For 13 years, Mike Brown managed Stock Building Supply locations throughout North Carolina and South Carolina, catering to the custom home builders—and to a smaller extent repair and remodel contractors—that are responsible in large part for the overall growth of one of the nation's largest pro dealers. Some of the locations had a mix of regional production builder activity, but most markets were dominated—usually at upwards of 90 percent—by custom accounts with low annual starts and high-margin dollar purchases.
But since the mid-'90s, all of that has changed, as Stock—like virtually every other pro dealer—has been forced to readjust operations to account for the huge market shares in new-home construction being consumed by national and regional production builders. Despite a size and scale rivaling any pro dealer operation out there, Stock has still had to reorchestrate its market approach through corporate reorganization and the further development of value-added services to better match up the company's local supply and service offerings with production builder markets.
“The production business has grown by so much just over the last five years. It's just phenomenal, and I think everybody [in the industry] is seeing that,” says Brown, who in 2003 was named Stock's production sales manager for North and South Carolina. “Especially in metro markets, the production guy is building the lion's share of the housing. You just don't see many local builders building there anymore, because the price points [to compete on land acquisition and development] are being driven higher and higher.”
Brown's experience in the markets of the Carolinas—including the shift in market share toward production builders and the pro dealer tactics used to garner more of their business—mirrors to a certain degree ongoing changes at Stock Building Supply as a corporate whole. Although the Raleigh, N.C.–based company still relies heavily on a custom builder base for approximately 70 percent of its business, changes are afoot as the dealer continues to leverage the growing big builder hold on the housing market. Even as the housing market cools, some experts are expecting big builders to gain an even larger share of residential starts across the United States. For the top 10 builders, that share is estimated to hit 30 percent in 2006, according to an October 2005 home builder market white paper by Margaret Whelan, an analyst for investment firm UBS. According to Whelan, as the builder economy slows, scale could afford the top 10 better access to labor, land, and the capital markets to acquire both, possibly driving their cumulative market share to 50 percent or greater by 2010.
“I think those estimates of market share are pretty accurate,” says Stock president and CEO Fenton Hord, who predicts that within the next 10 years Stock's own customer breakdown will be an equal share of production versus custom business, with smaller shares of approximately 15 percent in commercial and repair and remodel. “In the major metro markets I wouldn't be surprised if we are already at 50 percent or more.” With 270 locations across 30 states, Stock's exposure to the full gamut of big builder businesses rivals only several other almost-national pro dealers, including Eighty Four, Pa.–based 84 Lumber; Redmond, Wash.–based Lanoga Corp. (which in January merged with Brooklyn, N.Y.–based The Strober Organization, forming the nation's largest pro dealer operation); San Francisco–based Building Materials Holding Corp. (BMHC); and Dallas-based Builders FirstSource. The idea of a one builder/one dealer supply chain partnership that will span across all markets is still a goal that all of these companies are working out on a limited basis, and while most have a relationship with a majority—if not all—of the nation's top 20 builders, full-spectrum coverage of the entire big builder market remains for the most part a long-term strategic goal.
Stock, in particular, has had some regional success setting up supply agreements with big builders, like Miami-based Lennar Corp., while other production customers still only tap into the dealer on a local, store-by-store basis. As Stock looks to garner more business from both types of accounts, it is becoming increasingly clear that a one-size-fits-all market approach to the big builder segment is not going to guarantee Stock—or any other dealer—preferred purchasing status with the country's leading home builders. “The one thing we don't want to do is to in any way compare one production builder to another,” says Hord. “The truth is that they all operate differently, they are all our customers, and we enjoy working with them all.”
Getting Local Indeed, the prospect that scale and geographic coverage alone will foster long-lasting relationships between pro dealers and big builders on a national level has significantly waned over the past decade as purchasing and partnership agreements between manufacturers, builders, and suppliers have often faltered at the jobsite level because project managers lean toward the dependability of their own established relationships, brands, and supply lines. “Executives at the corporate level can always say, ‘Here's how we're doing it,' and everyone gets all excited about it, and then it cannot be pushed through at the local level,” says Stock executive vice president Gary Robinette, who launched Stock's national accounts division in 1997 and has continued to work closely with both sales and operations as the company's big builder strategy has evolved. “Builders and suppliers alike face those same issues. The real beauty of our company lining up with big builders is that we do things differently from market to market just as they do, and as we align with them, we have the adaptability to bring in processes that we use in those other markets.”