Toll Brothers' geographic expansion into untouched luxury markets

Alternatives for Organizational Growth

Toll Brothers, Inc. is a market leader in the U.S. luxury building construction industry. For more than 40 years, Toll Brothers has performed well, even in economic downturns, expanding its geographic markets as the company grew and growth opportunities were presented. Furthermore, Toll Brothers' management has stated that the company intends to concentrate on continually expanding its niche market into additional areas. Meanwhile, six of the "Top 15" states for U.S. median income remain untouched by Toll Brothers and serious consideration of entry into those states should be considered.

Alternative Strategies

The alternative strategies that Toll Brothers should consider to realize growth are entry into the geographical markets of Maryland, Alaska, Hawaii, Washington, Colorado and Utah. Though Toll Brothers have captured 9 of the top 15 geographical markets in the U.S. per median household incomes, the company has made no forays into the remaining 6 states, which fall at various points within the top 15. According to the U.S. Census, Maryland is ranked 1st, Alaska is ranked 4th, Hawaii is ranked 5th, Washington is ranked 11th, Colorado is ranked 13th, and Utah is ranked 14th according to state median incomes (U.S. Census Bureau, 2009). Toll Brothers currently provides luxury homes aimed at the "top 20% of U.S. income households" (Toll Brothers, Inc., 2011, p. 9) and focuses on the percentage of families earning $100,000.00 per year or more in a given geographic area (Toll Brothers, Inc., 2011, p. 46). Operating as Toll Brothers, Inc. since 1986 (Funding Universe, n.d.), Toll Brothers prides itself on being the "only national builder focused on [the] luxury market" (Toll Brothers, Inc., 2011, p. 9). These alternatives actually fall within Toll Brothers' goal of continued geographic expansion but turn to additional state markets: "We believe that our earnings are best utilized by investing in internal growth opportunities, such as expansion within current geographic markets and into new geographic territories" (Toll Brothers, Inc., n.d.).

4. Generic Strategy

Toll Brothers' Generic Strategy is geographic expansion. "We believe that our earnings are best utilized by investing in internal growth opportunities, such as expansion within current geographic markets and into new geographic territories" (Toll Brothers, Inc., n.d.). In addition, Martin P. Connor, Toll Brothers' chief financial officer, stated: "We believe that earnings growth can come from increasing our community count" (Cooper, 2011). The suggested alternatives are merely new geographic areas that Toll Brothers could consider.

5. Grand Strategy

Toll Brothers has a long track record of geographic expansion, occasioned by the company's gradually increasing strength and financial position. After forming the business in Pennsylvania in 1967, the company expanded into New Jersey in 1982, expanded into the Sunbelt in 1995, expanded into Detroit, MI in 1999, into Jacksonville, FL in 2003 (Funding Universe, n.d.), and kept expanding until Toll Brothers it currently "builds in 19 states and approximately 50 markets" (Toll Brothers, Inc., 2011, p. 3). Currently, "nearly 60% of our [37,500] lots are concentrated in the land-constrained metro Washington DC to metro Boston corridor, which enjoys lower unemployment and greater affluence than many other regions" (Cooper, 2011). In addition, Toll Brothers claims that New York City metro area remains its "bright light": "in the urban metro New York City market, we have completed 13 buildings of approximately 2,550 units, approximately 2,430 of which have been sold; we are in construction on three buildings of 245 units; and have eight more buildings of approximately 1,600 units in planning" (Cooper, 2011). The new expansion would alter the Grand Strategy only in its focus on the six untouched states of the "Top 15."

6. Recommendations/Conclusions

Building on and complementing Toll Brothers' stated goal of geographic expansion, recommendations for expansion in the additional "top 15" states include the following strategies: continue using its obviously successful tools for geographic study and expansion but turn their attention to the six states mentioned; move into viable new state territories by acquiring companies with those states, as Toll Brothers has done in the past; expand its portfolio of geographical markets within those states to acquire building properties, construct luxury units, and sell them. The strategy should include the following inquiries by management:

1. Would Toll Brothers' processes, guidelines and standards be readily applied in the new state?

2. What changes will Toll Brothers have to make to successfully operate in the new state, regarding: staff; budget; operations; resources; marketing programs and materials; sales staff and materials, other capabilities?

3. How is this new geographical market different?

4. The feasibility of competing with existing construction companies in this geographic area (Virtual Advisor, Inc., 2009);

5. Whether the percentage of families earning $100,000.00 per year within a state will make expansion lucrative.

Given Toll Brothers' 40-year success, including successful expansions into numerous state and area markets, the company has excellent prospects for expanding into one or more of the six suggested states.