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Retail Contractors Scrap For Business

Retail contractors are scrapping for business in a flagging economy. Intense competition has forced contractors to cut prices, pursue a wider variety of projects and even bid smaller jobs. The construction industry is getting aggressive for good reason. After falling 17 percent in 2002, both retail starts and completions were expected to drop an additional 30 percent in 2003, according to building statistics in a 2003 annual retail report issued by Encino, Calif.-based Marcus & Millichap.

But some contractors are finding that jobs are still plentiful. Chattanooga, Tenn.-based EMJ Corp. has seen its construction business leap in 2003. The firm anticipates total project volume for the year to reach $390 million -- an 80 percent increase compared to 2002.

That spike in activity is due to a variety of reasons, including the fact that several 2002 projects were delayed until 2003. "Our current business volume is a surprise in comparison to other contractors, but it is something that we anticipated based on the back-log of projects on the books last year," says Jay Jolley, EMJ president. EMJ also has landed some large assignments including the new Coastal Grand regional mall in Myrtle Beach, S.C. The 1.5 million sq. ft. mall is slated for a spring 2004 completion.

No single type of retail property can take credit for propping up construction activity. In fact, versatility seems to be the strategy for survival, notes Wally Clark, a regional vice president in the Los Angeles office of R.A.S. Builders Inc. Miscellaneous retail projects -- those that include non-anchor, non-branded space ranging from car dealerships to convenience stores represent the largest chunk of activity during first quarter with 25.7 million sq. ft. or 31 percent of all construction starts, according to PPR and McGraw-Hill Construction-Dodge.

Clearly, contractors are pursuing a wide variety of project types such as grocery stores, department stores and restaurants, as well as a myriad of jobs from ground-up construction and renovation to tenant finishes. Contractors also are willing to tackle smaller jobs. "What may not have been of interest two years ago is probably of interest today," Clark says.

Big boxes remain a solid source of business. Wal-Mart alone counted for 17% of the construction starts in first quarter with 145 million sq. ft. of new space, according to PPR and McGraw-Hill Construction-Dodge. Retailers such as Kohl's and Lowe's Home Improvement are certainly keeping EMJ busy with projects across the country. EMJ currently has about 12 Lowe's stores and nine Kohl's stores underway from Kentucky to Montana.

Whether it is new construction or remodeling, contractors are working harder to land deals. "Client satisfaction has taken on an even more important role than in the past, not only for the general contractors but for the subcontractors as well," Clark says.

In addition, the competition is putting added pressure on pricing. Many banks are holding onto construction financing until at least 50% of the proposed tenants are locked in, developers are being frugal with the dollars they have, Clark notes. "However, the construction competition is so tight that they are getting the most for their dollar, and the general contractors are needing to tighten up their general conditions and fees to succeed," he adds.

"I would call it a buyer's market in a sense that if you have a project right now you can get very competitive pricing," Jolley agrees. However, with that low bidding comes the risk of problems cropping up due to poor quality work and financial instability among subcontractors. "So even though you're getting really good pricing, you have to be careful of who you're getting from," he cautions.

For more contractor news, see the July 2003 issue of Retail Traffic for our annual top contractors report.

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