When The Strober Organization, the Brooklyn, N.Y.–based pro dealer, agreed to acquire 26 Contractor Yards from Lowe's in mid-November 2003, its primary objective was to extend its distribution network into the Southeastern United States to accommodate key builder customers that have been moving in similar geographic directions.
“We have certain [builder] customers who are multi-regional,” explains Fred Marino, Strober's chairman and CEO. His company's deal with Lowe's, which will boost Strober's 2004 annual revenue by an estimated 80 percent to more than $860 million, is the latest component in Strober's ongoing efforts to tighten its bonds with production builders, as well as its custom-home builder base. Marino also expects this acquisition—which Strober is managing as a separate division in North Carolina with its own president and back-office staff—to serve as a springboard to find other “fill-in” purchases in the South.
Keeping pace with growth-minded big builders in a consolidating industry drives the business strategies of many pro dealers. Raleigh, N.C.–based Stock Building Supply, for instance, is restructuring its operations—which include 222 locations in 24 states—and centralizing its back-office functions to organize itself around markets rather than its individual yards, with one goal being seamless distribution for multi-state builders. 84 Lumber, which is based in Eighty Four, Pa., and has 464 yards in 34 states, assigns between five and 15 sales reps per store to call on and work with builders, and has a national sales department that handles shipping, estimating, and account management for multi-state customers.
The carrot luring many of these big accounts is the ability to “bundle” products and offer personalized, local service. According to the BIG BUILDER study, conducted by BIG BUILDER magazine, a sister publication of PROSALES, builders are demanding, as a prerequisite for keeping their business, that suppliers—manufacturers, distributors, pro dealers, or subcontractors—maintain contacts with key people throughout their organizations, from headquarters to the jobsite.
About half of the survey's 409 respondents expected their companies to be building homes in a new geographic market in 2004 (see Figure 7). As they expand, builders often consolidate their divisions' vendor lists, and nearly two-thirds of the survey's respondents—and 85 percent of those representing the top 100 builders in the United States—said they had a national purchasing agreement with at least one supplier. However, when it comes to traditional commodity products, only 11 percent have them for lumber and framing and 10 percent are using them for doors. Windows, siding, and roofing were higher but still well under the halfway mark at 21 percent, 22 percent, and 23 percent, respectively (see Figure 8).
Pro dealers also should take note that almost half of these builders do not allow local or divisional overrides of those agreements, and that those overrides occur, on average, about once out of every five purchases, usually on commodities that are subject to price fluctuations or subcontractor preferences (see Figures 9 and 10).
Price usually determines which suppliers builders buy from, but consistency of a dealer's service is what keeps builders as steady customers. Eighty-six percent of the builders polled identified a “track record for reliable service” as their most important criterion for sticking with any supplier. For many builders, “service” means having regular access to field reps who don't need corporate approval to make decisions.
“As our customers get bigger, they need multiple points of contact,” observes Jim Cavanaugh, president of Broken Arrow, Okla.–based Hope Lumber & Supply, whose 35 yards in six states include five yards in Atlanta it acquired from Leeds Building Products in 2003. “For us, that's meant working with the [builders'] purchasing vice president but also the [jobsite] superintendent. We haven't added more people, but maybe we need to because our strength has always been our relationships in the field.”
The Closer, the Better Over the past decade, the 60 largest home building companies have doubled their market share, and now control around one-third of all the annual closings in the United States, according to a joint study from BUILDER magazine, a sister publication of PROSALES, and the NAHB. Cavanaugh conceded that some builders have grown large enough “not to need us.” But size presents builders with logistical and operational challenges that demand local solutions, which is where dealers large and small still play a vital role.
Columbia City, Ind.–based Morsches Lumber, whose sales from five yards rose 10 percent to $34 million in 2003, has its seven outside salespeople stay in constant contact with local builder-customers like Ideal Suburban Homes and the Wayne Homes division of Centex. Morsches' sales manager Les Krider says his reps interact primarily with builders' production managers, and he noted that builders recently have been requesting that Morsches provide them with more online access to account information.