Professional Remodeler

1
Professional Remodeler Growth Opportunities In
The Kitchen Bath Cabinet Business
2
Business Rationale

• Questions
• What Are The Benefits And Risks For A Successful
  Remodeler To Focus On The Kitchen Bath Market
• What Are The Business Growth Opportunities
• What Are The Expectations For Margins,
  Investments, Skills Staffing, Etc.
• What Business Models Are Available To Enter This
  Market
• What Is The Competitive Landscape
• What Are The Sources Of Information And/Or Who
  Can I Discuss This Further With

3
Market Overview

• Economic Downturn Has Severely Impacted All
  Construction, Remodeling And Building Products
  Related Industries
• Increased Restrictions Availability Of Credit
  Has Compounded And Accelerated This Market
  Decline
• Current Economic Market Indicators Continue To
  Decline
• Recovery Forecast Expected To Begin No Sooner
  Than Late 2009 Or 2010
• Most Geographic Markets Have More Capacity Than
  Demand Fostering Price Erosion Entrants From
  Related Industries (ie new construction)
• Many Companies Are Transitioning From Generalist
  Commodity Products Services To Focus On High
  Value/Benefit Specialty Market Segments

4
Kitchen Bath Remodel Market

• KB Market Overview
• Market Is Transitioning To From 70 Remodel - 30
  New Construction To 88 Remodel - 12 New
  Construction
• NAHB R Survey Of Most Popular Remodel Projects
• Kitchen Remodeling
• Bath Remodeling
• Room Additions
• Whole house remodeling
• Windows / door replacement
• Bath additions
• Finished basements
• Siding
• Decks
• Roofing
• KB Industry Is Estimated To Be Approximately 8B
  To 9B Down From 13B In 2006 (both NC and
  Remodel)

5
Kitchen Bath Market

• Average Project Size 20K To 50K (range 10K -
  250K)
• Market Channels
• Tradition KB Dealers
• Home Centers
• Regional Lumber Building Supply Stores
• Direct (local cabinet shops)
• Direct To Builder (some major cabinet suppliers)
• Remodeling Kitchen Bath Dealers
• General Remodeling Contractors (buy from
  channels, distributors, home centers or local
  cabinet shops)
• Emerging KB Opportunities Home Studies/Offices,
  Closets, Theater Rooms, Finished Basements,
  Garages, Mud Rooms, etc.

6
Kitchen Bath Dealer Structure

• General KB Dealer Characteristics
• Location Showroom To Illustrate Product Lines
  Selection (location typically in retail area)
• Advertising Reputation To Attract Prospects
• Professional Experienced Designers With Working
  Knowledge Of Product Lines, Accessories, Kitchen
  Configurations, Appliances, etc.
• Cabinet Company Backing Leads, Marketing
  Material, Systems, Training, Promotions, etc.
• Installation (direct employees and/or
  contractors)
• Warranty Administration
• Access To Financing (depending on supplier)

7
Kitchen Bath Remodel

• KB Remodel Project Requirements
• Tear-out Of Existing Cabinets Appliances
• Redesign Installation Of All Cabinetry
• New Countertops
• Tile (backsplash) Wall Covering
• Flooring
• New Appliances
• Lighting
• Electrical Plumbing If New Layout Requires
• Painting
• General Remodeling doors, windows, walls, etc
• Bath Shower, Tub, etc.

8
Kitchen Bath Dealer Structure

• Limitations Of Many KB Dealers
• Design, Sell And Install Cabinets Only
• Some Dealers Manufacture Countertops (or contract
  to local supplier)
• Some Offer Affiliated Products (ie plumbing)
• Many Kitchen Bath Dealers Do Not Have The
  Capability To Contract All That Is Required To
  Remodel Higher-end Kitchen Projects. They Must
  Depend On, Or Refer To, Outside Contractors To
  Manage And Execute The Project.

9
Remodeler Opportunities

• Remodeler Capabilities
• Full Design/Architecture Of Full Project
• Project Management Of Entire Project
• License/Contracting Of All Trades (direct or
  contract)
• Single Source Contract
• Additional Services

10
Remodeler Opportunities

• Why Consider KB Project Focus
• Market Focus Increase business through building
  reputation for KB remodeling in addition to
  general remodeling
• Repeatable Projects Potential for reduced margin
  erosion risk through repeatable experience and
  focus on cabinet projects (higher margins)
• Product Content Margins 20 - 40 of projects
  have product content (margin potential)
• Dealer/Manufacturer Backing Marketing, leads,
  training, consumer financing, sales
  representatives, etc.
• Scalable Revenue growth is not 100 labor
  dependent

11
Remodeler Opportunities

• Why Consider KB Project Focus
• Indoor Projects Not dependant on weather
• Licensing No special licensing in most areas
• Opportunity Expansion Potential downstream
  opportunities for remodeling projects in other
  rooms (closets, basements, offices, baths, etc)
• KB Are Among The Top Remodel Project Needs
• Kitchens Baths Are Among Top Influencers In
  Home Resale Selection
• Kitchens Investments Can Increase Market Value Of
  Home
• Good Cash Flow Business

12
Remodeler Opportunities

• KB Business Approaches
• Establish Business As Full KB Remodeling
  Distributor
• Showroom Facilities Investment
• Trained Designer Staff (experienced designers
  yield 500K to 750K in revenue in a well managed
  showroom)
• Storage/Warehouse Facilities For Staging Product
• Trained Installers (contract or hire)
• Marketing Investments
• Gross Margin Expectation 30 To 40 On Product

13
Remodeler Opportunities

• KB Business Approaches
• Partner With KB Dealer/Distributor
• Leverage Dealer Investments Showroom, Design
  Skills, Facilities, Marketing Programs, Delivery,
  etc.
• Provide Full Remodeling Services
• Backing From Manufacturers (materials, web sites,
  leads, etc)
• Gross Margin Expectations 10 On Product
  Component

14
Manufacturer Expectations
15
Manufacturer Expectations

• Cabinet Manufacturer Criteria
• Involvement Commitment To Remodeling Industry
• Product Range/Styles To Cover Opportunities
• Reputation For Quality (finish, defects,
  completeness)
• Channels Of Distribution (conflicts?, home
  centers?)
• KCMA Certification
• Environmental Certification (ESP) Or Commitment
• Reliability In Delivery
• Lead Times Variations
• Completeness Of Order (missing or wrong parts)
• Delivery Service (contract freight carriers?)

16
Manufacturer Expectations

• Cabinet Manufacturer Criteria
• Distribution Programs To Support Remodelers
• Training Programs (product, selling, design,
  installation)
• Leads Market Recognition (advertising)
• Local Sales Representation (quality, support?)
• Web Site Support (reference, tools, etc)
• Access To Company Support For Remodelers (Web,
  E-mail, Telephone Hotline, etc.)
• Services (tools, seminars, programs, etc)
• Product Warranty

17
Discussions / Questions
Contact Kevin ONeill General Manager Wellborn
Cabinet, INC. E-mail koneill_at_wellborn.com Phone
256-354-1765