Phenomenal growth. There's no other way to succinctly describe the general pro dealer economy and the overall business climate during the past year for the 2005 PROSALES 100, our annual survey and ranking of the nation's top construction suppliers. Fueled by record housing starts, a strong remodeling market, and high commodity wood prices, building material dealers and specialty distributors posted what for many was the most successful year in their pro sales history. Balance sheets were solidly in the black, and a staggering 95 firms out of the PROSALES 100 registered double-digit growth, with 25 companies reporting a sales surge of 40 percent or more (see "The 25 Fastest ").
Leading the pack was The Strober Organization, which through acquisitions of Lowe's Contractor Yards and Moore's Lumber, added units and increased sales by a whopping 170.8 percent. "We added the 42 stores and have been integrating those companies into the Strober family to establish intimacy with customers from market to market," says Alan Schulman, corporate marketing manager for the Brooklyn, N.Y.–based pro dealer. "But we had organic growth in 2004 as well. We had an increase in same-store sales that would have been around 25 to 28 percent [notwithstanding] the acquisitions."
While impressive, that 25 to 28 percent still would have trailed Alexandria, Va.–based Smitty's Building Supply, the 2004 industry organic growth leader with an astounding 77.5 percent leap in same-store sales. "It was a fantastic year," says Smitty's president Jeff Smith. "For years we've always been telling each other, ‘If we really wanted to, we could double our sales or have a 50 percent increase,' and last year we said, ‘Let's go after it, let's get aggressive.'"
Big Prices, Big Demand
Like most in the PROSALES 100, Smitty's and Strober enjoyed a commodity lumber market in 2004 that hit lucrative pricing highs for both dimensional and panel products. "The entire industry was impacted in a positive way with inflationary [commodity wood] prices," says Schulman. "One could argue that about 20 percent of growth across the industry was due to prices rising, [approximately] 50 percent in panel and 20 percent in lumber."
In what turned out to be a fantastic pro dealer economic scenario, demand for both lumber and panels increased even as prices spiked. On March 23, Portland, Ore.–based Western Wood Products Association released preliminary data showing that lumber demand in 2004 reached a record 61.8 billion board feet, an increase of 8.4 percent above the previous high set in 2003. According to the association, all of the growth in lumber consumption came in new residential construction and repair and remodeling, with record housing starts pushing residential lumber use to 26.7 billion board feet and a hot remodeling market consuming an all-time-high 19.5 billion board feet.
Even in markets that had been soft on housing starts or otherwise trailing the national economy, dealers used lumber prices to jumpstart impressive recoveries from slower sales. Westminster, Colo.–based Alpine Lumber, for instance, pushed gross sales up 64.7 percent to $168 million. "We have a couple of markets that have just turned around, and inflation was a factor, but only as much as it factored into other people's growth, maybe around 20 percent," says president Kip Oram. "But it was a surprise, we certainly did not budget it or anticipate it. [The success] was a whole lot of things breaking at the same time for us, but we didn't have much trouble handling the growth."
Another company yet to feel substantial growing pains is Raleigh, N.C.–based Stock Building Supply, which raked in nearly $3.5 billion in pro sales, landing the dealer at the top spot on the PROSALES 100 for the sixth year running. "I think we have had a good market, and it seems to remain good as we speak," says Stock CEO Fenton Hord. "I think this year will be a good follow-up." Stock's commitment in the marketplace to double-digit growth, however, has created the need for large dollar volumes of business as the dealer looks to best sales performances from one year to the next. "It's funny–when we were a billion, we woke up and we had to put on an extra $100 million just to meet what we were saying to the marketplace. Now we are looking at $350 million. It's a little daunting but it is what we think we can do," Hord says, adding that a primary key to success will be having well-trained, qualified personnel throughout the company.
With more than $2.9 million in pro sales per employee, Boise, Idaho–based Idaho Pacific Lumber seems to be another firm with the personnel side working to its advantage, at least when it comes to sales efficiency. Idaho Pacific joins Woodinville, Wash.–based Matheus Lumber and Portland, Ore.–based Shelter Products in having passed the $1 million mark as the industry's sales per employee leaders (see "Pro Sales Per Employee "). "We have worked hard to find the right people and they have worked hard to find the right customers," says Idaho Pacific president Kent Mills. "We also became an ESOP about six years ago, and we are starting to hit our stride. As [our employees] see their asset balances begin to grow after five years, I think they realize that this deal is for real and wonder how they can work to make it better."
Of course, making things better is squarely on the 2005 business agenda for almost the entire PROSALES 100–only five companies report that they have no plans for expansion in 2005. Even with interest rates edging higher and housing starts expected to plateau later in the year, many think the sales successes of 2004 will not be impossible to match. "I don't know that we'll see 70 percent, but we're budgeting to get to $110 million [from 2004's $78 million] with the same stores," says Smitty's Smith, adding that the dealer has hired inside sales coordinators and made investments in training and equipment to keep the staff pumped and primed for success. "I really think that right now our operations are in better shape than they ever have been," Smith says. "We're looking at $110 million as being easier to hit than $80 million was. It's only two-and-a-half months into it, but we're pretty much on track."
At the national dealer level, as well, companies are fine-tuning strategies to diversify customer bases and hedge against larger interest rates and slimmer price margins. Stock, for example, has just opened the first of four planned showrooms in partnership with its sister company Ferguson Enterprises to reach out to both big builders and repair/ remodel contractors. "We are working much closer than we ever have before with our sister company and we will no doubt work even closer with them in the future," says Hord. "We think that for the big builder, if we can get it right and come up with a footprint that offers them the opportunity to deal with one vendor for plumbing, heating, AC, and building materials, we've got a better mousetrap. About 8 percent of our business is in repair and remodel, and we'd like to take that to 15 percent. We think we need to be able to do both."
Alpine Lumber is embracing a partnership mentality, as well, reaching out to many product vendors to incorporate their growth expectations into the company's budget for 2005. As a result, the dealer has scaled back expectations after last year's stellar sales. "We budgeted a substantial decrease in 2005 because nationally [everyone] has been talking about it slumping a little bit, and we really don't think that lumber prices will go up. So we budgeted that much down on commodities and start from there," says Oram. "But so far this year, we are up as much as we were last year, and I don't know what to think of that. I do think the second half of this year will slow down, but I wouldn't guarantee it."
Indeed, all eyes are on prices as the PROSALES 100 remain cautiously optimistic for the remainder of the year, but through the first quarter there has been little to damper the spirits raised by 2004 sales. "So far we are up about 18 percent–and that holds well to our group company goal for around $180 million, and we can do that if prices hold steady," says Mills, who has added additional staff at Idaho Pacific anticipating continued growth. "I don't think we can continue to grow at 20 percent every year forever, even though I could certainly deal with it," he says. "But we have been fortunate to experience what we did last year–it was by far the best year we have ever had."
This sentiment was shared by many in the 2005 PROSALES 100. The numbers and trends shaped yet another record-breaking year and the pro sales strategies and benchmarks being established by the industry's leaders are helping us to dive into what is shaping up to be a very profitable 2005.