Exhausted but optimistic: That's the prevailing mood of dealers I've been meeting around the country. One supplier that saw revenues plummet 90% is now selling at triple the annual rate it recorded on its bleakest days. Another dealer–a multifaceted, multimillion-dollar operation that easily belongs in the top half of the ProSales 100–struggled and scrimped last year to produce a profit of exactly $950. Small change, yes, but it's better than the alternative: The dealer that suffered the 90% loss in sales recovered in part because two rivals closed.
Now we can see better times ahead. Lots of economists expect housing starts to rise at least 10% this year to perhaps 675,000 units. Even better, the jobs climate is improving.
But as you breathe a sigh of relief, remember this: From literature's All Quiet on the Western Front to TV's Band of Brothers, some of the most tragic war stories are tales of people who died just as the horror was ending and better times were on the horizon. The new narrative in construction supply is about dealers' struggle to survive the last mile before we get to full recovery.
Take the head of the lumberyard that suffered the 90% revenue drop. He had to starve the firm so severely during the building famine that today his bank isn't much interested in providing credit he needs to buy goods and serve builder clients whose fortunes have rebounded. Even if he doesn't flourish, this dealer likely will survive, but many others nationwide won't see 2013 arrive. Some lack the cash to recover, others the will. And still others, truth be told, never learned enough about how to manage their business in a way that keeps dollars from trickling out of their pockets.
I'm amazed by consultant Ruth Kellick-Grubbs' estimate that a huge number of dealers fail in one-third of all their deliveries to send their trucks out to the jobsite on time and carrying everything they promised to bring. Another consultant, Paul Bumblauskas, says he regularly comes across dealers who have no idea of how many dollars' worth of products they're losing to shrinkage, in part because they've never done a decent job tracking their inventory. And Paul Hylbert, late of ProBuild and now in the private equity business, says he comes across many rotten candidates for his group's investment money because the dealers produce such poor financial reports.
It's widely held that construction supply companies are better-run today than they were during the boom times because they had to get better or die. I agree with that notion, but I also believe there's a subset of dealers who have survived more by relentless hard work and generous financial reserves than because they sharpened their management skills or learned how to hoard cash. Unless they can improve now, these are among the dealers most likely to fall by the wayside, just as the clouds are parting.
Sad to say, many colleagues won't lament their passing because they'll be too busy taking advantage of the upturn. We hope this issue, as with every issue, will provide you with tools to help you be among those survivors.