Location, location, location.

Oak Craft Inc. is located in the metropolitan Phoenix area (Peoria, Ariz.), which is one of the country's hottest housing markets. This fact is not lost on Oak Craft, particularly since its 2005 sales are projected to be 20 percent higher than its 2004 sales.

In the Valley area of Phoenix, the median price of existing homes shot up 47 percent since last summer. While increases in other areas of Phoenix have not been quite as dramatic, it makes it easier to see how an established company can show substantial gains in one year.

"We put together a strategic plan of mainly going after the move-up houses, the second homes, the third homes, really the custom market," Gregory Johnson, marketing director for Oak Craft Inc., says.

Oak Craft has been in the Phoenix area for more than 20 years and manufactures cabinets, furniture and some casework, the majority of which is sold through a dealer network. The largest of the company's dealers has been with it for 16 years. However, dealers added recently are now beginning to grow.

"Our dollar volume has increased significantly on a per-cabinet basis versus volume," Johnson says. "That's helped our numbers as well." With a finite manufacturing capacity, it is important to get more per cabinet, Johnson notes, since building more cabinets something a few of its competitors are doing is not an option for them.

Outlook on growth

"I don't think it would be healthy for us to attempt this type of continued growth," Johnson says. This year Oak Craft plans on adding an additional 50,000 square feet to their operations at a cost of $4 million. While the additional space should help Oak Craft do its work more efficiently and profitably in the long-term, Johnson believes it is unlikely the current housing market can sustain its current level of growth and to count on that would be unwise.

Nonetheless, many small contractors have moved to the Phoenix area to take advantage of the boom, with many doing work at artificially low prices in an attempt to capture market share. These operations do not pose a threat to Oak Craft, as they usually put themselves out of business either because of unrealistic pricing or low quality.

However, when large companies come in with high production capabilities, they bring with them the threat of sweeping away large pieces of business. This phenomenon has actually helped push Oak Craft in a different direction.

"We had already identified where we wanted to be, but the arrival of large production companies just helped us accelerate our plans. We don't need to get into price wars with anyone," Johnson says.

Johnson predicts the worst-case scenario for Oak Craft is that 2006 sales will stay at 2005 levels, even if the housing market shifts. "We're pretty diversified we've got dealers that do strictly remodeling, dealers that do mid-range construction and dealers that do high-end construction," Johnson says.

Oak Craft has also branched out into San Diego and has a dealer who is working with individuals doing condo conversions there. If the new construction in Phoenix begins to falter, Oak Craft should remain in good shape.

"With our remodeling business, we've got the weapons we need for our dealers if new construction falls off," Johnson says.

Right now about 85 percent of Oak Craft's sales come from Arizona and 15 percent comes from out of state. Of the 85 percent in Arizona, only 65 to 70 percent of sales are from the greater Phoenix area.

Although other companies have been trying to recruit some of Oak Craft's employees, they're rarely successful. "We've been around more than 20 years and haven't had any layoffs during that time," Johnson says. "We have many employees who have been with us for 10, 12, 13 years. They know we're going to be around long after everyone else has left."

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