Baker: Big builders won’t want to pay for the services they’ll demand from dealers, but instead they’ll want their suppliers to shift away from the services now being offered and focus on those that are important to their high-volume operations [such as those mentioned above].
Q In the current and predicted future of home building (with housing starts dropping and then recovering slightly in 2008, according to the NAHB), do you expect pro-oriented dealers to focus on one or a few customer types within housing (i.e., “niche” markets), or diversify into other areas of light construction?
Hylbert: There’s no question that, in general, pro dealers will look to diversify [during this time]. For us, we have an existing repair and remodeling component to our business, and a small but significant commercial side, both of which are serving sectors that are healthy right now. But those divisions are already established, not something we’re initiating now.
Baker: My sense is that dealers see the need to choose a niche because it’s hard to swing back and forth with a cycle and implement a new strategy. If you’re good at serving a certain customer, you can’t turn on a dime and reorient your sales force and inventory to serve another focus. I don’t see how a dealer can suddenly go from 25 door SKUs for production builders to 600 SKUs to serve remodelers when the market shifts.
Judd: I see pro-oriented dealers expanding into all customer areas that they can identify. It is natural to try and grow, take share, and sell to a broader definition of customers. It is more difficult to follow record years with a plan that might produce lower results.
Consolidated dealers need to produce a return on the investment they made to consolidate. As the competition intensifies for available business, some will seek out new opportunities as a way to grow.
Baker: Dealers who have focused the last few years on serving big builders are experiencing the risk of that strategy now [and are] being dragged down with them with a limited ability to rewire their business models.
Hylbert: Dealers have to look at how what’s happening in each market impacts their operations in that market. You can’t consider a general downturn [in housing production] and apply changes across the organization. Those [dealers] that are solely focused on new construction can be successful [during the downturn], but will have to right-size their operations appropriately to the level of demand in each market.
Q Will information technology be mainstream among pro dealers by 2010? Hylbert: If there’s a leading edge of technology for this industry, [pro dealers] are not on it. We’re on the trailing edge. But better, more timely and transparent flow of information [implemented by others in the chain] will have an impact at some point.
Baker: There hasn’t been a lot of technology implemented, but there has been a lot of talk about what dealers want to do. It’ll keep moving forward to where there are fewer touches and data entry points and integrated inventory management systems along the entire supply chain, including scheduling systems with subcontractors. By 2010, those that have integrated IT will have a much better managed operation across the company and among all the players in the chain.
Q What are the challenges facing dealers through 2010? What is their biggest advantage? Judd: In the coming years, pro-oriented dealers will need to demonstrate increased value to their customers while also managing costs more efficiently, as their customers also look for ways to expand business and profits above the levels of the past few years. All must try to take cost out of the supply chain, manage assets effectively, and sell a quality product in a slower market.
