The news about industry trends is beginning to sound like a broken record, skipping repeatedly over the same refrains, often with little focus on solutions. You've heard the stories: The big builders are taking over; remodeling is hot; the technology revolution is changing our industry; installed sales services are the only way you can cope; and the list goes on. The drone of information is pervasive and, more significantly, the solutions to the challenges are often overlooked in the frenzy of talking about them.
The trends are hardly going to fade away, though; therefore, you must develop a sales strategy that copes with the powerful forces now shaping the LBM industry. As these trends continue to exert pressure on the suppliers within the distribution chain, the one irrefutable truth upon which you can rely is that power within the channel is always vested in those with sales influence. In order to successfully leverage this momentum, you should focus on two coping mechanisms: First, deal with industry market factors as they exist, and second, develop practices that take advantage of those business dynamics.
The pro dealers that are most successful today are those that have created business models that allow them to target specific niche audiences within their markets. These audiences can be generalized in three categories—national builders, local builders, and remodelers. Consider the following facts and coping mechanisms when dealing with these various customer bases.
National Reach Big builders are increasing their market share. Hardly a day goes by in which dealers throughout the country neglect to discuss the challenges of addressing the big builders, the top three now being D.R. Horton, Pulte Homes, and Lennar Corp. The large-volume builder represents the most profound and interesting battle for control in our industry today. Many dealers are concluding that failure to address this market will jeopardize their long-term survival. As more and more manufacturers hire individuals to manage national builder accounts, dealers are feeling threatened by the presence of national sales contracts and margins that are dictated by suppliers. But in spite of the seemingly invincible power of these arrangements, many local dealers are successfully retaining control.
If you want to understand how to adapt to the influence of this audience, visit Midwest cities such as Minneapolis and Columbus, Ohio, or almost any city in Florida, which have become havens of mass production builders; in some cities, a handful of builders produce the majority of all homes. The most successful suppliers in these markets have persuaded builders to deviate from national contracts with manufacturers. For example, in a Midwestern market one dealer has enormous leverage with large-volume builders because of the ways in which it controls installation services. The dealer has relationships with the majority of carpentry subcontractors in the area and therefore has the power not only to select the types of products that builders will use, but also to strongly influence the price at which labor services will be billed. Several other lumberyards in Florida have been able to set up similar relationships.
Clearly, your power to negotiate with builders can be strengthened by a solid program of installed services. But additional services are valuable, as well, when it comes time to negotiate with large-volume builders. A case in point: Although one manufacturer of I-beams has a national contract to be the exclusive supplier for a top 10 builder, one Midwest lumberyard wields enough clout to look the builder in the eye and say, “No.” In this market, the builder acquiesces to the LBM dealer's product choices because the dealer has put forth so many additional services, such as customized billing, customized terms, online payments, specialized deliveries, truss design, etc. No other competitor in the market can offer the same level of value. Your regional influence with national builders is contingent upon the level of services you can provide and the involvement of all departments in your organization.