Home Innovation Insights

Dramatic economic shift prompts quicker-than-expected manufacturer response.

Building Product R&D During COVID-19 Pandemic: Full Steam Ahead or On Hold?

April 22, 2020

In theory, business disruptions, even one as unexpected and drastic as COVID-19, can spur innovation in an industry as companies adapt to overcome new challenges to their economic viability. However, reality often favors the opposite end of the spectrum, where companies opt to retrench, preserve cash, and focus on short-term, revenue-generating functions as they prepare for a potential protracted downturn. This tactic likely results in reallocating dollars away from R&D and market expansion efforts. And, since these activities are generally associated with a company’s innovativeness – and further, its long-term health and viability – the chasm between the theoretical benefits and harsh reality of major disruptions widens.

Having personally experienced the mid-2000’s U.S. housing industry bust as a researcher, I saw building product manufacturers cautiously maintain R&D spending, even as new housing starts declined by about 75% between 2006 and 2009. However, it was not until early in the onset of the Great Recession in 2009 that I observed precipitous decline in new building product development activities among building products manufacturers.

When confronted with the initial impact of COVID-19 on our national economy, I speculated it would result in a brief setback for the construction industry despite some sectors of the overall economy being hit very hard. The housing industry may be buffered by the current high inertia it maintains — big backlogs due to tight markets for labor and developed land; longer construction cycle times; pent-up housing demand; and low interest rates. I also believed the stay-at-home declarations in many states could spawn a resurgence in DIY home improvement projects after declines in the DIY market for many years. I did not anticipate, however, how cautious many building product manufacturers would become or how quickly they would react. Many have announced that at least some of their new product and market development activities have been suspended until it becomes apparent how the current health crisis will impact the industry.

In mid-April, Home Innovation fielded a survey among manufacturers of building products and service providers to the construction industry to assess how they, and particularly their research and development and market expansion functions, are being affected by the ongoing global health crisis. We asked, “How have the following activities or functions in your company changed due to COVID-19?”

Seventy-one manufacturers and service providers responded. In summary, companies were far more likely to see a decline in R&D and marketing activities than an increase. Some of the specific findings are detailed in the graph below.

Business Function and Activities Affected Most by COVID-19

Source: April 2020 Survey of Building Product Manufacturers & Service Providers by Home Innovation Research Labs

Most affected seems to be marketing and advertising functions, followed by R&D and new product development research. This decline is all happening at a very rapid pace – in a matter of days and weeks, rather than the months and years it took after the Housing Bust.

Ultimately, building product manufacturers’ response to COVID-19 seems to reflect a widespread wait-and-see position, particularly among new product and technology initiatives, market expansion efforts, and new advertising campaigns. The focus for most responding companies has shifted to adapting to new restrictions and operating changes in the COVID-19 environment — establishing the best business position to weather the inevitable economic downturn. R&D teams are now largely working from home, and the marketing function has shifted to a more short-term focus on maximizing sales of existing products. Discretionary spending seems to have been curtailed across-the-board.

Questions are also circulating in the industry about whether COVID-19 will have a bigger impact on residential or non-residential construction, or within residential, if single-family or multifamily will be hit harder. I believe, in the short-term, construction types with longer project cycles, such as multifamily and non-residential building construction will be less significantly affected. My biggest concern is for the remodeling segment, since it very often features in-home visits to design, sell, and service a project. Not to mention the increase in home-bound families who may wish to delay remodeling projects in order to “social-distance” and maintain as much normalcy as possible in their homes that have now become school, office, playground, restaurant, and sanctuary all-in-one, all the time. There is a slight upside for the remodeling segment as DIY projects seem to be on the rise (i.e., building product manufacturers servicing that market still make a sale), and homeowners are trying to make things more comfortable at home—such as by adding or upgrading outdoor living space—since they are spending more time there.

To fill in the knowledge gaps in this line of questioning, we posed the following question: “How would you describe the impact of COVID-19 on your sales of products and services to the Single-Family, Multifamily, Home Remodeling, and Commercial construction industries?”

Construction Sectors Most Affected by COVID-19

Source: April 2020 Survey of Building Product Manufacturers & Service Providers by Home Innovation Research Labs

The findings show sales declines are greatest for Single-Family construction, with 78% of respondents reporting a decline. While Residential Remodeling finished second overall, it had the biggest share (36%) experiencing sales that “Decreased Much.” Sales to Non-residential and Multifamily projects seem to be weathering the current storm best. Ironically, these types of projects are more likely occur in densely populated areas where restrictions on construction activity are most likely to be in effect.

We are all still learning how to best position our companies to weather this crisis and to rebound when restrictions are lifted. If you are seeking to formulate corporate responses to this rapidly changing industry environment, and you need quick feedback from the buyers and end-users of your building product or service, contact us. We operate a survey panel of construction pros who are ready to provide quick feedback to your questions.