Edward Hines Lumber of Buffalo Grove, Ill., has sold to commercial and industrial accounts for decades. But in early 2006, when the slowdown in housing demand reared its head in the Chicagoland markets this pro dealer's yards serve, Hines got more serious about the commercial side.

The dealer added concrete forms to its inventory so it could pursue supplying to road and bridge construction jobs. It added steel studs so it could more aggressively go after hotel and restaurant projects. Several of its outside salespeople now spend more time calling on and building relationships with commercial customers.

The results speak for themselves: Between 2005 and 2007, Edward Hines' commercial sales rose 500%, "and that was on a seven-figure base," says Chris Kearney, vice president of sales. So even when its residential business recovers, "at Hines, commercial is here to stay, and we know we have to be in it full time," he says.

Dealers around the country are cushioning the blows from a depressed home-building market by increasing their business with companies that construct hotels, schools, hospitals, and other commercial buildings, and by becoming sources of supply for maintenance products to those buildings. Some dealers have treated this as a holding pattern they could fly until their residential customers get more active again. Others, though, are integrating industrial and commercial (IC) into their business models.

Over the past several months, Livermore, Calif.-based Orco Construction has added products from a dozen concrete-form vendors to its 18 branches, some of which already were stocking light-commercial materials such as moisture barriers and truncated domes. Orco's goal is for commercial sales to contribute half of its revenue within five years, compared to 2005, when the company got 90% of its business from residential contractors.

In June, Orco expanded rebar fabrication to northern California by opening a plant in Stockton, and it plans to extend rebar fabrication to its markets in Arizona and Nevada in 2009, says Hal Look, senior vice president and business development chief.

Causeway Lumber of Fort Lauderdale, Fla., has sold commercial accounts since the 1960s. While that part of its business historically spelled about 12% of annual sales, this year, with housing off, IC should kick in 20% of sales, projects Scott Whiddon, Causeway's president. His company has been ramping up its inventory of hollow-metal hardware, as well as commercial-oriented molding and aluminum windows.

Causeway also gives its sales force incentives to find more commercial business, and this summer it was devising a marketing campaign aimed at these customers.

Arkansas Wholesale, Ridout Lumber's distribution arm, recently launched a commercial division that the company moved to a separate location on 12 acres in Little Rock, Ark. There, 30,000 square feet of warehouse space stores inventory that now includes a full line of metal framing products, commercial-grade insulation, acoustical ceiling tile, and more drywall. This division has three outside salespeople, one of whom exclusively sells steel doors and hardware to commercial accounts.

In 2008, industrial and commercial should represent between 20% and 30% of Hundman Lumber's sales, compared to 5% when the housing market was more robust.

"There's no question that [IC] has been a huge help," says owner Mike Hundman. Over the past nine months, this Bloomington, Ill.-based dealer with eight locations has strengthened its position with commercial accounts by offering turnkey programs to commercial customers for such products as roofing and siding. A recently hired full-time superintendent oversees IC projects. And turnkey "allows us to sell more products into a particular job," says Hundman, who foresees growth opportunities in the assisted-living sector, in particular.

Personalized Service. The industrial and commercial market's size is a bit hard to measure because it encompasses so many sectors. Some estimates put it as being at least twice the retail home improvement market. IC has several giant players, including:

Grainger Industrial Supply, which did $6.4 billion in revenue last year from 1.8 million customers, and offers 800,000 SKUs.

McMaster-Carr, which offers 450,000 SKUs through its instantly recognizable yellow catalog, now in its 114th printing.

HD Supply, which has about 1,000 locations.

Fastenal, which has 12 distribution centers and more than 2,100 stores.

But this market remains highly fragmented, and that leaves the door open for local suppliers, like lumberyards and building supply dealers, to step in with niche products and services.

Not every pro dealer feels the need to jump on this bandwagon, though. "It's not a segment that we pursue, primarily because our core customer is the high-end custom builder, and their business is still OK," says John Callahan, an executive with Riverhead Building Supply on Long Island, N.Y. And E.C. Barton of Jonesboro, Ark., has a residential business that "has held up, surprisingly," says operations manager Kevin Pierce. Still, Pierce says he sees the potential for his company to tap into IC.

What attracts pro dealers to IC is the recent resilience of the private nonresidential construction sector, which grew 16.6% in the year ended May 31, according to Census Bureau estimates. Construction markets for lodging, manufacturing facilities, and churches are particularly strong.

One large Southeast-based pro dealer, also serving a strong home- building market, operates a wholesale division that distributes products to light-industrial customers, such as cabinetmakers. This dealer gets about 25% of its sales through this division, and only 15% of what the division distributes goes through this dealer's stores; the rest is shipped directly to IC customers or to other lumberyard dealers, says its chief operating officer, who requested anonymity.

Conversely, in Sacramento, Calif., one of the nation's weakest housing markets, Meek Lumber Co. has jumped into IC in a big way. In July 2007, it made 17-year company veteran Don Porter its IC director. Porter's team now includes a sales manager and 10 outside salespeople.

"We realize that we're coming into this sector as a 'me-too' player, so we're trying to differentiate ourselves through personalized service and by calling on accounts on a regular basis," explains Porter. He and other pro dealers point out that many of the largest IC suppliers sell product primarily through catalogs, CDs, and via Internet ordering.

"It's all about getting to know your customers and getting them comfortable with shopping in your store," observes Ray Conniff, business-to-business manager for the dealer-owned buying group Ace Hardware Corp., which has long offered IC-related products to its members, which include pro dealers. "This is largely a relationship sale, and your store needs least one 'ambassador' for these customers."

Steve Hawkes, vice president for Burton Lumber Co., a $155 million operation based in Salt Lake City, stresses that that relationship must feature a pro on the LBM side.

"You can take a green outside sales guy and sell a residential home builder. You can't with a commercial contractor," says Hawkes, whose company gets 15% to 20% of its business from commercial accounts in the wake of the residential market's slump. "They're smart, and you can't buffalo those guys."

Last year, Ace surveyed its members and found that their most-frequent IC customers–mostly on what's known as the maintenance, repair, and overhaul, or MRO, side of the business–were property managers, school districts, local governments, churches, and contractors. A school, for example, might purchase janitorial supplies, rock salt and shovels for its parking lot, and electrical and lighting products.

"I love when the maintenance guy comes into our dealers' stores, because he's the person who makes the decisions about what gets bought," says Conniff. He adds that the average ticket per visit for an MRO customer is typically three times that of a homeowner.