Thinner Ranks
South Florida also used to be a hot territory for America’s biggest LBM chains, some of which sell to production builders. On Oct. 23, when Stock Building Supply revealed it would close 86 facilities, four Florida locations were among the cuts, including Fort Myers and Pompano Beach yards. The move left Stock with just a single yard south of Sarasota, or within the southern tier of the state.
Less than a month later, ProBuild announced it was downsizing and would consolidate several Florida locations. That included closing a Naples location that also served the Fort Myers area.
Other moves by kings of the industry include Builders FirstSource deciding to mothball facilities in Florida last October, with the exception of a West Palm Beach location; and Building Materials Holding Corp., pulling its SelectBuild construction services arm out of the state altogether.
“The Stocks and ProBuilds were gearing up to work with the production builders, not your ma-and-pa type of contractors who build 10 to 100 homes,” says Ron Labbe, president and owner of Naples Lumber. “They were geared up to 500 to 1,000 homes.”
The market’s horrors have had a ripple effect on all sections of the supply pipeline. Manufacturers reps have been “savaged,” Tucker says. “When the business went away, a lot of the rep firms went away, too.”
“There’s not enough work for everybody,” Wanzenberg says. “There was too much capacity in every step of the channel, from the timber operations to the jobsites through all of the sub trades.”
“We are down to our best employees,” Bavry says. “The first layoffs were the low-hanging fruit, but the last cuts have been dearly painful.” Three years ago, Kimal stood at 234 employees. Today, it has 92. In each round of layoffs, Bavry says the cuts have been thoroughly thought through. “I keep trying to bring the cream to the top.”
Kimal closed its fiscal year Oct. 31 with sales of $20 million. Three years ago, the company topped $60 million, in part because the dealer’s moderately sized independent customers expanded as the housing bubble grew. One of Kimal’s customers went from building 30 to 40 homes year to as many as 400 homes a year. “That particular builder went down to a handful a year ago, to nothing. He’s now out of the picture,” Bavry says.
In Naples, Labbe saw the middle market of $500,000 to $1.25 million homes dry up. On the lower end, nothing is being built below $500,000; there’s already an oversupply in that range. But the high end of the market still is healthy, with custom home buyers ready to spend millions in this super-wealthy area. (There are two Ritz-Carlton hotels across and down the street from Naples Lumber.)
Labbe says downsizing staff has been one of biggest obstacles during the dry market period. Naples Lumber is now at 42 employees, compared 197 about a year ago. Many of the layoffs occurred when Naples Lumber closed its truss plant last May.
“Downsizing is one of the toughest things we have had to deal with, “Labbe says. “The employees haven’t done anything to deserve being let go.”
But cuts have become a matter of survival. When Deerfield was operating at its peak roughly two years ago, it had 96 employees. At times, it was difficult to find employees to fill the ranks. “That was when it was go, go, go,” Wanzenberg notes. The dealer is now down to about 40 employees, or roughly a 45% cut in head count.
Strategic Moves
Wanzenberg says the company faced a double-edged sword in maintaining a high level of service for the custom builders it deals with, a slice of the business that has remained robust. Deerfield has never chosen to chase the big builders, relying on upper end to custom builders for most of its sales.
“We endured pain as we were trying to maintain service levels. We literally didn’t want to eviscerate the business,” he says. “It’s easy to cut fat, but you don’t want to cut muscle and bone.”
Deerfield was able to avoid closing any of its operations. Its headquarters and four locations on the East Coast sell plenty of sticks, plywood, and rebar, while satellite offices on the West Coast focus on millwork, doors, and cabinetry. The dealer will phase out its cabinetry business on the West Coast this year, but not before a million-dollar cabinet job destined for the Turks and Caicos Islands, the biggest cabinet job in company history, Wanzenberg says.
For much of its history, about 80% of Deerfield’s business has been to residential builders, including a 60/40 split between new construction and remodelers. In 2009, the company will focus on remodeling. “No matter how bad the economy gets, if people’s roofs are leaking, you have to fix them,” Wanzenberg says.
Back to Basics
Dealers with more than a century in combined experience are using this time to fine-tune their businesses while getting the little things right. They are watching their pennies closely while improving what margins they might have.
“This is a time to review procedures and systems,” Labbe says. “We’ve just gone back to good, solid business practices: doing what we promised and treating people with respect.”
Naples Lumber is also viewing accounts receivable with an eagle eye, paying closer attention to new accounts than perhaps ever before. Labbe says it heavily scrutinized builders that Naples had pursued for years that suddenly became the dealer’s best friend. “We’re checking their credit very closely because we might be the last guy on line to get paid,” he says.
Raymond created a centralized purchasing department to ensure the company is buying better than, or as well as, its competitors, Marten says. It also created a centralized dispatch department to enhance delivery efficiency and service. In another effort to improve service, Raymond has cross-trained many of its inside sales staff, installation crews, and service techs.
“We want to be able to service our builders in the most cost-effective manner possible,” Marten says.
Tucker does equate some of the adjustments dealers are making as part of re-learning the ropes. He thinks that, for some, the market has forced them to learn the business for the first time altogether. If some people broke into the industry in 1992, “it’s likely that every year [they were] in the industry, they made money,” Tucker says. “Now that they aren’t, some don’t know what to do.
“A lot of flushing out has taken place,” he adds.
The survivors, though, learned how to cut staff, inventories, and as much cost out of operations as possible.
“When things were good, if you needed a truck, you just added it. Now you have to figure out how to get much more out of the existing truck,” Bavry says. He notes most dealers in southern Florida are now reluctant to add equipment, people, or inventory.
With all six of its locations still in place, Bavry says the fact that the company had paid off any expansion projects lets the dealer move on without any debt. Projects included a new truss plant, door plant, events center, and showroom.
