Vertical horizon: with the acquisition of one of its largest customers, Seigles's aims to take construction services to the highest possible level in Chicago

Prosales, Nov, 2003 by Chris Wood

Things are moving so fast in the pro dealer universe that for many suppliers, installed sales is a concept that is past its prime. They now dub it "turnkey" or call it "construction services," and it's definitely not business as usual as these pro dealers begin wooing the big builder market with start-to-finish supply and labor packages.

Case in point: Elgin, Ill.,-based Seigle's Home & Building Center. Not content to rest on its laurels despite enjoying one of the largest 2002 pro sales volumes in the Chicago market at $201.4 million, the company announced on September 9 that it will acquire its largest contractor customer and operate it as a construction services division. "We will be, in effect, a general contractor for large home builders" Seigle's chairman Harry Seigle said in a press release announcing the acquisition.

"In short, we've witnessed a paradigm shift in the industry;' explains Seigle's company president Mark Seigle. "[Previously,] the builder developers-your Pultes and Centexes and the like--would entertain quotations from lumber companies and truss companies separately from carpenter contractors and then meld the two for the purpose of constructing a home. [But] pressures on the land-development side have caused [builders] to create whatever efficiencies they can on the construction side. The paradigm shift lies in their desire to purchase building materials on an integrated packaged basis where one vendor can supply everything."

To fill the labor vacuum, Seigle's acquired Michael Nichols, a contractor firm based in Carol Stream, Ill., with 400 employees and 2002 sales of $60 million. According to Mark Scigle, the singular labor and material package provided by the acquisition is much more lion a glorified installed sales program because it offers improved scheduling and deliveries, the elimination of redundant product and paper handling, faster cycle times, and reduced costs for Seigle's and its tract builder customers alike. "In the past,we have been in the installation business [including vinyl windows]," he says. "But heretofore we have not been able to offer [framing] services involving lumber and trusses, and with this acquisition we are able to do so."

According to Seigle, the jury is still out among the company's contractor customers, who were informed of the acquisition a day before the deal was made public; however, be adds, turnkey big builder services, including supply,, jobsite supervision, and installation, represent a significant channel distinction that should preclude any competition. "The builder/developers are thrilled," Seigle says. "For our carpenter/contractors, we're confident that in time they will see that this does not create the inherent conflict that might first be envisioned."

With the acquisition, Seigle's joins the ranks of Redmond, Wash.-based Lanoga, San Francisco-based Building Materials Holding Corp., and Eighty-Four, Pa.-based 84 Lumber, all of which have made announcements in the past year of initiatives to address the production builder market with turnkey supply and labor.

Now hot on their heels, Seigle's has high expectations for its future in construction services. "Obviously [we like] increased market share and regaining lost market share and entering into a profitable business with historically better returns than the LBM business7 Seigle concludes. "[For the future], whoever controls the labor will control the job."--Chris Wood