It’s as much a feeling as a solid bet, but I believe we’ve entered a new era in our business. To borrow a phrase once used in the Episcopalian Church’s Book of Common Prayer, it’s a period in which you can divide America’s building material dealers into two groups: the quick and the dead.
The quick are those dealers who not only have recovered from the housing crash, they’ve exceeded or have nearly topped what they did at the market’s peak. They’ve invested in new technology. Some even have begun rebuilding their bench with people who can take over the company in a dozen years.
Meanwhile, I see other dealers with worn-out facilities run by gray-haired men who regard technology as something for their children to learn--provided they even have children who want the place. Their business has recovered from the crash, it’s true, but revenue is still overly dependent on the small, single-family builder. You often find an air of wishful hoping that one of those companies that’s buying up dealers will show up with a saddleful of cash and send the current owner riding happily into retirement. They’re all but dead.
This trend coincides with and results partly from a more general economic wave sweeping the country. You might have read that we’re increasingly becoming a nation in which the rich, as they get rich, are accounting for more and more of the economic growth while the rest of us are treading water. It’s one reason why the custom home business appears to be reviving at the same time that newspapers report big builders are moving out of the starter-home construction business.
You might also have heard of America’s “smile economy.” It’s called that because much of this nation’s growth is taking place along a line that starts in New England, moves south to Atlanta, heads west through Texas and on to Southern California, and then turns north to the Bay Area. That line is the “smile.” In contrast, dealers who can quote the local corn or wheat prices as quickly as they can tell you the price of lumber often are trailing their coastal counterparts.
Troublesome as they are, these other trends don’t fully explain why dealers are dividing between the quick and the dead. After all, US LBM won our Dealer of the Year prize for 2015 and it operates almost exclusively outside the smile zone. I think two other trends play a bigger role.
The first is cash flow. Dealers who came out of the recession with a little bit of money appear to be doing better than those who were down to their last dime when the drought ended. Outside money helps; it’s a reason why US LBM, Builders FirstSource, and a platoon of roofing specialists have been buying up companies. As for privately held firms, that recent Forbes article on 84 Lumber recounted how Maggie Hardy Magerko had to practically hock her jewelry in order to survive, but at least she had jewels to pawn (plus the smarts to seek a federal community block grant). Today the company is recovering robustly.
Magerko also symbolizes the second big difference that distinguish LBM companies that are moving ahead: Desire. The government’s economic census found a 26% drop between 2007 and 2012 in the number of establishments in the category that most closely resembles pro dealers, and the fate of lumberyards might be even better portrayed in the 34.1% decline for establishments that sell non-treated dimensional lumber. ProSales’ counts indicate there’s been growth in establishment counts since 2012, but that increase hasn’t come close to replacing what was loss. Meanwhile, consolidation is proceeding at a pace not seen since the roll-up days of 2005 and 2006.
Take all that to mean that the real survivors of the housing crash are bigger, better funded, and more determined than ever. The pace of business is quickening. Keep up, or start counting yourself among the dead.