By Karen Dybis
Large gourmet kitchens with center islands. Oversized bathtubs and ceramic tiles adding drama to attached bathrooms. Plantation shutters and all the other niceties today’s buyers want.
Sounds like an upscale dream retreat? Yes, indeed. Only these are amenities found within the manufactured homes being created by Troy-based Champion Home Builders Inc.
Champion - which provides factory-built housing and other structures throughout the United States, western Canada and United Kingdom - has been growing rapidly over the past two years. Its success has come in part from offering today’s budget-conscious buyers an alternative to apartment living or the long waits associated with traditional building methods, said CEO Jack Lawless.
“When you buy a car, they don’t ship you the parts and you make it at your driveway. The most efficient way to make a house is to make it in the factory, just like a car, toaster or sofa,” Lawless said.
Just three years ago, Champion was exiting its Chapter 11 bankruptcy and trying to figure out what to do next. At that point, the company had about $500 million in revenue and some 3,700 employees worldwide, Lawless said, so there was reason to look forward. Restructuring, rebuilding its staff and expanding its building capabilities were among Lawless’ top priorities when he joined Champion in February 2011.
Today, Champion is on track to double that revenue to nearly $1 billion, Lawless said. This incredible turnaround comes in part because of the company’s “laser-like focus” on execution, pruning its processes to be lean and mean as well as adding clients in new industries, including hotels, colleges and apartment complexes, he said.
“The owners that brought us out of bankruptcy gave us access to capital, which we were able to reinvest in the business. We also added some key people and retained key people. That’s very important because you cannot build a business without the right people in place,” Lawless said.
Champion describes itself as the nation’s leading producer of modular and manufactured homes and commercial buildings. That division, Champion Commercial Structures, is now the leading commercial modular supplier in North America. Champion’s homes are sold mostly through a network of independent and company-owned retailers.
Champion’s story is being repeated throughout the housing industry. Publicly traded and privately held home builders are saying they are seeing improvement across the board, especially among entry-level buyers. Building-supply chains, such as Menard’s, are rapidly expanded in Southeast Michigan. And furniture and case-goods retailers including Monroe-based La-Z-Boy are enjoying boosts in revenues as those new homeowners look to fill their dens and family rooms.
There are positive economic indicators locally and nationally that give people reason to believe in buying a new house. For example, unemployment rates are down; it was 7.4 percent in July for the nation and 8.8 percent for Michigan. Many other indicators such as retail sales also are on the upswing, giving people confidence to spend more on housing and other necessities.
More importantly, home values are up. Home prices rose 12.1 percent for the 12 months ended in June, according to the Case-Shiller’s 20-city index. And the jump in values means more than 3 million homeowners are now above water on their mortgages. At the end of June, 12.2 million homeowners were underwater, a Zillow analysis showed. That’s a big drop from the 15.3 million that were out there a year ago.
While there are still challenges for an industry hard hit by the last national and statewide economic recession, analysts say the housing industry is working hard to regain its revenues and hire enough employees to ensure that growth can be sustained over the long term.
Data from Sageworks Inc., a New York-based firm that specializes in the financial analysis of privately held companies, shows industries related to home improvement and building are showing strong growth, said company spokeswoman Melinda Crump.
Wall Street analysts expect publicly traded home-improvement retailers like Home Depot and Lowes to report stronger sales throughout 2013. Markets also are focusing on the latest reports on new and existing home sales to gauge momentum in the housing-driven part of the economy, Crump added.
“Our latest data shows very positive growth for private homebuilders as a welcome sign in that industry. It’s important to remember that even though the sales growth is increasing significantly, this industry has climbed out of a hole since 2009,” said Sageworks analyst Brad Schafer. “On that note, homebuilders may face challenges again, such as increased material and labor costs, as well as rising interest rates. Slow growth in employment numbers may also present as a limiting factor down the road.”
That also has translated into positive growth for other companies, said Sageworks analyst Libby Bierman.
“Three industries closely related to home improvement - home furnishings, building supplies and furniture retailers - each had healthy sales growth during this period, and they also had increasing profit margins, which could have been caused by the boost to their top line. As demand and revenue go up for these stores, it will be easier for store owners to cover their fixed costs and turn a profit earlier,” Bierman said.
“Though the housing market today still isn’t as strong as it was before the financial crisis, our data shows that consumers during the past 12 months have been investing in goods to improve their homes. Privately held stores within the home furnishings and building supplies industries had higher sales growth during the past 12 months than at any other time since the recession,” Bierman added.
On a further positive note, real-estate groups are starting to report cautiously that the U.S. housing market may have stabilized. There certainly is evidence of this across Metro Detroit, where some cities including Northville have remained hot and others such as the Grosse Pointe communities are seeing some well-priced homes sell in a week or less.
ZipRealty Inc., an online technology powered residential real estate brokerage firm and real estate marketing solutions provider, said in its August Housing Trends Report that the marketplace is showing a renewed strength based on its analysis of MLS data.
“Home listings, median days on market and pending sales all remained relatively unchanged over the past six weeks. Additionally, the increase in median home prices moderated from 16.8 percent year-over-year in our last report to a still-strong 15.8 percent,” said Van Davis, ZipRealty’s president of Brokerage Operations.
“Home listings remained 12 percent above 2012 levels as of July 31, 2013, at 170,492 in the markets we serve. As we noted in the last Housing Trends Report, several metros on the West Coast, which have had the greatest supply imbalances, are now seeing the biggest increases in listings. Listings grew 34 percent in Denver, 25 percent in Washington, DC/Northern Virginia, 24 percent in Portland, 22 percent in Orange County and 21 percent in both Seattle and San Diego,” Davis said.
Moderate enthusiasm is the name of the game at Champion as well. Thanks to lower interest rates, a shortage in apartment vacancies and an upswing in housing values, Champion’s products are moving again in both Metro Detroit and elsewhere, Lawless said.
Millions of homes made
Champion was started 56 years ago as a single manufacturing facility in Dryden, a small town in rural Michigan. Founders Walter W. Clark and Henry E. George had their work cut out for them; during that first year, each home was built by hand at a pace of two per week.
The company moved to Auburn Hills for a time, but it has since established its headquarters in Troy. It has about 4,300 employees worldwide; about 3,200 of those are within the United States, Lawless said. Champion is privately held with three majority owners including Centerbridge Partners LP, MAK Capital Fund LP and Sankaty Advisors LLC.
Previously, Lawless was the president of Headwaters Construction Materials Inc., a manufacturer of building products based in Wixom. Prior to that, Lawless was president and CEO of Tapco International Corp. He received his B.S. degree in Economics from Kalamazoo College in 1983 and his MBA from the University of Notre Dame in 1985.
Since its beginning more than five decades ago, the Champion family of builders has produced more than 1.7 million factory-built homes for homebuyers throughout North America. As a result, you can find Champion-built structures in every neighborhood from rural to urban and everything in between.
Generally, the manufactured-home industry reports that its products provide quality and performance at prices ranging from 10 to 20 percent less per square foot than conventional site-built homes.
“Through our modular building process, Champion is able to save time and labor costs throughout the building timeline. Without sacrificing quality, modular building takes approximately 50 percent the time of traditional building,” Lawless said.
Plus, the kind of homes Champion produces ensures people who otherwise might end up in apartments because of financing or other issues can enjoy the pride of ownership.
“You get a lot more square footage for the money. We can give you a home that’s 1,200 square feet at the same price or less than a rental apartment,” Lawless said. “These are great starter houses and alternative to apartments. Everything’s square and energy efficient. They’re indistinguishable from a site build.”
Offering high-end amenities like the kitchen islands and oversized tubs are among the reasons Champion is seeing so many new consumers interested in its homes as well, Lawless said. These features appeal to female buyers, and most of the buying decisions are being made by the woman of the house, he noted. That is another reason Champion uses name-brand products in its home construction, including G.E., Daltile, Broan, Owens Corning and Georgia-Pacific.
Moreover, in the past decade, Champion has received 17 industry design awards including “Best New Home Design” and “Excellence in Home Design” from the Manufactured Housing Institute (MHI) and the National Association of Homebuilders (NAHB).
“A lot of people haven’t noticed the changes; they remember their grandfather’s manufactured home or modular house as opposed to what’s really out there. These are as luxurious and more well-appointed than some $500,000 homes. (Our homes) are probably one of the best values out there today,” Lawless said. “We’ve got great interior features, like the upgraded kitchens and baths. Those are things that consumers have been asking for, and we’re listening to what they want.”
Lawless believes one of his main jobs and that of the company as a whole is to continue to improve Champion’s product and processes. He has targeted areas such as sales, financial and manufacturing as top priorities. But he is also aware of the importance of social media and marketing to keep Champion relevant with shoppers.
He also wants to keep a sharp eye out for new opportunities, especially in hot housing markets. Because most of its labor is based in the manufacturing, putting up a Champion home is less dependent on site workers - something that is in shortage in areas where jobs are plentiful and homes are not.
Finding new niche areas such as hotels, college dormitories and multi-family housing also has been a boon for Champion. That commercial side of the business has brought in about $150 million over the past couple years, Lawless said. These revenue opportunities are bound to grow as more people discover how quickly a company like Champion can put together a structure.
“We’ve got 30 manufacturing plants in the United States, United Kingdom and Canada. We’ve been able to service the hot markets like the Dakotas and Texas, We can meet market demand. So if there is an area where labor is right, we’re shipping a ton of product there,” Lawless said.
As the company moves forward, Lawless said he hopes to continue to expand Champion’s modular side of the business. He hopes that part of this strategy will include working with additional small builders, helping to supply them with the products they need as demand rises. He is especially targeting the Southeast portion of the United States, where labor is tight and Champion could expand its manufacturing presence with some ease.
The commercial side of the business also is a significant growth opportunity - mostly because most of its clients realize that time is money, Lawless said. Over the past year, several national hotel chains have employed Champion’s modular solution, including La Quinta, Microtel and Comfort Inn, as well as several independent labels such as Serka (SRK) Hospitality, Stay USA and Dakota Landing.
“Our La Quinta hotels can be revenue generating in half the time that it would take to build them on site. That’s a huge advantage, and that is very attractive to anybody where time is important. That’s true with apartments and student housing as well,” Lawless said.
And while some builders such as Pulte have pulled out of Michigan, Lawless said Champion’s mission of retaining key talent and growing where you’re planted means staying in this state.
In July, Champion announced that it has been selected to build 36 homes for Detroit’s Penrose neighborhood. Penrose, a historic neighborhood at Seven Mile Road between Woodward Avenue and John R Road, had been plagued by blight and crime for decades.
Now in its second phase, the initial 36 homes in the neighborhood were also Champion products. In addition, the company built the Penrose Art House, an art and community center dedicated to those who live in the neighborhood. The Art House provides the neighborhood with a positive, creative atmosphere and regularly hosts community meetings, events and art classes. Star Development Corp., the project’s Ann Arbor-based owner and developer hopes to continue to grow the neighborhood past the initial two phases eventually flourishing with close to 300 homes.
The phase two development of Penrose consists of 14 single family homes and 12 duplexes priced at an affordable housing rental rate. The homes are energy efficient and include appliances, vinyl double hung windows and Energy Star lighting. The single family houses range between 1,400 and 1,500 square feet, with two or three bedrooms. All the homes include basements and garages and emulate the neighborhood’s original turn-of-the-century design.
Once the modules have been completed in one of Champion’s 30 North American factory locations, they are shipped to the home’s final location for installation and finish work. From delivery to completion, this process has followed a 60-day timeline.
“We’re very tied to Detroit. We love the work ethic, the camaraderie and the teamwork that is in Michigan. We’re very committed to the state and we are watching its continued rebirth,” Lawless said. “We’re involved in projects (like Penrose) in Detroit because of that belief in the city and belief in the state.”
So will they moving anytime soon? Lawless laughed at the question.
“Our plan is to continue to be a Detroit-area based company,” Lawless said without hesitation. “There’s a ready supply of talent. We have no problem getting engineers, product managers, sales people - this is an under-marketed hot bed of talent. It’s a fantastic area to have a business.”