"I'm not a roll-the-dice kind of person," Harvey Hurvitz says. But that doesn't mean the owner of Cape Cod Lumber totally avoids making bets. Right now, for instance, he's investing several million dollars into a new, expanded headquarters in Abington, Mass., despite having seen Cape Cod Lumber's revenues fall by half from their peak and staff counts shrink by nearly that much.

OPPORTUNITY ZONE: While other dealers have been hunkering down in this recession, Ganahl Lumber saw an opportunity to expand. It acquired the site of a closed auto dealership in Pasadena, Calif., and plans to convert it into Ganahl's first facility in Los Angeles County in several decades.
Craig Webb OPPORTUNITY ZONE: While other dealers have been hunkering down in this recession, Ganahl Lumber saw an opportunity to expand. It acquired the site of a closed auto dealership in Pasadena, Calif., and plans to convert it into Ganahl's first facility in Los Angeles County in several decades.

Hurvitz isn't alone. In Alabama, Townsend Building Supply used a bank loan two years ago to double its size to four stores, and earlier this year it took on an Andersen Windows showroom that vice president of operations

Michael Townsend regards as a good investment but expects will be a money-loser for "quite some time." Kuiken Bros. opened a new store and lumberyard in Succasunna, N.J., this summer in a lot just behind a showroom it has had since 2006, and Ganahl Lumber of Anaheim, Calif., plans to open a lumberyard in Pasadena in the next 12 months. That facility will be the first in Los Angeles County in several decades for Ganahl, the current ProSales Dealer of the Year.

The toll of more than 1,600 LBM facility closures ProSales has counted since 2008 justifiably gets lots of attention, but it overshadows the fact that there also have been at least 335 facility openings in that same period. A huge percentage were companies acquired and renamed (particularly when ABC Supply purchased Bradco Supply) or divested (such as during Stock Building Supply's Chapter 11 reorganization). Both circumstances offer stories of dealers taking advantage of the downturn to expand their businesses while others shrink.

Hurvitz even regards the downturn as being a benefit simply because having fewer customers means he has more time to make plans. "In 2004-05, things were so crazy it would have been difficult to take on a project," he says.

Ganahl's president, Peter Ganahl, has gone so far as to dub recessions "The Opportunity Zone" because they create conditions conducive to future growth, particularly when you're in the market to buy a fellow dealer that's under financial stress (or, in Ganahl's case, the site of an auto dealership shuttered when General Motors got into trouble). Townsend took advantage of The Opportunity Zone in 2009 when it purchased out of bankruptcy court the Hendricks Building Supply stores in Troy and Ozark, Ala. And one reason why SRS Acquisition Corp., arguably America's fastest-growing construction supply company, makes most of its purchases in the spring and summer is that it can afford to buy them at a time when they've been weakened by the struggle to survive through the winter.

Common Qualities

In all these cases, the acquiring companies had two things in common. First, they weren't struggling financially. And second, they double- and triple-checked their calculations to make certain their venture wouldn't sink them.

"We ran the numbers," Hurvitz says of his project, which involves moving out of a warehouse that Cape Cod Lumber shares in a nearby community and both centralizing and expanding operations in Abington. "I look at gross profit dollars generated per employee. In this [current economic] environment the rewards are not as great, but if sales increase, the amount of volume we could do per employee would be staggering.

"Before doing something like this ... make sure that at the current revenue levels you're going to be OK and the risks you're assuming you'll be able to handle," Hurvitz cautions. "Don't think this market will come back right away; it could even get worse. Take your present revenue stream and say, 'If revenue dropped 10%, would I still be OK?' Don't do something figuring that if you build it, they will come."

'A Risk Worth Taking'

Cape Cod Lumber has the cash flow needed to make its project work. Townsend Lumber got a bank loan for its purchase, but asking a financier for money isn't a common occurrence at this family-run institution. "Our bank always looked at us as a customer that didn't need them, so this was a way for them to get their claws into us at little risk," Michael Townsend jokes.

"We always tried to be wise with the money we spent, and probably if we didn't do these acquisitions we'd be debt free," Townsend adds. "We looked at it and we saw some other competition having problems and said, 'This is an opportunity for us to gain market share in this region, and give us a bigger footprint.' We saw it as definitely a risk worth taking. There was no other way to gain that market share."

Ganahl has posted an operating profit nearly every year in the past three decades. It has gone into debt in the past when it saw an opportunity arise–most notably, when it got private funding in 1978 to buy land in Anaheim, Calif., that enabled it to double its flagship yard–but these days it has built up enough capital to make its moves regardless of whether business is hopping (what Peter Ganahl calls "The Go-Go Zone") or flagging. But he prefers the latter.

"The point I've made about investing in the Opportunity Zone is mostly because it is during periods like we are currently experiencing that opportunities show up," he says. "We would have done the Pasadena deal in the Go-Go Zone too if it had been there–but it wasn't. The Opportunity Zone created the perfect storm."

It's a storm that has swept from coast to coast. And more than one dealer appears likely to come out of it in stronger shape as a result.