This year seemed to fly by in a whirlwind of business activity. Sales reached record levels for many dealers, while M&A activity heated up with deals such as the sell-off of the last Wickes locations and the late September announcement that Builders FirstSource was on the block. Keeping tabs on all these happenings has been a challenge, so a recap of some of the top trends seems like the perfect way to close out 2004.Based on our ongoing research, here are my three picks for the top change-drivers ringing in the New Year:

1. Builder consolidation creates purchasing power. After a big push several years ago, big builder acquisitions over the past two years have slowed somewhat, but their long-term impact on the supply channel—the creation of massive builder purchasing power—is here to stay. According to the 2004 BUILDER 100 rankings, published by our sister publication BUILDER magazine, four builders—DR Horton, Pulte, Lennar, and Centex—have reached 30,000 homes per year. Moreover, they all made the 2004 Fortune 500, along with KB Home, NVR, and The Ryland Group.

It's now apparent that the behemoths of building are successfully jockeying to become channel captains by controlling and streamlining their supply chains, with or without the participation of dealers. As a result, dealers looking to stay in the game and service national and regional buying agreements between big builders and manufacturers will have to prove that they add value to the channel, not cost. For example, according to BUILDER's 2004 Purchasing Study, nearly half of the builders who engage in direct purchasing deals experience problems when buying direct, which spells an opportunity for dealers to fill in the service gaps.

2. Builder growth avenues veer from the usual suspects. Ten years ago it was unlikely to see a builder garner more than a 10 percent share in a given major market. Now at least 21 of the top 50 markets have at least one and nine markets have at least two. BUILDER also reports that public builders will spend an estimated $20 billion on land alone this year. In this environment, it's becoming harder for small builders to compete for land, and more difficult for all builders to find undeveloped frontiers, which is pushing expansion to secondary markets (such as cities in hot areas of the Southeast with names containing “green” and “ville”) and regions with land adjacent to mega-metros. Dealers are going to have to play follow the leaders, or they may wake up one day and find that they are no longer in the right place at the right time.

3. Competition heats up across channels. Big boxes continue to edge in on pro business. Not surprisingly, our research indicates that they are the leader in tool sales compared to other outlets, with 45 percent of both builders and remodelers purchasing these products at boxes. Is this only the beginning? With recent acquisitions by The Home Depot, such as that of Costa Mesa, Calif.–based White Cap Industries, it's a safe bet that the big box focus on building pro sales niches is going to continue. However, in two recent studies we found that builders and remodelers alike rate service at traditional lumberyards as better than they receive at home centers. To keep a leg up, dealers are going to have to focus on marketing strengths such as on-time delivery, industry knowledge, and other customer services.

The list of trends could go on, and it does in this month's Market Matters feature, which examines the implications of Harvard's Residential Supply Chain in Transition study. Read on and I think you'll agree that there hasn't been a dull moment all year.

Lisa Clift, Editor


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