Planning for Success
Ganahl’s belief in LBM’s feast-and-famine cycles is baked into many of its practices. In the Go-Go Zone a few years back, it paid off debts rather than take on new loans. It also shared the wealth by adjusting compensation plans so that staff could get even bigger bonuses. But when the crash–er, the Opportunity Zone–came, those same pay plans caused an automatic drop in compensation costs, thus limiting the impact of what has been a 44% decline in revenue since 2006.
Other practices insulate the company at all times. One example is its policy of not paying any bonuses until the operating profit tops 4%, something Ganahl has done with ease for at least the past 11 years. “Peter and John aren’t giving away money unless they’re making money,” Schield notes.
Another insulator can be found in a warehouse adjacent to the Anaheim yard, where the buyers work. That’s the home of a unit called Ganahl Wholesale Distribution, or GWD.
You can think of GWD as the bulk buyer of hardlines for all of Ganahl’s branches, employing its combined purchasing power to snap up deals at the Do it Best and Orgill shows. Roughly half the SKUs it stocks are show buys.
But you also can view GWD as the company store, because it requires the branches to restock their hardlines from it, and when GWD “sells” those goods, it does so at a slightly higher price than what it paid, in part to cover the internal costs of handling and storage.
The pallets of GWD goods rest adjacent to another room that figures in Ganahl’s success. It’s filled with product displays in which vendors are invited to create planograms for the stores. Signs above some gondolas proclaim: “100% shoppable at 72 inches,” and “Strive for $2,500 in sales, $1,125in gross profit. Every linear foot of gondola generates these numbers in every store every year.”
“We have high expectations for how our planograms will perform,” says Larry Gray, GWD manager and Ganahl’s director of advertising.
Ganahl takes pride in how it sweats lots of operational details, from keeping the lumber stacks neat to striving for an on-time, in-full delivery rate of at least 98%. “Their execution–everything from having the bid correct, shipping the orders on time without back orders–was great,” Schield says. “One of our salespeople could never [tell a customer] ‘Well, they don’t get the lumber to you on time.’ They were good.”
One reason why Ganahl managers were so quick to cut staff a few years ago is because they are urged to keep labor costs at 30% to 35% of gross profit; at 40%, it’s time to sharpen the knives. Ganahl aims to get no more than 10% of its revenue from production builders, and sets the same 10% cap for DIY sales.
Thinking Outside County Lines
There are benchmarks for branch locations as well: high-traffic streets, good access from both directions, minimum 130,000-square-foot size, convenient access for will-call customers and, above all, the MOM factor. Once the downturn began, Peter put all these factors into play in searching for a location that would enable Ganahl to return to Los Angeles County. And thanks to General Motors, he found it.
GM’s bankruptcy in 2009 included the elimination of franchises around the country. Among them was a GM and Hummer operation in Pasadena, home of the Rose Bowl game and Rose Parade. Ganahl bought the buildings and currently is facing the usual renovation challenges. The project’s construction manager is Patrick Ganahl, Peter and John’s youngest brother.
Walking through service bays, Peter keeps quiet as Patrick and architect Dale Brown describe how Pasadena’s slow turn toward the no-growth movement is making it harder to achieve their original plans. In even tones, Peter explores construction options that would help Ganahl avoid some regulatory checkpoints, but he also suggests a meeting with city officials–one in which Ganahl could note how too much red tape could cause the cash-strapped city to lose tax dollars.
Through it all, Peter does more listening than talking, more suggesting than ordering. Co-workers say that’s his way. “If Peter has an idea, he doesn’t say, ‘This is what we’re going to do,'” Barclay says. “Instead, he floats an idea. And some ideas have been floating for three or four years.”
Ganahl has long supported what is now the Lumber Association of California and Nevada, particularly its Second Growth group for young LBM staffers. The association honored Taft with the President’s Award at its convention in November.
Ask Taft why Ganahl has succeeded and you get a two-part answer. “I believe we’re doing more things right than our competitors. The execution is better and the focus is better,” he says. “At the same time, I laugh because I know how much better we could be.”
So long as the Ganahls are in charge, you can bet on that.
Related article: Editor’s Notes column on Ganahl and “The Opportunity Zone”
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Editor’s Note: Here are the changes made from the print version:
- The desire to cut the company’s tax bill was a contributory reason, but not the primary reason, why Ganahl decided to create an Employee Stock Ownership Plan. “Many longtime employees now have six-figure balances in the ESOP and they feel VERY connected to the success of the company,” John Ganahl said in an e-mail. “I believe that is a contributory reason for our success.”
- The price of the financial deal that enabled Ganahl to acquire its current Anaheim yard amounted to about 40% of its annual revenue in 1975, not several times its revenue.
- The reference to Ganahl not being in several markets was clarified to say Ganahl isn’t in several geographic markets. It does serve a variety of customer segments.
- Branch managers don’t have to pay for capital improvement costs out of their own budgets, but they are charged with the annual depreciation costs of all their branch’s capital assets.
- The reference to 0.24% of all account dollars being written off mistakenly said those were accounts payable dollars. They’re accounts receivable dollars.
- The prices that Ganahl Wholesale Distribution charges to the branches are slightly higher than what GWD paid to acquire the goods in part to cover the internal cost of handling and storage and not out of any plan to artificially inflate prices, a Ganahl official said.
