Pushing the limits: National Home Centers has returned to profitability, after several precarious years in the 1980s and 1990s, by augmenting its traditional strengths in lumber and building materials with broader assortments of home decor, flooring, and—of all things—furniture

Prosales, May, 2005 by John Caulfield

A sudden snowstorm on a bleak morning in late December would have been enough to dampen the spirits of any local retailer. But Dwain Newman was feeling pretty chipper after scanning the previous day's sales tallies for the headquarters store of his company, National Home Centers. "We did $48,000 yesterday. That's more than we did our entire first year in business."

Newman, National's no-nonsense, plain-spoken chairman and CEO, is peering confidently into the future these days after enduring several tough years in the 1980s and 1990s, a time when the company he founded in 1972 and built into one of the industry's formidable regional pro dealers lost its footing. National took an ill-fated detour into warehouse retailing, and then couldn't withstand a competitive onslaught from The Home Depot and Lowe's in its all-Arkansas-based markets. But those travails had a silver lining because they forced Newman to recast his business model and venture into specialty and niche categories that push the limits of traditional pro dealer thinking.

In the late '90s, Newman expanded his stores' product mixes into some very un-lumberyard-like home decor items. And three years ago, he made the boldest and riskiest move of his career when he added broad assortments of furniture--a category that's been many home improvement dealers' Waterloo--to a number of his stores. While furniture and home decor accounted for only 5 percent of National's sales in 2004, they definitely signal the direction this dealer is headed as it transforms itself into "a chain of specialty outlets," says Max Lawton, home center manager for National's 60,000-square-foot store in Bentonville, which has been remodeled to position furniture front and center, and is serving as the prototype for subsequent new, remodeled, or relocated stores.

So far, the changes National has been making appear to be working, as its sales rebounded from a low point of $96.6 million in 2000 to $221.5 million last year, a 41 percent increase over 2003. And taking his company private in February 2002 allowed Newman to give serious consideration again to expanding National Home Centers into new markets. As his company evolves, Newman, now 70, is slowly but steadily handing off more responsibility to his management team, which includes his stepson, Brent Hanby, who is currently CFO; Newman's son Jeff, senior merchandise manager; Danny Funderburg, the company's president, who has worked with Newman for 28 years and oversees the company's building materials business with 10,000 pro accounts; Lawton, who Newman says will eventually manage National's furniture business chain-wide; and Joe Frame, who manages the dealer's $80 million headquarters yard in Springdale.

No doubt, these managers have their work cut out for them as National Home Centers embarks on ambitious growth plans. For instance, later this year, National is planning to begin construction on a 25,000-square-foot kitchen and bath showroom that would be located adjacent to its 21-acre headquarters yard and store, which itself is across the street from a 12,000-square-foot flooring showroom with a 55,000-square-foot warehouse that

National opened last summer. The flooring showroom is expected to generate $9 million in first-year sales, and the flooring category accounted for 8 percent of National's total revenue in 2004. Funderburg anticipates that showrooms for flooring and kitchens and baths might eventually be added to other locations. Seven yards also have carved out stylish showrooms within their selling areas for doors, windows, and fireplace mantels.

The Springdale kitchen and bath showroom will be on a 20-acre property that also will have a 75,000- to 100,000-square-foot warehouse that includes a granite manufacturing facility. Two years ago, National opened its first granite plant--with $1 million in equipment--at its Springdale headquarters yard. By relocating that plant to a larger building in the new complex, Newman would fill the vacated space with a new millwork shop. Funderburg adds that by the fourth quarter of this year, National plans to relocate the door shop at its largest yard, in North Little Rock, into bigger digs that would include another granite plant to service the dealer's five yards in central Arkansas. Several company officials confirm that National also intends to relocate smaller yards in Conway and Clarksville (which are on leased property) to allow them more space to operate.

While Newman generally secures his own financing to buy land for National's growth, to help pay for these expansions and improvements his company recently doubled its line of credit with JP Morgan Chase to $50 million, says Hanby.

Additionally, National's penetration into central Arkansas deepened when it acquired the three-yard One Source Home & Building Supply in November 2003. Newman says One Source was primarily a real estate deal, but there's little question that National has its eye on other markets to grow into. Funderburg says that the company is considering Hot Springs and Jonesboro, Ark., as possible expansion targets, either through acquisition or new construction.