Who is America’s all-time most famous LBM executive? You might argue that it’s 84 Lumber’s Joe Hardy or former ProBuild chief Paul Hylbert. But I’m putting my money on a lady from Atlanta: Scarlett O’Hara.
The heroine of Gone With the Wind, you might recall, recovered from the Civil War’s destruction by setting up a lumberyard in her hometown. Scarlett was tight with money; “The war is over. Don’t ask for credit.” was one sign she posted at her sales counter. But she also strayed from good business practices by hiring the unrequited love of her life, Ashley Wilkes, to run the place.
Money, managers, and revivals remain big issues in Atlanta today, 150 years after Gen. William Tecumseh Sherman’s troops (as well as Confederate troops) torched the city in September 1864. And like Sherman, it’s an entity from Ohio that’s again causing a ruckus.
In less than a year, Kent, Ohio-based Carter Lumber has gone from zero to three facilities serving the Atlanta metropolitan area, under the leadership of locals who got to know the vicinity through work at places like ProBuild, Magbee Lumber, 84, and the old Williams Brothers stores.
Carter’s arrival means that Atlanta is the only metro market in the nation to have all top 12 companies on the ProSales 100. And that list doesn’t include Tucker, Ga.-based Gypsum Management & Supply, the nation’s self-described biggest drywall supplier, or Brand-Vaughan Lumber, or two former ProSales Dealers of the Year. It’s a battle among giants unlike any other market in the nation.
The city of Atlanta’s seal displays a phoenix and the word “Resurgens,” and while that’s mainly a reference to Scarlett O’Hara’s era, it also represents what Atlanta area builders and dealers have gone through this past decade. In 2005, Atlanta was the nation’s busiest housing market, with 72,223 permits issued, according to Builder’s Local Leaders reports. Thanks to few geographic barriers, relatively cheap real estate, and the lack of state laws mandating that builders get licenses, the market was crawling with builders who owned a pickup truck and a parcel of land and little else.
“Atlanta was inundated with Delta pilots who would say, ‘Hey, let’s build a few houses,’” says David Ellis, executive vice president of the Atlanta Home Builders Association. “And because you didn’t have to have licenses, they could do it.”“It was like a jet,” recalls Bill Lummus, president of Lummus Supply, headquartered just west of downtown, of those go-go years. “People would ask me, ‘How do you make money?’” Lummus says. “I’d say, ‘I just open my doors.’”
Then the crash came. By 2011, Atlanta had dropped to eighth place among local leaders, having suffered a 91% decline in permit issuances. In contrast, permit issuances for the nation as a whole sank 71% over those six years.One result was a bloodbath for builders. Because the market had so many small, private construction firms and its decline in business was so huge, the ranks of builders mowed down was more severe than in other parts of the country.
That in turn meant dealers also crumbled. Locals estimate that some 100 LBM operations closed shop during that time. Ply Mart, the 2007 ProSales Dealer of the Year, was overwhelmed by bad debt and went out of business roughly 18 months after getting its award, shuttering two dozen operations. Another major ProSales 100 dealer, the 21-unit Wheeler’s, in Rome, Ga., filed for Chapter 11 bankruptcy-law relief and barely managed to hold on, in large part because it fell early in the crash and was able to buy back some of its assets in bankruptcy court. Even The Home Depot, which had purchased Atlanta’s Williams Bros. yards as part of creating a pro-oriented division called HD Supply, sold those yards. ProBuild bought them, taking on 18 facilities. Within a few years, ProBuild had shed two-thirds of them.
“You could sense the desperation in the pricing and the types of business we were fighting for,” recalls Nick Massengill, president of Robert Bowden Inc., whose office in Marietta lies adjacent to the Civil War’s Kennesaw Mountain National Battlefield, the scene for some of the most vicious fighting in the Atlanta campaign.
“I think we even had soccer moms beating us down on price that year. We learned some great lessons—good and bad.”As in Reconstruction, the turnaround this decade has been dramatic. While building permit issuances nationwide rose 59% between 2011 and 2013, in metro Atlanta they surged 298%. Now Builder’s Local Leaders list—which these days ranks markets by closings rather than permits—puts Atlanta back in fifth place nationally, behind only Houston; Dallas-Fort Worth; Washington, D.C.; and Phoenix. And signs point to even busier times ahead.
“One of the interesting things about the market is that we have only 2 1/2 months of standing inventory for new homes,” Ellis says. “We’d like to see that be four to five months. Our guys aren’t able to build them fast enough.” Metrostudy, a sister company to ProSales that specializes in housing data, says that the Atlanta market has more finished lots than anywhere in the country—118,000 sites with curb, gutters, and roads already in place.
Opportunities like that help explain why Carter Lumber, the No. 12 company on the ProSales 100, took the rare step in this post-recession era of going to Atlanta and planting a flag in a market it had never served before. It started last November by purchasing Athens Building Supply, in Winder, one of the easternmost communities in metro Atlanta’s 29-county market. It followed that by setting up shop this year in Oakwood, northeast of the capital, and Stockbridge, on the southeast side.
Carter officials declined to be interviewed by ProSales for this story, but the résumés of the people hired to lead the invasion indicate that Carter is recruiting local talent rather than bringing in carpetbaggers. It has as regional vice president Brian Massie, who spent about two years with ProBuild and 18 with 84 Lumber. One of Massie’s chief lieutenants is Blase Grady, the chief operating officer at Magbee Construction for two years and a 20-year veteran of Williams Bros. Other staffers put in years at Harbin Lumber.
Carter’s arrival is so recent that most of this new Battle for Atlanta has been about wooing workers, not engaging in price wars; there are plenty of rumors flying about guaranteed salaries for sales reps and calculations regarding how much business outside reps could take if they were lured to a new job. But even when the pricing phase heats up, not every dealer expects to be nervous. That’s because they figure Carter will pursue bigger builders, thus putting them in competition with the likes of ProBuild, BFS, and 84. That’s no small market; Builder’s Local Leaders report finds that just 10 construction companies account for 44.5% of all closings in the market last year. But Atlanta is so big, both in geographic area and in volume, that dealers with niches outside the production builders say they have no fear.
“You don’t even hear ‘How are we going to compete with ...?” says Randy Mahaffey, co-owner of PMC Building Materials, in Marietta. PMC is the company that Randy and his brother Rich set up after their Ply Mart operation collapsed. And, unlike Ply Mart, it focuses on remodelers, custom home builders, and deck builders. While other dealers look to new construction, Mahaffey’s eyes are focused on older parts of the market within Atlanta’s Interstate 285—aka the Perimeter Highway—where homes are getting additions if they’re not being torn down and replaced with new structures.
A City on Fire
With Carter Lumber’s purchase of one yard and opening of two others, plus BMC’s plans to move in its headquarters, the Atlanta market is the only one in the nation to feature companies No.1 through No.12 in the ProSales 100. This map shows the locations of the top 12, plus several local competitors. Most are situated along interstate highways or on the north side, where most of the market’s recent growth has occurred. But lately, construction south of town, particularly toward Newnan, is picking up. The Atlanta market covers 8,700 square miles (about the size of Massachusetts) across 29 counties. Its population of 5.5 million residents has grown 5.5% since 2009 and is expected to increase another 4.6% by 2016. It’s the fifth-biggest housing market in the U.S.
- Carter Lumber
- BMC Headquarters (Opening this fall)
“You can’t go inside the Perimeter and not see a van at every third or fourth house,” Mahaffey says. “We like our game.”Lummus’ strategy is to focus on custom builders. In a market where the median new-home costs $275,000, his firm gets most of its roughly $30 million in sales working with companies building three to four homes per year with prices starting at $500,000. At his peak, Lummus was taking in twice as much money but was having to keep an eye on 3,000 accounts. Now he has no more than 400, he says, and “I know basically all of them.”
In general, the small-builder market does matter more in Atlanta than in other places, despite the enactment of builder licensing requirements in 2008. The top 10 builders’ 44.5% market share for Atlanta might be double what it was in 2009, but it’s also the fourth-lowest share for market domination among the nation’s 50 biggest metro areas. And while the top 10 builders’ share keeps growing elsewhere, Ellis isn’t so sure it will happen in his area, particularly if banks return to giving construction loans.
Robert Bowden does work with bigger builders, but at this $70.5 million operation, it’s value-added services, not commodities, that are the main play. The employee-owned firm offers lots of manufacturing services, such as square columns made from PVC that are much bigger than the 4x4 products available from regular suppliers. It produces 850 to 900 of them per month. It also has an extensive door shop, runs 400 pieces of glass through its factory each day, and prides itself on its custom molding jobs. All told, about 60% of what Robert Bowden sells is either made from scratch, assembled, or is the result of some sort of value-added service provided at a Robert Bowden facility.
“For us,” Massengill says, “everything is about putting the ball out of reach” of formidable competitors.
Customers are likely to appreciate any time savings that dealers can provide because labor is in such short supply. Eugene James, regional director for Metrostudy, says that builders tell him about two-week delays in production because they can’t find workers, while Lummus says that because of the evolution of builders, his sales reps have practically become job superintendents.
Ellis says that delays stem in part from the fact that the Hispanic part of the market’s construction workforce was decimated by what he regards as proscriptive laws that appear to target that group. Fears of family members being deported motivated a lot of good workers to pull up stakes, he says. James agrees that the crackdown on alleged illegals has affected the labor supply.
“If we don’t get more people trained, I suspect our issue will grow because construction starts are still on an upward trajectory,” he says. That could spell opportunities for dealers that do installed sales.
What’s next? Even more competition, quite likely from BMC. The $1.2 billion dealer currently has no operations east of the Mississippi except for a millwork shop in Charlotte, N.C., that specializes in multifamily work. It has always been based in Boise, Idaho—the “B” in BMC. But this fall, the company will move its headquarters into office space on the northern arc of Atlanta’s Perimeter Highway, and within two years it expects to have 100 people working there.
CEO Peter Alexander, who lives in Atlanta, says that the firm plans over the next year to expand in the Southeast. While it hasn’t named Atlanta as a candidate, one would think it would have to be on the list. Look for it to compete for production business, touting services such as its computerized frame-cutting packages and its ability to offer framing construction.
So far, it’s been a genteel fight—nothing like the Kennesaw Mountain battle in which one Rebel recalled, “There was not a single man in the company who was not wounded, or had holes shot through his hat and clothing.” But in LBM terms, winning certainly will require steely determination and perhaps some guile. Sounds like a good reason to watch Gone With the Wind again.