“We’ll Shrink” is a Step, Not a Strategy
From BIG BUILDER, By Teresa Burney: Standard Pacific Homes, a builder of quality communities characterized by architectural fluency and a strong sense of place over the years, has two major strikes against it.
One is its geography, and the other is its geography. Not a typo.
The home builder’s roots and concentration for most of its three-decade history was Southern California, with some creep-age into Nevada and Arizona as it followed populations’ migration from overpriced Los Angeles and Orange County eastward.
More recently, StanPac bragged that its California concentration was a thing of the past, thanks to its growth and quantum leap expansion to the far east regions of the nation, i.e. the East Coast. Unfortunately most of that growth was in Florida, where StanPac entered the land dance with a wad of cash and gusto from 2003-to-2006, overpaying for land and companies with impunity. Its product worked and its operations translated pretty well. The company, except for the acquisitions it took on during those years, was not an insider in the laws of local real estate that would have provided sanity guidelines on how much to pay for which tracts, but none of that seemed to matter. Everything bought sold at a profit, what ever the price tag.
Until reality struck.
So strike one is that its greatest competence in real estate and product knowledge is in California–the epicenter of new-home Armageddon; and strike two is that the company laid out way too much money to carry its act across country, where it knows way less about the ins and outs of the local dirt it paid a king’s ransom to procure.
Standard Pacific to some extent is like a West Coast analogue to K. Hovnanian Homes, another company that stepped on the gas in acquisitions and growth during 2002-2006, when the cost to grow was unsustainably high. Now, these two companies, and a few more like them, are prisoners to increasingly costly debt and restrictive balance sheet management, vs. looking sharply at where they could capitalize on opportunities that crop up here and there that would result in achievable business gains now.
What’s more, Standard Pacific is a somewhat shaky balance sheet in search of a reason for being, as a harsh, impassive market decides which of the going-concern home builders today should be around to offer their capacity tomorrow.
Standard Pacific, like a fair number of other builders, makes good houses and has a modicum of good practices, and prides itself on its enlightened business culture, but it’s not really the very best at anything–at least not in the minds of people who should want to buy their homes. The population-driven economy is voting with its feet, saying, “we don’t need your inventory because we have too much of that. What else you got?”
That question falls in a big way now to the fellow who’s the third chief executive within a 14-month period. Big Builder/Builder senior editor Teresa Burney spoke at length Tuesday night with StanPac’s new CEO Ken Campbell in the wake of a management shakeup that slashed management cost base a pretty penny. Campbell’s first focus, of course, is cost and he’s unabashedly brutal in his look at the company’s operational and cost structure. A lot needed to go–fat, muscle, bone… all of it.
Campbell, a turnaround maven, showed unusual candor. “When I come in, you know a company’s at its bottom,” he told Burney. It’s the nightmare most operators only dream of when it comes to their lenders or private equity partners deciding to come in and manage the place.
"When I show up, it means the company's at its 'bottom.'"--Ken Campbell, CEO Standard Pacific
“If you want people to change the way they think, you can’t leave the same people in the same jobs and expect a different way of thinking. You have to change it enough so it doesn’t look familiar,” he said. “If you leave the same people in the same place, you are going to get the same outcome. With the train going this slowly, the risk (of making dramatic changes) is not that great, and the risk of continuing to do the same thing is obvious…A little chaos is a good thing.”
And Campbell says he’s been creating chaos since he took over the position in December 2008. “The cost cutting began in earnest the day after I got here.”
Standard Pacific, which occupied two buildings at its Irvine, Calif.-based headquarters, moved out of the fancier one that had been the executive offices and combined operations into the smaller, less well-appointed building. “So now it’s a crowded busy space.”
And the slashing of positions has been ongoing as the market has continued to deteriorate faster than expected.
“We had this plan back in December that had been developed with the help of an outside consultant, but by the time they rolled it out, it was already outdated,” he said. “I came in, and we immediately did an adjustment in that…We needed more significant cuts with lower revenue assumptions…It’s been a moving target.”
Size matters, Ken. Now, what about figuring out whether Standard Pacific really needs to be in the game or not and how it can do that? Don’t worry, you’re not alone. Standard Pacific is one of 100 current or kaput companies that alone built and sold more new homes in 2006 than the entire population of builders large and small will sell in the nation in 2009.
That would suggest transformation–of the radical kind–might be an idea whose time has come.
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