contractors. Along with low prices come minimal services, such as design and field support. I really do think that the price of EIFS can withstand at least an across the board increase of 20 percent for the installed cost. This extra built-in money would allow the necessary support to be available to assure quality projects. This increased price must be sold, though.
This “higher margins” was one of the big reasons why EIFS took off in the ’70s and ’80s. There was enough money in the sale to make sure this new product would result in good projects. And it did. A star was born.
If you think this is nuts, consider: what other wall cladding are they going to use instead of EIFS that is anywhere near the price? EIFS is so inexpensive compared to many similar good-looking claddings that there is a huge spread between EIFS and the next level of pricing. In areas where other claddings are prevalent and very competitively-priced, such as brick in the east, brick prices are low enough to compete with EIFS. But try to convert an EIFS job to brick in Seattle. Brick is rare in my old Pacific Northwest stomping ground and for good reason: there’s no clay to make them from.
It’s no surprise to those active in the EIFS business that the residential market is more volatile than the commercial market. This is especially true now with the foreclosures and overstock of available homes. The troubles in the mid-’90s with wall problems in the residential market, which was blamed on EIFS, have had a lingering effect.
The bottom line is that in slow times the commercial market is more stable, and that marketing of products and services to that market are more likely to garner business than trying to sell EIFS to homeowners. The cost-of-sale into the commercial market is also lower, as there is more square footage of wall material for the amount of time you spend working with the designers and contractors to secure the order. Also, the light commercial market (shopping centers and low rise offices) is not much different than the home/residential markets, so the transition is easy for contractors.
Winners and Losers
In tough economic times, sometimes projects get delayed or cancelled and nothing gets built at all. Clearly, some aspects of the building cannot be changed, like the wiring or the foundations. But some parts are discretionary, such as fancy interior finish materials and even the exterior cladding.
To save some bucks, sometimes EIFS is substituted for something more expensive, as a way to get down the total cost of the building. This happens all the time and is the reason why EIFS market share tends to stay stable and grow despite the economy in general.
The same applies to other exterior wall products. For example, the first things to go are the nice-to-have materials. Green materials are a prime example, as often they cost more than traditional materials. Despite green materials’ many advantages, when push comes to shove, the wallet rules, and the pricier products get cut. Such is the sign of our times and values. Bluntly, if you’ve got to save some money to stay in business, then the more expensive product choices get axed. EIFS’s high value and pricing is what keeps it in the running.
Make the Call
One of the best business speeches I ever heard was in the early 1980s. A leading distributor of EIFS products gave a rousing speech at a large meeting of EIFS distributors. The speech was later dubbed “Make the Call.” It was about salesmanship and persistence and working hard to make multiple sales “calls” to grab the business. This speech was very inspiring, especially for me, who is a bit of a nerd and not a salesman at heart. So when the economy is slow, go ahead and be sure to “make the call.” W&C