2008 ProSales 100: Red Scare

After years of growth, the vast majority of ProSales 100 members report painful sales drops in 2007. But the size of those declines--and dealers' responses to them--varies dramatically. Here's where things stand, and how dealers are striving to get back into the black.

13 MIN READ

Opening and Closing Doors

Dealers in this year’s ProSales 100 collectively acquired 163 facilities in 2007 but shuttered 166 locations. That latter number does not take into account dealers whose stores officially were open but weren’t doing any business. Dallas-based BFS, for instance, said it mothballed 11 facilities in 2007. Those yards will neither be sold nor exited. Rather, they will be held in reserve for an upturn.

Last year, ProBuild led all buyers in the market by acquiring 73 yards and manufacturing facilities in 2007, in addition to three openings. The company also was the only dealer to report the sale of locations: 10 yards in central and southeast Texas that it had purchased from Parker Lumber in 2005 and then sold back last spring to Scott Parker. Hylbert said then that those yards didn’t fit ProBuild’s strategy of serving the larger, faster-growing markets in Texas. It also closed 22 locations in 2007.

84 Lumber, meanwhile, has been steadily consolidating yards in several markets and leaving a few others. On March 24, 84 Lumber revealed it would close 10 more yards and a component plant in consolidation moves while exiting the Santa Rosa, Calif., market altogether. Last year the company closed 40 locations.

Speaking at the BB&T Capital Markets 2008 Manufacturing & Materials Conference in New York March 20, Charles Horn, BFS’ senior vice president and CFO, said he believes the pace of consolidation this year will increase. That does not mean the rich will get richer; in some cases, dealers will simply vanish as they turn their keys over to banks. Pointing to dealers in Florida and Georgia, eager to sell and exit the industry thanks to the ever-sagging market, Horn said, “the reality is there are no buyers.”

Horn said BFS will not be a part of the action for the rest of 2008. In contrast, some independents are using the down market to strike while the price is right.

In March, Herrington’s, a five-unit dealer serving the Berkshires with locations in eastern New York, Connecticut, and Massachusetts, signed a letter of intent to purchase Dunn Builders Supply and its three upstate New York locations. A month before, GNH Lumber expanded to a three-yard dealer in Greene County, N.Y., with the purchase of Pioneer Lumber in Coxsackie, N.Y. The move was expected to push GNH over the $20 million sales mark, according to owner Stan Ingalls.

“It’s good to see the little independents getting strong when there is blood in the streets,” Curtis says.

Indeed, the ProSales 100 dealer that showed the most growth in 2007 is No. 93, Professional Builders Supply (PBS), a four-year-old operation in a Raleigh, N.C., suburb that’s practically in the shadow of Stock’s headquarters. PBS, which focuses on custom builders and gets 35% of its business from special orders, said its sales jumped 63.2% last year to hit $31 million.

Cutting Costs

The precipitous decline in sales at many dealers has been countered by aggressive personnel cuts. ProBuild and Stock reported nearly 5,800 job cuts combined in 2007, with 3,880 at the latter alone.

According to Joe Appelmann, CEO of Stock Building Supply, some cuts were at manufacturing plants that had been running two or three shifts per day, but now had just one shift daily because of the shrunken market. “In Florida, some places were down to 30-hour weeks,” he says.

In Detroit, Stock shuttered locations–and for good reason. “Residential is nonexistent here,” says one Detroit area dealer who asked to remain anonymous. The average price for an existing home in the city of Detroit has slumped to around $22,000–less than the price of a decent pickup truck.

Horn says BFS reduced its workforce by 20%, or about 1,000 employees, in 2007. “That is a silver bullet we have, control of our staffing,” he notes. That variable is particularly valuable at a time when permits are down as much as 49% in some markets BFS serves. The move helped BFS pay down about $40 million in debt.

In contrast, although sales fell 8.7% to $168 million for National Lumber in Mansfield, Mass., the company has made it a point to not cut costs by cutting employees. “Margins are slimmer, expenses are up, but we are working hard to keep revenues and grow sales,” CEO Steven Kaitz says. “So far, we have been successful and not laid anyone off.”

Regardless of how the staff count fluctuates, what matters most is profitability. And, Hylbert points out, despite a $1 billion drop in sales, a 27% permit drop in its markets and a 12% decline in its employee count, ProBuild turned a profit in 2007.

Download 2008 ProSales 100 List (PDF)

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