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.

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Perhaps because there’s less cash for investment, dealers appear to be spending less on technology. A year ago, 11% of dealers that made up that year’s ProSales 100 said they planned to spend more than 1% of overall sales on IT and e-commerce. This year, 8% of the ProSales 100 roster will spend that much.

Investments in outside sales people is a different matter. Of the 16 dealers in the top 20 that appear in both this year’s and last year’s lists, the employment changes range from a 57% drop to a 140% climb.

While Carter Lumber’s total employee number was down nearly 300, the 206-unit Kent, Ohio, giant somewhat shuffled its deck and hired nearly 80 more outside sales personnel.

“We are trying to manage the fundamentals of the business at a time when other guys are cutting back,” says Jeff Donley, senior vice president and chief operating officer. “We are looking at this year as a time to gain market share and keep an eye on fundamentals.”

Like many in the Northeast, where housing permits are few and far between, National Lumber has turned to remodelers, which account for 10% of the 10-unit dealer’s overall sales, as a method of pumping in more dollars.

Erie Materials, a Syracuse, N.Y.-based dealer that battles Curtis in several markets, made its ProSales 100 debut this year with a thunderous bang. The 10-unit company reached total sales of $161 million, up nearly 7% from sales of roughly $151 million in 2006. A key to Erie’s success is the customer base it caters to: 60% are remodelers.

That’s a clientele that still has some kick to it, albeit only in comparison with the lousy new-home market. Harvard University’s Joint Center for Housing Studies forecasts that homeowner spending for home improvement will fall by an annual rate of 2.6% through the third quarter of this year.

On the other hand, a recent existing home sales report from the National Association of Realtors–considered a good indicator of remodeling expenditures, given how many people upgrade homes they just bought–showed sales rose 2.9 % in February to a seasonally adjusted rate of 5.03 million units from a pace of 4.89 million in January. While the numbers are down nearly 24% from a year ago, it did halt a seven-month slide.

“Selling to remodelers protects us from a lot of the ups and downs in new construction,” says Chris Neumann, executive vice president of Erie Materials. “But we sell remodeling because we have to. New construction in upstate New York and eastern Pennsylvania isn’t enough to support our business.”

“It comes down to the same old thing: when everyone else is having boom times, we are going up slowly,” Curtis says of the region. “We don’t go to crazy highs, and we don’t immediately fall off the cliff.”

Curtis Lumber has also realized the power of remodeler sales. “There are cases where people are spending the value of an existing house on a remodeling job,” Curtis says. “They have kids still in school, and they’re throwing serious bucks at remodeling.”

Thinking Commercially

As residential construction takes its time rallying, dealers large and small are turning to commercial sales: hotels, restaurants, small chain stores, office parks, and multifamily developments. Already an essential slice of numerous dealers’ revenue, some are looking to increase the size of that slice and make up for a lack of single-home starts.

“Stock’s core products already fit well with commercial projects,” explains Jim Kirkland, Stock Building Supply’s vice president of the commercial business group. “The new focus for Stock is creating specialized capability around building materials as well as architectural, acoustical, and storefront. We are looking forward to continuing to increase our capabilities in the commercial sector.”

That means focusing Stock’s sales staff and associates on the commercial side of the business. According to Stock, a subsidiary of the U.K.-based Wolseley Plc, more than 8% of its sales are to commercial builders. Last year, the dealer made several key acquisitions geared to revving up commercial and repair, maintenance, and improvement sales.

Honsador Lumber, the Kapolei, Hawaii-based dealer, saw sales bump up to $181 million from $180 million in 2006–impressive considering sagging lumber prices combined with nearly nonexistent residential construction. What helped boost and level Honsador’s sales was the acquisition of Alpha Electric, a four-unit electrical supply house, giving the dealer a point of entry into the commercial segment.

“This move diversified our sales base away from residential builders,” Honsador owner president and CEO Carl Liliequist told ProSales. Commercial sales accounted for 15% of Honsador’s revenue in 2007.

“Alpha was a profitable company, and obviously we wanted to add growth to our bottom line,” Liliequist says. Commercial projects Honsador picked up, following the acquisition, include a five-year military project that includes rebuilding 15,000 housing units.

Commercial and industrial sales already account for 10% of Ganahl Lumber’s revenue. As far as CEO Peter Ganahl is concerned, commercial business has always been a key ingredient to offsetting slides in residential building. Headquartered in Anaheim, Calif., Ganahl works with numerous key accounts that are not about to dry up any time soon: hotel maintenance departments, manufacturers such as Boeing, theme parks, federal agencies, and large municipal agencies.

“The department of water and power for a major metro city is not going to cut back,” Ganahl says. “And the business does not run on the same cycle as residential building.”

Curtis notes: “Commercial business rises and falls with various state and federal budgets. If they come knocking on your door, the thing to not say is ‘no.’ They are one of the most neglected sectors in your market, and the way to get the business is to say they exist.”

Into the Black

With no promises of a turnaround in residential home construction any time soon, and 2007 in the past, a number of dealers have approached 2008 with a back-to-basics attitude.

“We are looking at this year as a time to gain as much market share as we can, and keep an eye on the fundamentals of business, the little things. We don’t want to be shortsighted,” Donley says. “We are making sure our employees are doing what they need to be doing, making sure what you do for the customer is the right thing.”

According to Donley, an aspect for doing the right thing is simply building relationships with customers “Do you know your customer? Do you know what sports your customers’ kids are playing?”

“Slow and steady wins the race,” Curtis says. “We are going to focus on our core competencies.”

But then he adds: “As the economy gets a case of the jitters, real or imagined, you have to have options.”

Download 2008 ProSales 100 List (PDF)

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