Coping Strategies

The double-whammy of a slow housing market and moderating commodity materials prices has dealers in many markets reeling. “In two weeks, two independent yards closed and a five-location dealer went to just one yard,” says Chris Mans, vice president of sales for N.A. Mans Lumber & Millwork, a fourth-generation, $60 million dealer based in Trenton, Mich., a suburb of Detroit—one of the most depressed economies in the nation. “Our market is so dead. We’re doing everything we can.”

To help his builders move their standing inventory and push more production, Mans works with them to upgrade their model homes into true memory points. “We’re working with our vendors to provide higher grades of samples to hit the hot buttons,” says Mans. The dealer also recently employed single-line invoicing on all accounts to reduce the paperwork—and perhaps manpower—required by a builder to process and account for each statement. “Maybe it saves them an extra person in the office,” says Mans, despite the hassle for his crew to consolidate the ticket into one number. “It also stops any nickel-and-diming over an OSB panel,” he adds.

While effective to some degree, if even just to foster goodwill, Mans’ main tactic, and those of other dealers in similar circumstances, is to shift the mix of each ticket to reduce the impact of falling commodity prices on revenues and profits. “The finish goods markets are holding steady,” he says of such categories as doors, trim, and stair parts. “We’re able to hold our margins for those.”

Steve Braun, vice president of marketing for Bailey Lumber & Supply, a nine-location, $155 million dealer based in Gulfport, Miss., estimates he’s losing about $800,000 a month in commodity sales revenue. By packaging non-commodity products with its lumber package, however, the dealer so far is weathering the downturn. “We can’t afford to lose margins, too.”

Likewise, Braun has tried to leverage price hikes in some categories to balance lumber’s fall, among other ways to reduce the share of commodity products on his operation. “Eight years ago, lumber was 60% of our mix. Now it’s 45%,” he says, having backfilled with millwork, roofing, and drywall, as well as profitable installed sales programs for insulation and shelving—an area he wants to expand. “The key is millwork. That’s where the profits are.”

That’s a similar refrain from Hall, who in addition to discounts and other incentives to spur sales, as well as distributing sales fliers for his customers’ homes among his employees, relies on his operation’s ability to package several products—each priced competitively—as opposed to being limited by one or two. “Specialty dealers in our market are finding it difficult,” he says, because they lack the breadth of inventory and therefore price flexibility. “Our basket of products is our advantage.”

Despite operating in what is arguably the most dismal housing market, Mans is confident his family’s business will not only survive, but eventually thrive, because of its breadth of products and services. “When this market breaks, we’ll be a stronger company,” he says. —Rich Binsacca is a contributing editor for PROSALES.

Tips for Managing Material Prices With material prices all over the map these days, and in light of housing’s slowdown, it takes a thoughtful strategy to find profits. Consider the following tips for navigating the current landscape.

• Build and offer packages of competitively priced materials among several categories, making it easier for builders to rely on a single supplier and for you to reduce the bottom-line impact of low-priced commodities.
• Consider adding installed sales and/or packaging labor with the framing or other materials package (even if you’re just scheduling the subs), further easing the burden on your builders.
• Work with upstream vendors to get upgraded lines into model homes, which not only help sell houses but also often translate into higher-margin tickets.
• Eliminate low-margin, low-priced, and/or low-demand products, if possible, to restructure your overall mix of inventory.
• Build customer loyalty by offering to communicate home sales discounts and incentives offered by builders among your employees, vendors, and specialty contractors.
• Ease paperwork and administrative costs for builders by consolidating items for each house or project on materials invoices.