Expect "slow and steady" growth nationally this year with lots of local nuances, US LBM's L.T. Gibson predicted during a session in Providence, R.I., that helped launch the Northeastern Retail Lumber Association's ( NRLA) annual LBM Expo. Meanwhile, Kodiak's Steve Swinney said that of his company's two key markets, Texas is "pretty moderate" while Colorado "has continued strong for us." As for the East Coast, "we're excited about a good year and just hope it won't snow seven feet again," he said.
Here are other takeaways from the hour-long question-and-answer session:
Mergers and Acquisitions
Expect to see M&A deals continue this year, Gibson said, if only because "there aren't a lot of things in the world [for investors] to get excited about except for U.S. housing." Meanwhile, Swinney noted that Builders FirstSource's takeover of ProBuild and the combination of BMC with Stock Building Supply "added a higher energy and thought process to the [M&A] space. It added to the dynamics" of dealmaking.
Both executives said they've done deals in as few as 45 days and as long as five years. Gibson said US LBM looks for companies that rank first or second in their market, but what matters more is the team to be acquired. "Will they make us better? Will we make them better?" are two key questions, Gibson said. "Size alone isn't a compelling reason."
Swinney, like Gibson, said Kodiak looks hard at the cultural fit. "If you're thinking about that from a seller side, that's important," he said. "You've got a company that your family has owned and run for a long time. It's special. You want to take care of that, and you want to find the right fit that'll carry the success onward."
Gibson said acquired companies that have been in buying groups like Do it Best or Lumbermens Merchandising Corporate always have the option to continue buying from the group or use US LBM's collective power to buy directly. "It's always a choice. We don't have mandates," he said. As for Kodiak, Swinney said his group's companies are in three different buying groups, and he expects that will continue.
Labor Shortages and Installed Sales
"The thing that we've seen happening is that our customers are struggling mightily with labor--getting work done on the job site and keeping on track," Swinney said. "So the biggest thing for us is how can we provide value and make the process more streamlined. It could be installed sales, light manufacturing in certain services, streamlining the process--that's the biggest hunger we're meeting."
Gibson said he understands why some dealers embrace the idea of getting into installed sales while others run away. "If you're going to do it, you have to do in a professional way, know the laws, understand where you provide value," he said. "You can't just hire [builders'] subs and create more confusion in the cycle." If you look at the list of LBM dealer closures in recent years, you'll see a number of companies that did installed sales, he said. "If you really think you need to do it, you need to invest in the right people and find ways to do it more efficiently than you have before," he said.
Both shared other fellow dealers' lament at finding workers. Swinney said Kodiak has been looking a lot at talent pools in adjacent industries, seeking people with transferable skills, even while it promotes high school vocational education programs.
"And the biggest thing for us is hanging on or retaining the great people we have, creating a culture that people want to be part of," he said.
Gibson noted that the job cuts during the housing market's crash flushed a lot of middle managers out of the LBM talent pool. That means a loss of knowledge, he said, but at the same time it's a good thing because "we don't have a lot of people remembering life in 2006" and counting on a rip-roaring economy to save them. US LBM also is bringing in people from other areas and has several training programs. "All that creates a sense of belonging and a sense that this isn't a sleepy lumber industry," he said.
Both put little stock in efforts by big-box stores like The Home Depot to increase sales to pro contractors. Construction supply is a relationship business, and dealers provide valuable services, Gibson said. "I think the big boxes are good at driving prices down, but they aren't good at relationships," he continued. Once you get big enough to need take-offs and other services, big boxes start to fail.
LBM and big boxes are "two very different businesses," Swinney said. "While Home Depot and others sell
products, their business looks a lot more like Target than us."