If Leo Tolstoy had chosen to write novels about LBM dealers rather than about Anna Karenina, odds are he would have reversed his famous saying that happy families are all alike while unhappy ones are sad in their own way. Join me on my travels, Leo, and you’ll hear myriad reasons from dealers about why they’re doing well and posting the positive numbers revealed in this year’s ProSales 100. But were he to ask what makes dealers unhappy, Tolstoy would hear executives everywhere complain about one thing: big competitors’ insanely low prices.
Usually it’s ProBuild that I hear getting accused of screwing up the market, but when it’s not ProBuild that’s blamed, it’s 84 Lumber, or Builders FirstSource, or Carter Lumber. You can’t make a decent profit the way these idiots bid on work, I’m told.
Well, I think it’s time you stop griping about such competitors, not because it isn’t a problem but because you can’t do anything about it. The fact is that dealers have forever vied on a playing field against other teams that employ vastly different resources and strategies. It’s competition, but it’s not organized competition.
One reason why is ownership. The biggest ProSales 100 member, ABC Supply, is the property of just one woman. ProBuild’s owner is an investment fund, while Builders FirstSource (BFS) stock is publicly traded. Some companies are owned by all the employees, while others are virtual dictatorships. Unlike, say, the auto industry, in which all the major manufacturers are stock corporations, in LBM there’s no consistency of structure or purpose.
One result is the fantastic diversity of game plans and operating styles you can see among companies that are trying to sell pretty much the same products to the same customers. Those strategies include the belief that I’ve heard often from current and former executives of BFS and ProBuild that pursuit of a controlling market share is ultimately one of the best ways to generate strong profit margins. You may disagree violently with that notion—especially if part of that strategy to win market share includes selling sticks at lower margins than you. But so long as those companies’ financial backers continue to believe they can win customers through loss-leader pricing, you’re stuck.
Today’s giants may eventually suffer so many cuts they have to walk away. But as Don Magruder points out in his column this month, the problem won’t go away when those competitors do. “There will always be someone else who is just as willing to die in the red ink,” he writes. So stop complaining about unfair pricing; in LBM, nothing is fair. Take a cue from some of this year’s ProSales 100 companies; it was the smaller firms that showed the stronger gains in 2012, often going head-to-head against giant competitors. Check out their happy stories.