The year in merchandising

Home Channel News, May 24, 1999

Home improvement dealers sought to deepen inventories and shorten supplier lists in their quest to capitalize on the latest product or hottest trend. Niche marketing became more sophisticated and computer-driven. And the strength of home building and remodeling had a profound impact on what dealers' sold, and to whom. On the following pages, NHCN sums up the year's key events in 10 product categories, with a percentage and dollar volume breakdown, byproduct category of the top 500's $89.2 billion in sales in 1998.

Lumber and Building Materials

Percent of Sales 47.01m

Actual Sales $41.95 billion

A busy year for home building powered sales of lumber and building materials in 1998. But all the activity put a severe strain on many suppliers' abilities to keep pace.

Starts of single- and multifamily homes soared to a record 1.6 million units last year, helping a number of wholesalers and manufacturers to record results in sales and profits. Attesting to the strong demand for products in the sector was a dramatic turnaround at Georgia-Pacific (G-P).

Despite starting the year by announcing it would spend $200 million to reorganize its distribution operations in the western United States, G-P's building products distribution division reported $14 million in operating profits in the third quarter, compared to a $17 million loss during the same period a year ago. For all of 1998, G-P's building materials unit reported $507 million in operating profit, compared to $238 million in 1997.

Indeed, a wave of cost-cutting and rationalization washed over the industry, as companies took often drastic measures in the hope of improving results. MacMillan Bloedel's building materials division closed nine older and smaller distribution facilities, while lumber producer Louisiana-Pacific shuttered seven mills and announced plans to invest tens of millions of dollars to increase capacity and efficiency in its remaining 17.

Boise Cascade closed three sawmills and a plywood plant, reducing its lumber-producing capacity by 28 percent in commodity wood products and 11 percent in plywood.

While all the restructuring and streamlining began to pay dividends in terms of stronger balance sheets for many, it took a toll on the industry's ability to keep pace with demand for several key building materials. As 1998's market momentum carried deep into 1999, builders, dealers and distributors found supplies of gypsum wallboard, roofing and insulation running dangerously short. A mild winter offered little respite, and as the industry geared up for a busy 1999, worries turned to desperation -especially with regard to drywall.

Not surprisingly, strong demand and short supplies added up to price hikes for some products, structural panels, gypsum wallboard and insulation among them.

For lumber producers 1998 marked a mixed year. While the industry scored when a federal judge upheld a lower court's determination that pre-drilled studs must be counted in import quotas established under the U.S.-Canada Softwood Agreement, it took a hit from Asia's spreading economic contagion. American log and lumber exports fell by more than 50 percent and oriented strand board (OSB) exports by nearly 75 percent through the first six months of the year.

The lumber industry also was dogged by ongoing environmental issues, mainly having to do with sustainable forests and the use of oldgrowth redwood. The pressure led to a growing trend among producers - including MacMillan Bloedel and Western Forest Products - to seek certification of their forestry practices.

Such issues helped drive acceptance of engineered wood products such as OSB, laminated veneer lumber (LVL) and I-joists. During the year the APA-The Engineered Wood Association projected that I-joist production would soar 74 percent by 2002, with LYL production expected to grow 83 percent.

All this occurred at a time when the industry's two largest dealers, Home Depot and Lowe's, were waging a public relations battle over which carried lumber with the least wane or other "flaws."

Few companies were more aggressive on the alternative products front than wholesaler Universal Forest Products. The company announced a massive repositioning away from pure commodity lumber and toward greater sales of value-added products like engineered trusses, lattice panels and deck components.

1998 saw a concerted push among companies looking to bring the industry more firmly into the computer age. As the brains behind the online lumber exchange known as FPIX (Forest Products International Exchange) continued to fine-tune their system, a new rival, TALPX, appeared on the scene offering a real-time pricing and purchase capabilities in an on-line auction setting.

Distributors also turned to technology to boost their business capabilities. Cameron Ashley Building Products announced it would invest $11 million in new computer system designed to improve inventory tracking and support EDT and vendor-managed-inventory initiatives.

Lawn and Garden

Percent of Sales: 8.42