How many pro dealers find themselves in this situation? They've cut staff, maybe even closed a branch or two, or restructured their operations, all in response to a housing slump they thought would be over by now but instead might not rebound until late 2008.
After more than a decade of uninterrupted growth, many dealers are scraping for sales and profit while their builder customers tread water. Market forces are taking their toll:
In Michigan, building permits have dropped like a rock, and 13 dealers shut their doors between August 2006 and August 2007.
In Florida, where housing's boom and bust have been jaw-dropping in equal measure, dealers "are hunkering down," says Bill Tucker, executive vice president of the Florida Building Material Association. "It's hard to make decisions when business is so bad."
In the gloom, one can still find bright spots; dealers in Texas and the Carolinas are faring better than most, as are those who hitched their wagons to custom rather than production builders.
"We're not seeing the attrition we saw in the early 1990s, and I think consolidation has strengthened some dealers," observes Quent Ondricek, vice president of lumber and building materials for the buying group Do it Best.
But all dealers have reawakened to the realization that good times don't last forever, and the slump is compelling many of them to re-evaluate their businesses in a market whose long-term stability isn't the sure bet it once seemed to be.
"It's time to reposition and re-arm," says Dr. Jim Harris, a Florida-based consultant and ProSales columnist. He sees two fundamental survival paths for most dealers right now: get much bigger, or "get small and unique" by increasing the value proposition to customers.
Harris is one of a baker's dozen of consultants, association heads, and co-op executives whom ProSales asked to provide a "Plan B" for dealers that have already scaled back their operations and are now staring at a prolonged drought in their business with builders.
Some of their advice is rudimentary and focuses on what Kellick & Associates founder Ruth Kellick-Grubbs calls "basic blocking and tackling" that, at the very least, provide customers with on-time and in-full order deliveries. But other recommendations would require dealers to ponder more radical changes to their business models.
The consultants' counsel boils down to a five-step survival program.
Know Your Market Better
When consultant Bill Lee wants to persuade a struggling dealer that he's too close to his own business to assess its strengths and weaknesses, Lee puts his own nose up against a wall and says to the dealer, "This is you looking at your company."
This myopia afflicts a lot of dealers who spend so much time fixing things during the downturn that they don't see the forest for the trees in their markets until it's too late. Richard Seely, president of the Michigan Lumber and Building Materials Association, notes that what took his members by surprise was not the steep drop in housing starts, but that "they weren't getting paid for stuff they'd already sold." Therefore, it behooves dealers to put their ears to the ground to hear rumblings before they arrive as earthquakes.
When Jon Davis ran Star Lumber and Supply's contractor division in Wichita, Kan., he'd assign his team to keep an eye on specific competitors, "so no one came into the market that Star didn't have information on." Davis is now a consultant, and he advises dealers to read regional and national news stories more alertly, so they can draw up contingency plans in advance of events.
Lee also tells dealers to work up pro formas for several different scenarios. "You have to be realistic, because you're going to have to make adjustments and make them fast," he says.
Sometimes, all dealers need is time to reflect on what's happening around them. That's why Harris believes companies should allow key managers to spend at least 10% of their work time experimenting with ideas that could increase sales and cash flow. He and other consultants say a good place for dealers to discover new schemes is at one of the myriad roundtables that state and regional associations conduct regularly. "It's always better if you're not just breathing your own exhaust," notes Lee.
At a recent discussion in Florida, Tucker says one dealer described how his company doubled its sales but only added two operations people, "which shows that his company had a lot more capacity" to draw from, says Tucker.