Roll the Dice. The success of any dealer’s industrial and commercial business depends on market conditions. Whiddon notes that his company expanded into IC as markets like Fort Lauderdale, Fla., grew and matured around its yards.
The same is true for Tri-State Building Materials in Bullhead City, Ariz., at the point along the Colorado River where Arizona, California, and Nevada meet. When Mike Dooley joined Tri-State 14 years ago, it was doing about $5,000 per month in commercial sales. Now this market is a major gambling venue with 13 hospitality and gaming properties. “It’s like a candy store for us,” says Dooley, Tri-State’s commercial sales manager, whose department did $2.7 million in revenue last year, or about 25% of the company’s sales.
Tri-State operates its residential, retail, and commercial businesses independently, and Dooley has two outside salespeople, two inside salespeople, and four delivery vehicles dedicated to IC. Dooley and other dealers point out that the appearance and presentation of their salespeople must be more professional because they are typically selling within an office environment, not on a jobsite that is more casual by nature. While most dealers have their sales teams selling to both residential and commercial accounts, a growing number are developing IC specialists within their sales forces.
Dealers must be able to provide a higher level of expertise when it comes to estimating and takeoffs. Beisser Lumber near Des Moines, Iowa, has three engineers on board because “looking at commercial blueprints can be more of a challenge,” says Pat Mashek, Beisser’s president and COO. He notes that selling in the IC sector requires patience because “you might be working with a client for a year before the project gets started.”
Mashek says IC customers don’t have different expectations than residential contractors. “You have to be on time with these guys,” he says. “Even if the order is late, you have to let them know that you can deliver when they need it.”
While much of what dealers sell to IC accounts is special order, there’s a bit of crossover between commercial and residential products. Ross Ridout, Ridout Lumber’s vice president, says that some commercial contractors are moving back to wood to save money, and notes a 150,000-square-foot school is being built with wood framing in his market.
Dooley says two-fifths of Tri-State’s commercial sales draw from existing inventory or from Ace’s distribution center that delivers twice a week. Conniff of Ace thinks it behooves dealers to establish a stocking presence in frequently ordered commercial items to reduce their freight costs.
Causeway’s three locations have in their inventories about 75% of the items they sell to IC accounts, not necessarily in huge quantities but just enough “to give us a leg up as a fill-in supplier, which can be a big part of your commercial business,” says Whiddon.
Among the categories that pro dealers say they sell to commercial customers are janitorial and sanitation, safety products, and material handling products.
Dealers also expect demand for green building products for commercial application to expand. “The shift to green is real,” especially on the municipal and school construction levels, says Kearney of Hines, whose yard in North Chicago has Forest Stewardship Council (FSC) chain-of-custody certification and whose custom millwork plant has applied for similar papers.
Meek’s yards in Vacaville, Calif., and Lake Tahoe, Nev., supply green building products to contractors. “We’re getting tons” of requests from commercial contractor for information and products, says Mashek. Beisser Lumber carries wood products certified under Sustainable Forestry Initiative protocols, and is awaiting FSC certification.
Volume Customers. Profitability of commercial sales varies by product. Some categories, like hardlines, are more competitive and offer slimmer margins. But dealers say they make more from commercial transactions, and their cash flow improves because IC customers generally pay on time more reliably.
Tri-State, which averages 9% annual growth from commercial sales, expects 35% to 40% margins on its building products, and 25% to 30% on the products it draws from Ace. Gross margin will be one metric that Meek Lumber uses to determine the strength of its IC business. “We’d love to see a 5% to 10% improvement [in gross margins] this year,” says Porter.
What some dealers might relinquish in margin, they get back in volume from commercial sales. Tri-State recently supplied drywall and steel studs for remodeling 18 floors at Harrah’s resort. Dooley says his company sells “a ton of paint” and does land-office business in Trex composite decking with nearby lake homes.
Commercial sales are about 40% of Beisser Lumber’s annual revenue. This dealer recently finished supplying a new resort and golf complex at Honey Creek State Park, 90 miles south of Des Moines, where it provided between $650,000 and $700,000 in framing lumber, connectors, and other building products for a 107-unit hotel and convention center.
Mashek says one of his people worked on the proposal for two weeks and was involved in re-bidding, which lasted five months. The general contractor, The Hansen Co. of Johnston, Iowa, had used Beisser as a supplier before, and chose the dealer over three others because of Beisser’s “reasonable pricing” and “full service,” says project manager Bill Bowman. In June, Bowman’s company was bidding on construction of the resort’s waterfront cabins, a $5 million project. If it gets that bid, he expects Hansen to ask Beisser to bid as its supplier.–John Caulfield is a contributing editor to ProSales.
A Different World
Before getting into or expanding commercial supply:
Know Your Customer. Commercial-oriented dealers often serve distinct clientele: nonresidential construction companies and customers that buy maintenance and repair products for office buildings, schools, and the like. Each has its own product and service requirements.
Expertise Is Essential. Commercial customers expect a higher level of professionalism from suppliers, everything from the appearance and demeanor of outside salespeople to the quality and knowledge of inside support. Have engineers on board who can read commercial blueprints. And the more successful dealers have salespeople dedicated exclusively to commercial.
Develop a Local Niche. There are a lot of big players on the commercial side, but many of them sell online or via catalogs. Dealers are wedging their way into this market by cultivating a personal relationship with commercial customers, and offering building products that match those customers’ needs. Consider beefing up your green assortments for commercial contractors that are being required to comply with more rigorous building standards.
Expect Higher Margins, But ? Generally, commercial is more profitable than residential. But it can also require higher maintenance. Dealers should be careful about not letting things, such as change orders, get out of hand, so they aren’t stuck with returned merchandise they can’t resell through their yards.
Assortments May Vary. While dealers typically sell commercial customers out of existing inventories, they must be ready to handle regular special order requests and, if the orders get large and frequent enough, to add those products to their inventories as stocking programs.
