The ProSales 100 Conference kicks off in New Orleans tomorrow, bringing together execs from the leading firms in LBM for two days of insight and best practices geared toward moving business forward. Whether you’re attending the event or will be following our online coverage, you can expect to pair doses of management and operational tips with comments from builders and remodelers about what they’re seeing in the market and how you can better serve them. We’ll also be featuring industry experts to share their data-driven outlooks. Jonathan Smoke, the chief economist for our parent company Hanley Wood, and Ken Jacobson, principal at market research firm Principia, will share insight about how the diversifying new residential construction market and supply-chain consolidation will impact your operations.
“The housing market is getting more concentrated. The majority of the gain is really being reflected in the 100 largest builders,” Smoke told ProSales. “Scale has more of an advantage now than it did before.”
Those firms’ suppliers may be more confident in the group’s ability to pay on time for goods and operate in the market longer term. But for those who sell to smaller builders, the picture is more nuanced. “We’re definitely going to see growth in remodeling, so dealers who focus on the design-build segment will be selling less material to more people,” Smoke says.
That, in part, is due to a shift in who is buying homes. Smoke notes that the market is rapidly shifting away from low-priced, entry-level homes and embracing a buyers’ market increasingly populated with active older adults who are seeking to downsize while adding features that will allow them to age in place. This, he says, while student debt and unemployment or underemployment among younger would-be homebuyers is causing them to put off life events like marriage and parenthood that would cause home formation.
Those patterns join a tighter supply chain, forcing dealers to react. Expect Principia’s Jacobson to discuss ways to improve product availability while capitalizing on margin opportunity. In 2012, the building-products channel valued $105.7 billion in revenues with $22.7 million gross margin. Of those revenues, the dealer segment accounted for 32%, or $33.9 billion and gross margin of $7.2 billion, or 26% of the channel’s total gross margin opportunity. The specialty one-step segment posted revenues of $38.1 million in 2012, accounting for 36% of the channel total; segment margins of $8.2 billion made up 36% of the channel’s total gross margin during the year.
Gross margin in the dealer channel should increase by $1.4 billion through 2014, according to Principia’s 2012 study of building material suppliers nationwide. Of that growth, nearly one-half will occur within dimensional lumber; sheathing is expected to account for 13%, or $182 million, of that growth and trim at 11%, or $147 million.
One-steppers can expect a $2 billion gross margin increase during 2014, with roofing accounting for 28%, $540 million, of that growth. Gross margin opportunity in windows should increase 19% across the channel to value $379.
Follow our conference coverage at ProSalesMagazine.com to hear more from Smoke, Jacobson, and the rest of our roster of dealers, builders, and industry experts.
Download a copy of Smoke's presentation here .