- In today’s CEO Daily: KB Home CEO Rob McGibney on the art of personalization.
- The big leadership story: The ‘Jamie premium’ edges JPMorgan closer to $1 trillion valuation.
- The markets: Down as crude oil futures rise.
- Plus: All the news and watercooler chat from Fortune.
Good morning. When Rob McGibney became CEO of KB Home on March 1, he knew there would be tough days ahead. In his first earnings call, he had to report a 23% decrease in year-over-year revenue to $1.08 billion while net income had shrunk 70% to $33.4 million; in his second, revenue was down 27% to $1.1 billion while earnings dropped 75% to $27.3 million. The stock is down since he took over. Borrowing costs are relatively high. Consumer confidence is relatively weak. And the specter of inflation, oil prices and higher construction costs doesn’t help.
There are a lot of things that McGibney can’t control. I spoke with the 26-year veteran of KB Home about what he’s doing to change the things he can.
First is more focus on built-to-order homes, which accounted for 73% of net orders in the second quarter, up from 57% last year. Consumers typically pay more for such homes and are less likely to cancel or demand discounts, but customized homes also mean longer waits at potentially higher mortgage rates. “We’re not forcing that buyer to pay for things that they don’t value, allowing them to put the things in the home that they really do value and care about,” McGibney told me. “We allow people to personalize the home not just for the fit, finish, function and features but also to their budget … If [you’re] making that choice for the buyer, invariably you just get something wrong.”
Second, he wants to woo more first-time buyers, the average age of whom is now 40. (The median age of U.S. homebuyers has gone from 39 to 59 over the past 15 years.) McGibney acknowledges that people are marrying and having kids later, but he thinks expectations of “quick gratification” also come into play. “We’re seeing first-time buyers who are making $140,000 a year, have a 740 FICO score and put down $70,000. If you go back a decade or so, FICO scores were much lower and incomes were certainly lower,” he said. “When I bought my first house, we had to go through some pain. It was hard to save money for a down payment … but there’s some sacrifices to make that first step but people who make it have significantly more wealth generation capability over time.”
The two are interconnected in that Gen Z buyers were raised on personalization. “My kids grew up wanting personalized Nike custom ID shoes; they go to Chipotle and get to personalize what goes on that burrito … It stands to reason that they want the ability to personalize what’s going to be the largest purchase they’ve made up to that point in their life.” That said, he acknowledges that there’s little he can do to change the reality that many younger buyers can’t—or feel they can’t—afford to buy a home. “We as a company, or me as a CEO, can’t change the math,” he said. “But we’re working aggressively to get as far down that K (in the K-shaped economy) as we can by offering better affordability. It gets back to controlling what we can control.” Contact CEO Daily via Diane Brady at [email protected]
The post The CEO of KB Home has a plan to tempt first-time buyers into the market at last appeared first on Fortune.
