Pros Keep Yards Alive

Home Channel News, Oct 25, 1999 by Scott Larson

Competition and opportunity have pushed independent lumberyards into the service of home builders and remodelers

While pro-oriented dealers have always been fixtures in the retail home improvement universe, their numbers have grown steadily during the second half of this century, and they've ballooned in the 1990s.

In 1993, for example, 295 companies -- or 59 percent -- of the 500 largest home improvement retailers as determined by National Home Center News' annual retailer census generated at least 67 percent of their total revenue from professional customers. By 1998 that number had increased to 377, or slightly more than 75 percent of the Top 500.

Such growth in the number and size of dealers devoted to serving professional customers has been driven by a variety of factors, ranging from economic conditions to competitive pressures. Inevitable swings in the nation's economic fortunes and the resulting boom-and-bust nature of home building, for instance, traditionally have led many lumberyards to hedge their bets by serving both consumers and pros.

"You wanted to have more retail actually, because you realized serving the contractor was a cyclical business," noted Ed Savage, who from the 1960s through the 1980s served as a top executive at a variety of dealers, including Moore's Lumber and Building Supplies, Lumbermen's, Spenard's and Boise Cascade, which at one time operated 121 lumberyards. "Individual dealers were the ones who were heavy into the contractors, while most of the chains -- Wickes, Lowe's -- strove to have the retail as a cushion."

But with the birth of the DIY era and the parallel evolution of warehouse home centers, not to mention the voracious growth and market dominance of Home Depot -- which opened its first stores in 1979 -- and Lowe's, many more smaller dealers have seen higher percentages of their sales migrate to the pro side.

"Of the lumberyards left today, I'd say 90 percent are focused on the contractor," noted William Cowling II, president and CEO of Dixieline Lumber, a 10-unit operator based in San Diego that was founded in 1913. Cowling maintained that since the big boxes first arrived in San Diego some 18 years ago, the number of independent dealers operating there has shrunk from 50 to fewer than a handful.

At times, the economy and the warehouse competition seemed to work in tandem. In 1992, for instance, dealers already in the Northeast, such as Hechinger and the Rochester, N.Y.-based Chase Pitkin, were hit with the double whammy of a sputtering regional economy -- the nation's worst at the time -- and the arrival of warehouse operators, led by Home Depot. But with the region's economic rebound several years later came a blessing in disguise for many urban area independents, whose smaller stores couldn't carry the depth and breadth of product stocked in the newcomers' outlets. Finding themselves squeezed out of what was becoming a bloody battle for cash-and-carry sales, many refocused their resources to serving pros. And where larger companies in New England, like Somerville Lumber and Grossman's, have disappeared, many family owned independents thrived.

Not so ironically, perhaps, 1992 also marked the first time the Home Improvement Research Institute, an industry research organization, identified and categorized the contractor shopper in a study for the first time.

Mergers link lumberyard chains

Still, the industry's reawakening to the pro side of the business wasn't purely an offshoot of the growing hegemony on the consumer side. Indeed, a recent element of the pro push has been the realization among a number of dealers that it might be possible to mimic the success of Home Depot and Lowe's by developing a far-reaching chain of lumberyards single-mindedly devoted to serving builders.

By devising strategies and developing the services -- often through acquisition -- needed to build strategic partnerships with the nation's production builders, companies such as Carolina Holdings, Wickes and, more recently, Builders FirstSource (formerly BSL Holdings) have emerged as the new giants of a fragmented but suddenly consolidating industry.

In 1995, not a single dealer among the 350 largest pro-oriented dealers -- or those that generated at least 67 percent of their total sales from professional customers -- had annual revenues over $800 million. By year-end 1998, four did, including two -- Carolina Holdings and 84 Lumber -- that topped the $1 billion mark. To put that in a broader perspective, in 1995 the 10 biggest pro dealers accounted for slightly less than 28 percent of the $14.6 billion in sales generated by the top 350 companies getting two-thirds of their sales from pros. At year-end 1998 they accounted for 32 percent of the $20.8 billion total. Over that four-year span, sales to pros among the top 10 grew 67 percent, or twice as fast, as the rest of the 350, whose sales to pros grew 33 percent.

"One of the things Carolina [Holdings], Wickes and BMC [Building Material Holding Corp.] have done is they're not only going after that segment of the business, but they have their own truss plants, millwork facilities, boom trucks and all those things," said Savage, now a co-owner and senior vp-business development for fastener manufacturer Crown Bolt in Cerritos, Calif. "They're not only going after it, but they're doing it with all the equipment and services needed to do it well."