Independent Advantages
Myrick’s philosophy is a common refrain among stalwart independents content to stay the course and lock horns with national pro dealers as more and more regional and local companies are acquired. Doug Kuiken, president of Fair Lawn, N.J.–based Kuiken Bros. Co. (No. 54) is adamant that independents with a good eye for niche business opportunities and a strong work ethic backing up traditional contractor services will be successful players in any competitive environment. “There’s no doubt that things are changing, and where it leads is anybody’s guess,” Kuiken says. “But regardless of what happens, there will always be room for highly efficient, highly tuned operators in our industry.”
For example, while Stock Building Supply solidified its presence in New Jersey with the Feb. 8, 2006, acquisition of Hammonton, N.J.–based Universal Supply, Kuiken Bros. was increasing its focus on commercial contractors with its Elmwood Supply division. Kuiken Bros. also is nearing completion of its fourth KB Concepts showroom, riding a trend in the industry that has seen a full 90 percent of PROSALES 100 companies offering showrooms in addition to other value-added contractor services like blueprint takeoffs and same-day delivery (see “Contractor Services Offered by the PROSALES 100,” right). On the efficiency end, Kuiken Bros. raked in $8,847,000 per outside sales rep, the 14th-highest OSR efficiency rating among the PROSALES 100 (see “Top 20 PROSALES 100 Companies Ranked by Pro Sales Per Outside Salesperson,” page 81). “We’ve identified commercial sales and showrooms as some of our competitive opportunities,” Kuiken says. “But obviously it’s never going to get easier. The business still takes hard work, and it takes good people.”
Though Ganahl Lumber Co. (No. 25) landed at No. 4 on the OSR efficiency ranking, executives at the Anaheim, Calif.–based dealer still tip their hats to other L.A. Basin suppliers that can pull in huge sales, particularly with production builder accounts, using small outside sales staffs, and caution that there is more behind the numbers than just great sales teams. “We’ll never have as high of a sales efficiency as some of the production-only yards,” says company CFO Peter Ganahl. “To them, $250,000 is a small sale. For us, over half of our sales can come from walk-in traffic. You have to dig into those numbers, because gross profit percentage is just as important as sales volume.”
Other independents are leveraging their locality to build new customer relationships and increase the purchasing loyalty with the contractors they already serve. Among the PROSALES 100, managers/purchasing staff rank highest (88 percent) as the job functions within customer companies that have the most influence on purchasing decisions, followed by company presidents, owners, and CEOs collectively, and independent pros are working to solidify their standing with these decision makers as consolidation puts the competition in flux. “Acquisitions in our market have come in and restructured and reorganized their management and sales teams,” says Ed Wyche, sales manager for Gardena, Calif.–based Crenshaw Lumber Co. (No. 102), an independent among the next 25 largest companies in the industry that stand to land on the PROSALES 100 in the future as consolidation thins the ranks (see “The Next 25,” page 82). “Some of their loyal accounts are out looking to the long-standing independents in the San Fernando Valley—there are builders actually out in the market looking for relationships.”
Jeff Leyes, marketing manager for Zeeland, Mich.–based Zeeland Lumber and Supply Co. (No. 99), reports that consolidation and a softening construction economy are necessitating a similar strategy in his market. “West Michigan we have always thought to be unique in that the local guys support the local supply houses. But we are seeing definite consolidation, with Wolohan being bought by [Lanoga division] UBC and Stock buying a portion of Hamilton Lumber,” Leyes says. “We are trying to use that consolidation as a way to say to our customers that we are still local, that the money is staying here, but we also feel the pressure that you have to go big or go home.”
Fine Focus
Leyes’ take on the need for an aggressive approach to market competition is well shared among the PROSALES 100, especially as the decade-long sizzle of new construction begins to simmer down. “Our goal is to gain market share in a down market by increasing service levels and enhancing customer relationships,” says John Waldron, senior vice president of operations for Excelsior, Minn.–based Lyman Lumber Co. (No. 16). “Our outlook for the year in housing pretty much agrees with the forecast from the NAHB—we are definitely off the peak.”
After record housing starts in 2004 pushed single-family production builders closer to custom home builders as the PROSALES 100 dealers’ contractor of choice (at 30 percent and 35 percent, respectively), 2005 saw custom builders gain back lost ground, accounting for an average customer share of 37 percent compared to 28 percent for single-family production builders, while residential remodelers and multifamily builders held steady at 10 percent each (see “Average Customer Base of the PROSALES 100 by Market Segment,” left).
For many in the PROSALES 100, recent acquisitions by The Home Depot are raising additional questions that compound the uncertainty of pro dealer consolidation and the waning strength of the housing market. In particular, the Atlanta-based retailer’s purchase of Williams Bros. last June raised a permanent red flag that The Home Depot is intent on occupying a space in pro supply.
For suppliers with a higher consumer and cash-and-carry business, big box organic expansion also continues to aggravate sales. “Lowe’s and Depot have been expanding aggressively with additional stores, and the consolidation on the pro side is getting like the mega-mergers in the banking industry,” says Brent Hanby, executive vice president and CFO of Springdale, Ark.–based National Home Centers (No. 29), which counts on consumer dollars for approximately 19 percent of sales. “Then you’ll have the independents come out and offer something different, and they grow, and the cycle repeats itself—that’s what is happening in our industry right now.”
Indeed, not a single market in the country seems exempt from the growing forces shaping the new era of competition in the arena of pro sales. Whether matching up with production builders, trying to establish a national or regional sales presence, muscling it out with the boxes, or looking for niche business opportunities, success in 2006 and beyond will clearly come down to a focus on the value-added components of construction supply that dealers can offer to their customers.
“You can’t look back,” says Kevin Kuchova, who rubs shoulders with Kuiken Bros. and now Stock Building Supply as president of Washington, N.J.–based Warren Lumber & Millwork (No. 82). “Consolidation and all of these forces are definitely changing the industry, and I expect them to continue. You have to stay focused on your own business and your own customers as priorities. You cannot be looking over your shoulder. Looking back slows you down.”
For more coverage of how Kuchova and others will keep up the pace in the new pro sales era with manufacturing, installed sales, and technology, read on.
Download 2006 ProSales 100 List (PDF)
