 I would say a lot of the questions that we're getting from the manufacturers that we work with are kind of the same questions that we're getting from the supply side as well. Welcome to the Smarter Building Materials Marketing Podcast, helping you find better ways to grow leads, sales, and outperform your competition. All right everybody, welcome to Smarter Building Materials Marketing, where we believe your online presence should be your best salesperson. I am Zach Williams and my co-host today is a very good friend of mine and is about to also be partner in this event that we're hosting. Grant Farnsworth, he's the president of the Farnsworth Group. They're a phenomenal market research company in the building product space. On the show, back to talk about an event that's coming up. I promise you this is not going to be one giant plug. I will give Grant a moment to chat here, but I am just thrilled to have him on the show because, gosh, we've been prepping for this event coming up here for quite a while. Quite a while. There's a lot that goes into the event, quite a while. I'm excited. It's going to be a great event. I'm really looking forward to it. I'm just even happier that I was named as a co-host for this episode, so that's pretty exciting. No pressure. Beth isn't here, so you've got to help me carry this thing. She typically does. That's right. So what we want to talk about today is we're obviously still collecting and, well, actually we're finished with collecting, but we're still analyzing the data that we're going to be sharing at our building product customer guide event that's being held October 12th and 13th. Is that right, Grant and Denver? We're still analyzing the data, and so we don't have any insights to share there, but we do want to share with you some things. You just peel back the curtain a bit about why we've collected this data. So a few years ago, Grant, myself, and Beth were chatting and just talking about the type of data that would be really valuable for us as organizations to have at our ammunition, and we were like, shoot, this would be really great to have, and it would help our campaigns and help everyone's strategy, and then like, well, how long can we do this? Because it's candidly, it's expensive to get this data, and we're like, well, why don't we hold this event, and we'll basically allow people to come and we'll basically group fund the data for this event. And I don't know if I'm over sharing here or not, Grant, but that's kind of the idea is like, hey, you get to be part of this event and you get this data, it's much less expensive than if you were to go out and get it on your own, and you get to hear from a bunch of experts. But one thing that Grant, you and I were chatting about and prep for today's podcast is that the other thing as a part of us getting information is we started to hear some common threads of questions from manufacturers that started to influence the type of research that we were conducting, because we wanted to bring value to them too. And we know if they're asking the questions, then it's something we need to be thinking about. And so on today's show, we want to break down some of the questions that we're hearing from manufacturers. And the reason why I want to share that is because oftentimes, if you're manufacturing, you're in your, you're in your marketing group, or you're in your organization, it can feel like the problems that you're dealing with are very siloed. And if you understand it can hear, hey, this common problem is a true common problem across multiple organizations, then it can help you from a strategic standpoint to know, okay, well, they're dealing with it, or someone else's, then there's a solution. Right, Grant? Yep, you got it. Yeah, and I would say too. So, you know, Zach, I know, you know, we're both talking to manufacturers, building product manufacturers on a regular basis, our firm at the Farm with Group, you know, our job is providing custom research to help our clients make better decisions strategically and tactically. And that goes not just for manufacturers, but also retail and suppliers. So I would say a lot of the questions that we're getting from the manufacturers that we work with are kind of the same questions that we're getting from the supply side as well. So, I mean, again, I think there's a lot of what we're talking earlier, there's a lot of known knowns, a lot of known unknowns and unknown unknowns and whatever other combination thereof that apply to both audiences. So, I mean, I think it really is kind of industry-wide and they're legitimate questions. And we may not have answers to all of them, but I think it's important that we have forums like our event next month that allow us to come together and have some discussions so we can bounce ideas off of one another. What are you hearing? What are you seeing? You know, what are you guys working on to help address some of these issues? Because, you know, collectively, there may be an answer. I mean, and that's part of the purpose of the event too. I know this is a shameless plug, but we want manufacturers to get in the same room because we can bring you data and insights, but sometimes there's nothing that, there's nothing like hearing from a counterpart of another organization to go, well, this is how we're attacking this problem or this is how we strategically approach this. And that's part of what we're trying to bring to the table too. I want to break down the top three questions that we've been hearing that we're trying to use to influence the data that we're presenting and we're trying to analyze. And the first one, actually before I jump into them, there's a common thread, Grant and I were chatting about before the show, which is that every single one of these questions is about demand, right, Grant? Yeah, absolutely. And the uncertainty of the next, who knows, 12, 18, 24 months, right? Yeah, it's all about demand. And so the first question here is, is how we talked about this word a lot, how will a recession impact the demand for my products and how does this impact my strategy? Yep. Number two. Number two is how does the flip in pain of availability with now paying a pricing impact my demand? I can't tell you how many manufacturers I talked to last year, Grant. They were like, I have a good buddy who works for a manufacturer. He's like, my job basically now is to get on a call with our dealers, our customers, tell them there's a price hike, have them yell at me, and then rinse and repeat that every quarter. That's right. And now that availability has turned into a pain of price. And so what does that mean if there is a change in market climate? How does price impact my demand? And number three. Number three. And this is this is yours, Grant. I wish, I mean, I wish I, you were the one that really saw this one, but it's where is new demand coming from? Right? Like I said, all demand oriented. So, you know, let's start maybe with that first one, Zach, which is a question that we get a lot assuming we go into a recession. What does that do to our category? What does that do to my product? What does that do to my customer? And I think there's a lot of unknowns in that because while we've been through recessions before, I like the phrase history doesn't repeat itself, but oftentimes rhymes. And, you know, right now, I think we have some elements that may be similar to prior recessions, but we have some elements that are different, that are going to dictate how you might view your business and your strategy for this recession differently than prior recessions. You know, I think for our industry, the home improvement, the building product space, you know, there's still some, some solid activity and some solid movement because of the supply and demand fundamentals that we've got going, which we didn't have in 2008, which we didn't have in 2009. So, you may be thinking about your business a little bit differently than just looking back to the last big recession and feeling like you have to treat things the same today as you did, you know, whatever that was 15 years ago. We think it's going to be a little bit different, Zach. I don't know what you're believing, but, you know, we would probably put more emphasis around maintaining and still trying to gain share as opposed to building strategy around a doomsday scenario, which is what I think happened in the last great recession where there was just cutbacks across the board because demand just went away. Sales declined so dramatically, right? I was talking to Greg Brooks about this. I don't know if it was on the podcast or not, but he brought up a really good point that the last recession in 2008, the housing market and the construction market was at the forefront of why the recession happened. He's like, but if you go back to like the dot-com boom and bust and you look at previous recessions, oftentimes the housing market is the one that pushes people out or pushes the economy out of the recession. And so I don't, I'm not going to venture to say that we're in either of those cases, but what I will say is that I talked to manufacturers on a daily basis. And I'm always trying to get like, hey, give me a pulse of like demand. Are things slowing down for you at all? And the common answer I hear is like, no, not slowing down. We're still, I mean, like, I have a buddy who works at a manufacturer and from manufacturer, I was like, how are things? He's like, I was like, if I told you the amount of backlog we have, like, how far it runs out, he's like, it would, it would make you like, like, This is fascinating. We're hearing the same thing. So I mean, you know, between our two firms, we're probably talking to a hundred manufacturers a month, right? We, you know, colleagues, Adam and Andrew, you know, they've been going down around to trade shows recently over the last couple of weeks. We're attending events at Harvard, we're going to OP EI events here in the next couple of weeks, we've got Equip Expo. So we're regularly on the street talking with manufacturers. And what's been hilarious is just that comment when you talk to a manufacturer and ask, you know, what's your view of the world? How's your business? The majority are optimistic. We're out at an NHB event where there was, I don't know, probably 75 manufacturers in a room. And I just had everybody raise your hand. Are you optimistic about the next kind of 18 months in your firm's ability to grow sales? And I would say 75% raise their hand. But what's interesting is when you talk to me, start digging a little bit deeper, particularly at a trade show, they'll say, yeah, you know, actually, our backlog is really strong. Like our sales are up. Like, we see growth here for the next 12 months, they'll point to the competitor next door and say, but I don't think those guys are going to do it. Or is it a hope that they don't? Probably a little bit of both. But again, I think it's this belief of like, well, we think the industry is doing bad, but our firm is continuing to do good. But every manufacturer kind of has that same view. So I think it's separating this narrative of what we hear in the headlines versus actual reality. There's a prominent builder who I've heard, I don't know the individual specifically, but I've heard that the big build in the US, the only data point that they look at from an economic standpoint is consumer confidence. I was like, that's really interesting because it's like, for how many manufacturers out there, if they lived in a silo, they didn't have the news, they didn't have all these different outlets, what they think of recession is happening. I mean, that's a hard question to answer. But you think about it, it's like looking at their backlog, looking at these different things, are they feeling as much as maybe they would in the past? I don't know. I think that's a really good point. And we look at confidence on a monthly basis, just as most other firms do as well. And what we've noticed over recessionary periods, even non-recessionary periods, when there's just choppy waters in the market is that there's a lot of knee-jerk reactions on the consumer side of the world when rates go up. I mean, we've seen this historically, I mean, our business has been around for 30 plus years. We've seen this a multitude of times where mortgage rates go up and there's this knee-jerk reaction for 30 or 60 days of like, oh my gosh, oh my gosh, what to do. And then everything normalizes. And it's people come to realize, okay, and mortgage is five and a half percent. It is what it is. I want to go get a new house. You know, the other thing, too, is like, if you listen to really smart investors, and this is in other markets, too, they often talk about those moments, Grant, as like, that's when you make money. It's like, oh, what's going to happen moments? Because there's this pause in the market around decisions because people want to see what's happening. But the people who have the most conviction in those moments that continue with their strategy tend to be the ones that say, oh, well, now is my time to pass. That's a great point. That's a really great point. Do you see this kind of short-term confidence or is this a long-term implication where we're going to be, you know? What I've heard from other manufacturers, I think, is really value is that the last couple of years has been like, do whatever we can to keep up with demand. Like, keep our head above water as much as possible. Just supply ship it. Make it and ship it. Make it and ship it out. The common thread I'm hearing, and I don't know if this is true or not, but it feels like we're getting back to a normal state. In some regards, of normal push and pull, like, I've got to work for sales. I have to work for these different things in the past, which is a very normal market environment. It's not just do it. Your job isn't let me just keep up with what's coming. It's okay, I have to actually fight in certain scenarios to get what's coming. And I think this is an important thing. Maybe this is going into our question number two, our topic number two, but I would agree with you, Zach. And I think that's a conversation we've been having with a lot of our manufacturers is they're starting to get back to some more traditional strategic planning. For almost two and a half years, so many folks and organizations were just putting out fires. We can't keep up. We can't keep up. We can't keep up. And it was a shell game. We're going to move some inventory here to keep this customer happy. And then hopefully we can get this customer filled in in two weeks and just kind of shifting things around on an almost a daily basis. How many manufacturers do you think are on allocation right now still? I think it depends on the category. So we're starting to hear some categories are looking okay. Slowly. So if you jump to the second question about the flip of the, we say here, the pain, biggest pain the last couple years is availability. When am I going to get my product? And now it's moving to price. And there's probably still some of that there, the availability component in some category. Still an issue. But I'm curious to get your sense of like price and you hear about this, like what are some of the things you're hearing from other manufacturers in that regard? So I think it starts at the customer level, right? So we think about like everything is about the customer we serve. What's interesting is that because of the demand that has existed for the past two, two and a half years, the low availability of product but also the low availability of labor, we've got a lot of trades that are still six months out, nine months out. So this idea that there still have yet to start or wrap up projects that were budgeted and approved prior to these price hikes, prior to all the inflation that we're experiencing now, we maybe haven't fully realized the homeowner's concern for budget, more contractors having to resolve those budget issues. And as we're starting to, as we're talking to contractors more recently over the last couple of months, those contractors that are working through their backlog and now having new project conversations are beginning to hear the budget implications from the homeowner. So I think it really starts kind of on the homeowner side. What they're comfortable spending, price of materials are going up, borrowing money is getting a little bit more expensive. So I'm still going to do the project, right? But instead of spending 100k, I've got 75k to do it now. So I think for us, it's going to be starting at that customer level. And I think it's important for our industry and manufacturers to realize just because your contractors haven't been pushing back on you with pricing maybe as much yet, they probably will. And it may be due to the fact that they've still got projects they're wrapping up that have really strong margins and high dollar, high ticket items. Or they're looking at other options without letting you know. That's a great point too. And I think that's what we're going to start seeing. So that's what I would say to manufacturers. If you haven't gotten into some serious pricing strategy planning, you're probably a few months behind the ball right now because you've got to get back to this good, better, best. What does your merchandising play look like? How are we going to gain, share and maintain what we've got? That's the world that we're in now. Like you said, it's I think more of a normal environment that manufacturers have to be working in and suppliers have to be working in. Gone are the days where we're all benefiting because we just have so many more customers and so much more demand. You've got to fight now to maintain and to gain. Agreed. What are you guys hearing on price? I mean, how are your clients? We're not hearing a lot in terms of people pushing back on price. But in the conversations, we do like a lot of firsthand interviews with different audiences. We are hearing people, they feel like there's little room to budge with the existing partnerships and the existing manufacturers. And that's why I said, I think that you're going to start to see that they're going to price shop more heavily than maybe they have in the past or even more recently because it's the perception of, gosh, this is absurd how much I'm paying for this product. I used to pay this amount and now I'm paying this amount. I wonder what else is out there. Even if everything is more expensive across the board, the idea that it's more expensive is pushing people to consider doing more price shopping and or product shopping. And I think they're doing this amongst contractors as well. So we just released our Farmsworth Contractor Index for Q3 years, another shameless plug. So our Farmsworth Contractor Index each quarter talks to hundreds of residential trades. And for the first time in the last few quarters, we saw a decline in closure rates amongst the trades. But they're still saying the quality of leads are stronger than historical averages. So the quality of leads is still really, really high, but their ability to close on them is starting to drop. So Zach, I think that speaks exactly to your point of, I know the homeowner is going to be doing the work, but maybe now they're talking to two or three other trades likely because budget is more of an issue than it was a year ago where they just said, great, if you're available, you're hired, come on in and do it. That's right. So speaking of leads and things of that nature grant, let's talk about where's demand coming from? Because I think this is like the question. We all want more demand. And a better question might be like, where's the demand coming from that I don't know about? Or I need to be planning for. So can I ask you that question I put on you, Grant? And I know it's hard to speak to that. If you're not watching this on YouTube, if you're listening, Grant just gave me like, are you kidding me? I'm going to make me try to answer that. You're going to have to answer too. I have my answer. I want to hear your answer first because, again, I want to try to be thoughtful in my response. I'm going to try to one-up you. Sure, great. That's going to be an easy thing to do, Charlie. So first, I want to maybe preface the answer with I was talking with an economist earlier this week, actually, and he was citing some stats and I'm citing some stats and we both started laughing and we realized that you can find data to support either a pessimistic view or an optimistic view right now. So almost any argument you want to make, there's probably some data out there and some market movements out there to support your argument. That's how wonky things are right now. That's how choppy things are right now. There's a clear point and counterpoint to a lot of things going on. That said, some of the things that we look to as far as where demand is going to come from, again, we track a lot of supply and demand fundamentals across new construction as well as existing. We see the existing home side being an area of opportunity. When you think about it statistically, you've got only four, maybe 5% of the population moving any given year. We had an increase in mobility during the pandemic, but prior to pandemic mobility rates were declining. I think we're going to continue to see those decline as we get back into post-pandemic life. I think people are going to stay in their homes longer. I think that's driven by a number of factors, the primary of which is the supply that's out there. We don't have a good supply of existing homes. New home supply is starting to become very strong, but the price points aren't achievable for most homeowners. I think we're in a position where people are choosing to stay home because it's not worth selling, taking that equity, and going into a new house that maybe isn't even as good as what they're leaving. I think the demand side of things is strong for existing home. We look at the equity picture as well. Over the last two years of the pandemic, we increased our equity in this nation of our homes by 30, 35% somewhere thereabouts. Even if equity nationally drops 5%, we've still realized two years of massive gains. We're still above, on average, we're above $200,000 of equity per home in this country. That's an insane amount of money that homeowners can pull on to do improvements, knowing that they don't have an option to move anywhere else. I think when you look at some of those fundamentals, it really supports existing home activity. The age the housing stock continues to go up, so there's going to be some things that are required to do to maintain the home. I think when you look at the DIY activity levels over the height of the pandemic, a lot of DIYers have exhausted their capabilities. They've done all the little projects around the house. Now it's adjusting for this lifestyle that is here to stay that's new. That's a hybrid world where I'm working from home. I may be going in the office. I want a healthier space. I want an outdoor space. These are larger projects that I can't do. I've got $200K of equity in my home. I'm going to go find a contractor to do it. We're starting to see project sizes go up. We're hearing that from contractors. I think that's where the opportunity lies. I would say existing home contractor, when you look at that quadrant of new existing DIY versus pro, we're saying existing pro is really where some of the growth is coming from. I think when you look at some of the forecasts for the next 12 to 24 months, that is driving the growth in a lot of those forecasts, whether it's from Harvard or from here or whomever. There's my long-winded answer. Top that one. Well, you quoted an economist. I'm going to quote Cardi B. I saw a great tweet. I forget the individual's name. She's the chief economist at Redfin. She shared a video of Cardi B basically going off about how nobody's going to move. Everyone's locked into a 2.75% rate. You're not going to leave your house with your current mortgage for another house. Wait a minute though. If we're taking advice from Cardi B, are we both failing at something? You said it top you, man. The economist was quoting Cardi B. I'm basically just quoting the economist. Does that mean that Cardi B is an economist? I don't know. That's another episode. I think what I'm trying to do here is I'm trying to reinforce the point that I think you just made, Grant, which is that if I'm going to think look at demand and my product has anything to do with renovation, that's I think a slam dunk, easy place to figure out how I can position my product, position in the marketplace, how I sell, wear, or sell using that information. You've got incredible amount of equity built even with the current some price reductions in different markets that I think it's hard to look at, look at the renovation market, especially from residential standpoint as one that's not going to be frothy over the next year or two. Yeah. And I think it's going to vary by category, right? It's going to vary by category, by trade type, certainly by market. I mean, when you look at a Boise, Idaho, for example, they had a hockey stick unlike most markets, so they're naturally going to see more declines and corrections. But I think there's just like so many opportunities across the country and a lot of categories that are associated with health and wellness and outdoor and kind of this work remote type of thing that those categories, I think, plus you've got the classics that always have the highest ROI, which is a kitchen model, bathroom model. I think those things are going to continue to be strong. How many people are going to do an addition? There's literally no way, so from a perspective, there's literally no way I can do an addition like in my house, just the way my house is structured. And I was talking to my wife yesterday, I'm like, well, what if we did stilts? And she's like, are you crazy? I'm like, we could do it. We could totally do it. I bet you we could find a contractor that would make this reality happen. You're going to be waiting for two years for your permits. I know, it's absurd. But think about this. So here's a total other topic that I think is really, really exciting for the industry. I know there's always some new thing that comes along. Oh, tiny homes. That's the way of the future. I think the new one right now that we're all talking about is ADUs. So if you think about your perfect example for this, Zach, well, we can't really add on to our existing house. But I've got like a half an acre out back, like maybe I just build a new structure. Codes are changing pretty quickly in a lot of markets to allow for ADUs. And that might be just one of these smaller opportunities as we think about the next two years of growth and what happens in a market like Denver. I'll throw my kids down one of those. I'll throw my kids down in ADU. We have a bunch of space in my house. There you go. Grant, this has been awesome, man. I can't thank you enough for coming to the show. If someone wants to get in contact with you, what's the best way for them to do that? With me personally, you can feel free to email me gfarmsworth at thefarmsworthgroup.com. But truly, I would encourage anyone to just go to thefarmsworthgroup.com. Check out some of our resources. Check out some of our blogs. We're always happy to share our insights that we're learning from our clients, our colleagues in the industry. We've got some secondary reports that we continue to put out on a monthly and quarterly basis to help inform not only ourselves, but the market. So thefarmsworthgroup.com is always a good place to go and I always love talking to you, Zach. I agree. Grant, thanks so much again. And for our listeners, if you want to attend our event, check us out at vmdo.com slash 2023. We've got a few spots left for that event. We hope to see you there. Until next time, I'm Zach Williams. Thanks, everybody.