Dartmouth Building Supply, a pro dealer in Dartmouth, Mass., got its start in 1984 selling Sheetrock to drywall contractors. As those contractors expanded their businesses into commercial construction and renovation, Dartmouth went along for the ride, to a point where commercial-related transactions now account for around 20 percent of this dealer's annual revenue.
Joseph Delgado, Dartmouth's president and CEO, says he's happy with that business but isn't looking to expand into other commercial products. In fact, many pro dealers that generate a decent amount of commercial business do so without making changes in their inventories or sales forces. And while most see commercial as a growth sector, they aren't quite certain what manpower and product commitments their companies need to make to capture a bigger share.
“It's a segment of the market we continue to explore,” says Mike Ewing, vice president of sales for Warren Lumber and Millwork, a Washington, N.J.–based pro dealer with five locations in New Jersey and Pennsylvania that generate about 5 percent of sales from commercial accounts. The majority of Warren Lumber's commercial business comes from residential builders that also construct or renovate office suites, hotels, restaurants, and so forth. Ewing says these contractors typically order the same products for commercial work—framing lumber, roof trusses, vinyl windows—as they do for home building. And so far, Warren Lumber hasn't dedicated a salesperson to commercial accounts. “We're not sure yet what we need to do to be [more] successful at this.”
Untapped Market Non-residential construction and renovation is a huge and mostly untapped market for pro dealers, and one that some dealers say they veer from because of its lower margins. But commercial offers a tremendous potential upside for dealers as suppliers, according to FMI Corp., a Raleigh, N.C.–based management consulting firm that specializes in this market. FMI projects that construction of non-residential buildings should equal $464.7 billion in 2009, a 36 percent increase over 2005 totals. That estimate includes educational ($119.5 billion, up 49 percent), “commercial” such as warehouses ($95.2 billion, up 35 percent), and offices ($64.6 billion, up 39 percent).
The Home Depot isn't ambivalent about where commercial is headed. On May 8, the big box signed a definitive agreement for its The Home Depot Supply division to become an exclusive supplier of products for commercial improvements, building supply, construction, repair, and maintenance for Six Flags'theme parks. Several of the retail giant's acquisitions over the past few years have been distributors whose customer bases include commercial accounts in a big way. Those businesses—such as Hughes Supply, White Cap, and National Waterworks—are part of The Home Depot Supply division, which executive vice president Joe DeAngelo recently projected would expand at a compound annual rate of 40 percent, to between $23 billion and $27 billion in sales, through 2010.
Another company that sees commercial gold is Do it Best Corp., the Fort Wayne, Ind.–based buying group. Ten percent of the co-op's 4,100 dealer members buy through its InCom Distributor Supply program, and one-quarter of InCom's members are pro dealers, says Marty Bailey, InCom's general manager. InCom dealers sell through a 2,800-page commercial catalog, and Bailey says dealers typically provide commercial accounts with such products as tools, welding equipment, and janitorial/sanitation products, the last being a category he believes dealers should exploit more. “We find a lot of lumberyards are selling to [commercial] customers at the front end, but the guy buying jan/san in the back is purchasing from another vendor.”
Bailey says it's essential for dealers to know the right person to pitch for business, and that requires having a full-time seller in the commercial trenches. “Too many of our members take one of their stick salesmen and designate Friday as their ‘InCom' day to call on schools and care facilities. It doesn't work that way.”
Homing In Not every dealer buys that argument, of course. But some dealers are entertaining the suggestion that their commercial business could increase if their sellers were homed in on this sector. Delgado of Dartmouth Building Supply, for examples, was looking to hire his first commercial salesperson. Evidence that more commercial salespeople translate to more sales can be found at one of InCom's dealers, St. Louis–based Hanneke Hardware & Industrial Supply, which gets 75 percent of its revenue from commercial accounts and has four outside and three inside sellers taking care of these customers for its three locations.