New frontiers: with the right approach, organic expansion strategies can grow new business opportunities. Here are some tips on how to spread new roots from a small independent in Lowe's backyard and a regional Midwestern pro dealer

Prosales, May, 2005 by Joe Bousquin

Master plan

Whether it's to reach a new, untapped customer base or increase penetration in a region you already serve, opening new units in the building materials supply industry can be a catalyst for growth on both the top and bottom lines. How dealers go about this, however, determines whether a grand opening is received with fanfare by the customers it's designed to serve or falls flat due to inadequate planning and hidden pitfalls.

Take Glade Valley, N.C.-based Blevins Building Supply, which owned its fourth location last spring in North Wilkesboro, N.C. Even though the $18 million pro dealer resides in the backyard of Mooresville, N.C.-based $36.5 billion behemoth Lowe's Cos., Blevins' new store, which opened in May 2004, successfully met its $2 million top-line goal for its first seven months. This, despite the fact that the new unit, geographically, was in a more consumer-oriented area than Blevins' other locations--right down the road from where Lowe's opened shop 58 years ago. The secret? Lots of homework beforehand and a little help from Blevins' buying group affiliation with Fort Wayne, Ind.-based Do it Best Corp.

Bill Blevins, president of the pro supplier, says one key to a successful expansion is putting a pair of legs on the ground before groundbreaking begins. "When we go in somewhere new, we usually put an outside salesman in there first so we can feel the area out," he says. "We're quoting jobs and quoting contractors, and if we miss it, we try to learn why we didn't get it. That way, you know going in what your potential is."

This step is also crucial to gathering another piece of knowledge that's essential for expansion: a feel for your competitors' (and your own) margins in the new location. "You need to get the margins that the other suppliers in the area are putting on their material," Blevins explains. "That way, you know if you can go in there and undersell them."

For this, Blevins had some help. As a member of Do it Best, he had some market-research muscle on his side in the form of the co-op's recently launched RetailSTART program. The offering is tailored to help members open new locations by providing assistance in everything from industry' intelligence to showroom layout. "Do it Best did a survey for us on the location," Blevins says, "and they gave us [data] that helped us know how many people were passing the site, who the competitors were, and what they sold."

Do it Best's consumer experience also helped with a more DIY-centric inventory selection and merchandising for the store. Given Blevins' pro-oriented heritage, that help was crucial. "We really push for contractor business. That's what we know, and that's how we've gotten where we're at," Blevins says. "We're not as good at the consumer business, and Do it Best helped a lot in that area."

For example, the terms and discounts Do it Best extended to Blevins as it opened this store gave the outfit more price flexibility to compete with Lowe's. Doug Combs, manager of the new North Wilkesboro store, says it's the other independent dealers in his area that he watches. "If you've got an independent dealer in town, that's the one you'd better pay attention to," he says. "They have more leeway with the price, and they know the product. Service is our main seller."

That's why knowing your product--and your competitors' products--is so essential. Consider one item at Blevins' new location during the winter months; sleds. "Some of our other stores wouldn't even think about carrying them," says Combs. "But here, you've got to have them."

Especially in Lowe's backyard.--Joe Bousquin is a Newcastle, Calif.-based business journalist.

Diversify and Conquer

When it comes to organic growth, there's typically more to it than just duplicating existing stores and dropping them into new territories. Often, the key to healthy, balanced pro dealer expansion requires opening new lines of business to build a wide-ranging, competitive, and diversified operation that can provide almost anything customers demand. For Tulsa, Okla.-based Mill Creek Lumber & Supply Co., a family-owned company founded in 1934, this philosophy recently resulted in the creation of a new showroom concept in Oklahoma City that highlights the company's window, fireplace, and vinyl siding offerings. The 5,000-square-foot facility is now a capstone for the 52-unit dealer, which supplies everything from concrete to custom moldings to carpet, generating $180 million in materials annually from an 80 percent contractor/20 percent consumer customer mix.

Mill Creek's heritage stems from a boards-and-boots beginning as a traditional lumberyard. Over the past 70 years, in addition to the showroom, which opened in September 2004, the company has expanded carefully to include five yards, an architectural millwork unit, a wholesale lumber distribution business, a carpet and the division, a home improvement group focused on remodeling, and a tools center.

Mill Creek president Jeff Dunn says the key to successfully diversifying is to ensure that each new venture complements what has come before and that management has predefined objectives. At Mill Creek, these goals have included penetration of new markets and increasing market share of established product sales in the region. Over the past five years, these plans also have translated into an aggressive rollout into the carpet and the arena, an area where Mill Creek felt there was a "vacuum" in the existing market due to the absence of a single, major player filling the region's carpeting needs. "With any expansion, that vacuum can be in the form of products, the level of service that the existing competitors are giving customers, location, or any variety of opportunities," Dunn says. The result of the push? Today, Mill Creek boasts 24 carpet and the retail operations throughout Oklahoma and Texas.