The era of being all things to all customers clearly is over. Big boxes have stolen most of the consumer dollar, national pros are courting the production builders, regional dealers are super-servicing the general contractors and custom guys, and small independents are leveraging their flexibility to win the local relationship battles. With tract, custom, and remodeling activity all hitting historical highs, there are more building dollars out there than ever. So why does it seem harder than ever to compete in the market?

“We all feel that we compete in the toughest market,” answers Chris Rader, president of Lafayette, La.–based Rader Solutions, a management information, education, and training consultancy for the construction supply industry. “Why? Simply because all markets are competitive and our economy thrives on competition, and that will only intensify.”

Indeed, home builders hit a seasonally adjusted annual rate of 2.07 million units in November, the strongest rate of housing production since February 1984, according to an analysis of U.S. Commerce Department data by NAHB. Although starts declined somewhat in December as builders worked a backlog of already-issued permits,“2003 almost certainly will record the highest number of starts since 1978,” NAHB chief economist David Seiders said in a December press release.

As local, regional, and national pro dealers compete for all of that action, markets tend to get a little tense. “More often than not, my clients comment: ‘Our competition is buying business and selling below cost,'” says Rader. “But successful companies do not sell below cost. If they did, they would not be in business for long. Instead, they have hidden core competencies: low fixed costs, for example, or a perceived low price.”

That advantage also can be a core market specialization. If builders can niche into separate production, custom, and remodel markets and still manage to coexist and succeed from a profitability standpoint, why can't the pro dealers who supply them follow suit? Rader says they can: “While [local companies] depend on strong relationships, national competitors use economies of scale to reduce costs, sell products based on national advertising or marketing campaigns, and attract large national builders. Regional companies usually contain attributes of both.”

Consider the size of the pie: According to a report from Harvard University's Joint Center for Housing Studies citing U.S. Census Bureau figures, sales of residential building supplies and related products by building materials dealers hit $265 billion in 2002. “It's a mammoth market,” Rader says. “With all of the product diversification that makes up the billions in residential construction, all good companies can exist in the same market and do well.”

Grand Ol' Market To further this example, Rader points to Nashville, Tenn., as a market where small independents like Lebanon, Tenn.–based Fakes & Hooker, regional pro dealers such as Dickson, Tenn.–based Stewart Lumber, and national players like Eighty Four, Pa.–based 84 Lumber coexist and compete, selling to a mix of custom home, remodeling, and tract builder accounts. Drilling down into their operational models, it's possible to see how these different dealers can evolve and prosper.

“Nashville is supported with several well-run, well-managed building material dealers in addition to some national suppliers,” confirms William Stewart, president of Stewart Lumber and current chairman of the board for the NLBMDA. “Unlike some cities, where one yard may dominate the market, our area has several firms that do a good job. The competition keeps us on our toes.”

Virtually 100 percent pro-contractor oriented, Stewart Lumber works a custom home builder– and remodeler-dominated customer base, and is currently experimenting with installed sales of windows, shelving, cabinets, garage doors, decks, lock-sets, and roofing. As a four-unit regional pro dealer with a large geographical market, Stewart also has found both the capital strength and the customer base to incorporate vertical integration and sales diversification. The company supplies truss products within a 300-mile radius of Nashville from its plant in Fairview, Tenn., and also operates a corporate division devoted exclusively to government contractor sales.

Stewart's core strategies for squaring off with Nashville market competitors originate internally. From the point of hire, the company seeks out employees with the performance, attitude, and communication-driven tendencies vital to networking with the pro dealer's service-hungry customer base. “We're working constantly, trying to provide timely, accurate, and dependable service for our customers,” explains Stewart. “We try to keep the lines of communication open so, if there is delay, the customer will know soon enough to make the necessary changes.”