Troll for New Accounts
Ken Dunham, executive director for the Lumber Association of California and Nevada, lives in Folsom, Calif., where he’s witnessed more foreclosures on homes than he can ever remember. In such a precarious climate, he doesn’t think there can be one answer for dealer survival. But Dunham is convinced that dealers must be on top of emerging trends, like green construction, and carry more products that meet those demands.
When their builder business runs dry, experts say that dealer survival requires drilling new sales wells. One such revenue stream, which dealers have historically resisted, is the repair and remodeling sector. After the Sept. 11 terrorist attacks, which effectively killed the aircraft industry in Wichita, Kan., and led to an abrupt drop in housing starts there the next year, Star Lumber aggressively went after remodelers by launching Remodelers Resource, a program that Davis says dedicated marketing, sales, and delivery support specifically to those customers.
Dealers that pursue remodelers, though, must understand that they are more detail oriented than builders, and usually place smaller orders. “Your salespeople must have patience,” Lee says, adding that estimating remodeling projects is more complex “and can make or break” a sale’s profit margin.
Hartnett suggests that dealers that have all but abandoned specialty contractors should reconsider them as a new source for sales, and points specifically to decking contractors as fertile targets. He also urges dealers to consider extending their services into installation, although some consultants are a bit less enthusiastic about this option. Kellick-Grubbs, for one, thinks a more natural progression would be for dealers to pursue commercial accounts. Seely says a number of Michigan dealers have expanded their “geographic scope” to supply commercial customers in Missouri and even Mississippi, where Rader says he’s seeing more Gulf States dealers chasing commercial business, too.
Parenthetically, Dunham says that at his group’s convention this November, the Wood Product Council’s Wood Promotion Network plans to launch a marketing campaign that advocates wood for nonresidential construction.
Consider Expansion
The housing slump has slowed expansion plans of the largest dealers, but it hasn’t stopped them entirely. The giants are always prodding for soft spots to exploit in the market, and have demonstrated that they will open their checkbooks when the right acquisition prospect comes along.
Kellick-Grubbs says there is “a ton” of acquisition activity going on, which is good news for dealers that want to sell their businesses. She and other consultants say now is a good time, too, for small and midsized dealers to think about purchasing a distressed competitor or adding a store in a new market, particularly buyers with good cash positions and solid balance sheets.
But dealers must seriously weigh the risks and rewards of expansion, especially if they involve taking on more debt. Kellick-Grubbs also notes that many of the companies her firm has helped restructure recently “were top heavy on the asset side.” She says growth-minded dealers should ask themselves what kind of expansion makes the most sense now. “Does it have to be a yard you’re expanding?” meaning that growth might be accomplished just as easily through, say, a strategic alliance with a supplier or distributor.
Rader points to one dealer-client that originally was going to acquire a fastener company but decided instead to develop a fastener program organically, first by figuring out what his customers were purchasing from other suppliers, and then finding a fastener distributor he could work with.
“Now, it sells more fasteners than the company it wanted to buy,” he says.
–John Caulfield is a contributing editor for ProSales.
