Fewer hits on the Scoreboard
It’s been a long slog for the industry’s Top 350 Pro Dealers, now in their third (some might say fourth) year of a down market. No one escaped cutbacks, which have come in the form of unfilled positions, layoffs, closed locations or other forms of belt cinching that spread discomfort across entire companies. Several large players on the list have filed for bankruptcy protection, and others have returned in another incarnation. Many more have quietly closed their doors, sold their property and retired with memories of better times.
While 2008 has ranked among the lowest growth years—sales decreased 12.7% among the Top 350 Pro Dealers—2009 may turn out to be the tail of the dragon. Last month, three of the leading housing market indicators—new home sales, existing-home sales and single-family housing starts—all turned in the right direction. Economists looked at the numbers and pointed to a stabilization trend. The long-awaited bottom in housing prices may have arrived, which leaves the door ajar for an updraft in residential construction.
In California, where several pro dealers reported revenue drop-offs in the 40%-to-50% range last year, builders pulled permits for 3,446 housing units in June 2009, up 17% from May, according to the state’s Construction Industry Research Board. Much of the credit goes to a $10,000 state tax credit for new home buyers, which went into effect on March 1.
“The builders I’ve been dealing with saw a significant resurgence of sales in the last three months,” said Mike Rasmussen, a structural frame specialist for Weyerhaeuser/iLevel in Northern California. “They’ve gone through most of their standing inventory, and now they’re building as they sell.”
Local municipalities and county governments are also trying to do their part throughout the Golden State. In Menifee, Calif., the city council voted in May to lower developer impact fees by $2,585 per single-family house and reduce staff billing rates by 20%. The Thousand Oaks City Council voted that same month to eliminate affordable housing fees—anywhere from $9,000 to $25,000 per unit—until June 2010. Other jurisdictions are giving builders additional years to begin construction on previously approved projects.
Unlike California, Texas did not find itself paying the piper for the housing boom of the mid-2000s. While most of the nation’s metro areas watched their home values tumble, only five of Texas’s 26 MSAs experienced a price decline in a 12-month period that ended in September 2008, according to the PMI Group.
NO. 1 PLAYER: PROBUILDProBuild, the industry’s largest player by sales ($4.4 billion) and number of locations (now 470) remains in the No. 1 spot on this year’s Top 350 Pro Dealer list. But like everyone else in the industry, the Denver-based pro dealer was forced to cut back staff and close locations, ending the year with 1,796 fewer employees and 58 fewer units than in 2007. The company also experienced a 12% drop in sales.
CEO Paul Hylbert and his management team used the early part of 2009 to reorganize the company into a more regional structure. Disparate cities like San Diego and Anchorage, Alaska, would no longer be considered part of the West. Similar markets like Atlanta and Orlando would share the Southeast, a newly created region.
But Hylbert’s endgame was not just about geographical boundaries; the chief executive also wanted to move his regional presidents beyond their P&L comfort zones. “I didn’t want them sitting down with their CFOs and making sure the accounting was done right,” Hylbert explained. “Our executives needed to get closer to the customers. The best use for their time was out in the field.”
ProBuild’s corporate office was more than happy to take over a number of back-office functions, freeing up more hours for builder sales calls, customer appreciation dinners and other face-time events. Over the past few months, the six new regional presidents have been getting better acquainted with their markets, which allows them to make the operational calls that only befit a ground-level executive. [Read how two of ProBuild’s regional presidents, Jim Cavanaugh and Joe Todd, are approaching their markets at homechannelnews.com.]
Among these calls will be decisions about manufacturing and local product mix that should help gain more business from existing customers—part of ProBuild’s “integrated solution” strategy. Installed sales fits in here, too.
“That’s a market-by-market decision,” Hylbert said. “It’s the job of the [region] presidents to figure out what makes sense.”
The company’s move toward centralization—all of its locations were cobranded with the ProBuild name last year—might chafe the legacy rank and file, especially those who came from venerated companies like Strober, Hope Lumber, United Building Centers, Dixieline and Spenard. But the industry has changed dramatically in the past two years, and Hylbert is quick to reel off the grim statistics: in 2006, when ProBuild was just being formed, there were 9,000 lumberyards and assorted manufacturing/ millwork locations throughout the United States. At the close of 2008, that number had dropped to 6,000. By the end of this year, he expects to see only 5,000 LBM outlets remaining.
Clearly one of the survivors, ProBuild has been able to sweep up what Hylbert described as “the best of the best” salespeople who found themselves without a job when their employer pulled up stakes. Putting the headcount “in the low hundreds,” Hylbert said that many (but not all) of the new hires were from Stock Building Supply. The industry’s No. 2 player, which ended 2008 with 220 fewer locations than ProBuild, has fallen even further behind since emerging from its Chapter 11 reorganization with approximately 100 yards in 19 markets.
Hylbert sees a sharing of best practices across the different regions, something that has already happened informally among the executives. Joe Lawrence, who now heads the Southwest region, knows a lot about homeowner and remodeler sales from his days at Dixieline Lumber and Home Centers in San Diego. Cavanaugh, who oversaw production framing services in the Tulsa/Dallas/Houston markets before becoming president of the South Central region, is a big promoter of “6S” productivity training. There will be time for all that in the future, Hylbert suggested, after each division president has gotten to know most of the builders in their region. “Not just the big accounts,” he added, “but the small and the medium ones too.”
“Business down here is still pretty good,” said Mickey Schulte, VP purchasing and marketing at Handy Hardware in Houston. Steel prices were high last year, Schulte noted, and Texans use a lot of rebar and fencing. “We also had the storm sales,” he added.
Only 18 pro dealers—that’s 18 out of the Top 350—showed double-digit sales growth last year. Five of the 18 just happen to be in Texas. Hurricane Ike, which tore through the Houston region in September 2008, helped boost the numbers.
Scott Parker, a Do it Best dealer with 13 locations in south central Texas, is still rebuilding his lumberyard just north of Galveston. “There were 3,600 homes [in our community], and only 10% of them survived without any major damage,” Parker noted. “But a high percentage of the people had insurance coverage. They took that capital and made repairs.”
Parker Lumber’s other locations, spread across the Texas Hill Country, also benefited from last year’s expansion of oil and gas refineries. While that business has slowed, housing starts are starting to creep back up in Austin and San Antonio. D.R. Horton, the largest home builder in central Texas, has begun construction in several new communities to meet expected demand.
“We’re seeing a lot of out-of-state license plates lately,” Parker observed. “People are migrating here and looking for opportunity.”
84 Lumber, which lost almost one-third of its sales last year and closed more than 90 yards, has pinpointed Texas as its launch pad for the rebound.
“We view Houston as lone of those markets that will be at the forefront of the rebound,” observed Frank Cicero, 84 Lumber’s executive VP. The fourth-ranked dealer on HCN’s Top 350 list reopened three facilities in Houston and Dallas this summer, in addition to hiring several former Stock Building Supply employees in other locations around the state.
A little further down the list, in the No. 12 spot, is McCoy’s Building Supply, with 72 of its 83 units spread throughout Texas. (The rest are in New Mexico, Oklahoma, Arkansas and Mississippi.) McCoy’s watched its sales rise 7.4% in 2008, to $608 million, its highest year ever.
Although Hurricane Ike sales gave McCoy’s a boost, the family owned chain also worked “to keep our customers engaged,” according to spokeswoman Sarah Lohn. Although 70% of the company’s revenues come from builders and remodelers, the remaining 30% are not simply DIYers or homeowners. They are “Farm and Ranch Families,” a large but close knit network of school and community groups.
METHODOLOGYThe research for HCN’s Top 350 Pro Dealer Scoreboard began with HCN’s sister company, Chain Store Guide, a Tampa, Fla.-based research firm, under the leadership of senior editor Arthur Rosenberg.
Companies selected for inclusion on the Top 350 Scoreboard are building materials dealers with a significant lumber business and a customer base primarily serving builders, remodelers and contractors.
Information collected by CSG was edited, proofed and fact-checked by a team led by Rosenberg and HCN managing editor Michael Moran Alterio. Some of the Top 350 companies did not provide complete data to HCN. For those companies, HCN estimated sales and other data, working primarily from public filings where available; from comparisons with similar, nearby companies; and from each company’s past performance. Companies with estimated data are footnoted. Pro dealers on this list are ranked by total sales; for companies with equal sales, rank in the Top 350 Retailer Scoreboard is determined by comparing sales growth and number of stores. If two companies have identical sales, the one with higher growth is ranked first; if growth is the same, the company with fewer locations is ranked higher.
“We have an excellent relationship with our top farm and ranch vendors,” Lohn explained, listing the various rodeo, livestock and agricultural events that McCoy’s has become associated with.
As the recession grinds on, lumber, like politics, has become more local. Families that sold their LBM businesses to national players have been taking them back when the big boys move on. Or in some cases, defying the odds and starting out as a new player.
Rick DeRhodes worked for Building Materials Wholesale in Charlotte, N.C. when ProBuild purchased the drywall distribution yard as part of a five-unit chain in 2006. For the first two years, DeRhodes ran the Carolinas and the Tennessee region for ProBuild. In July 2008, he and sales manager Eric Caldwell, along with some warehouse personnel and delivery drivers, struck out on their own with one yard in Charlotte. “We had a lot of following locally,” DeRhodes explained.
United Materials is now serving commercial accounts and some residential projects. “There’s still a lot of work out there, but of course it’s not like it used it be,” DeRhodes observed. But he gained market share when a nearby Stock Building Supply unit and a couple of smaller independents shut their doors. “We’re doing enough to keep busy and put soup on the table,” he said.
A little further up the Eastern Seaboard, in Danville, Va., a truss plant owner who sold his operation to ProBuild in 2007, stepped back in after the Denver pro dealer decided to close the facility. With some funding from a community redevelopment grant, Keith Walden repurchased Riverside Roof Truss, retained all 26 employees, and brought his son, a recent college graduate, into the business. “I take great pride in knowing that I was able to save jobs,” said Walden.
Two dealers with the same names—LaValley—both opened new units last year. And one is going to end the confusion once and for all by consolidating all its locations under a new banner.
The larger of the two, LaValley Building Supply of Newport, N.H., purchased a two-unit competitor, Fall Mountain Building Supply, bringing the total number of locations to 10. (LaValley also does business as Middleton Building Supply.)
The other LaValley, LaValley Lumber of Sanford, Maine, grew to four units this year when it opened a location in coastal New Hampshire. LaValley also owns Poole Brothers Lumber, a three-unit Maine dealer. But in 2010, all locations will be rebranded as New England Building Materials, according to general manager Randy Maddox.
“It’s going to be a huge campaign,” said Maddox, who is already seeing some new housing construction in the current quarter. “We’re keeping busy with the remodeling market right now,” Maddox reported, “and whatever else comes along. We’re leaving no stone unturned.”