Thirty years ago, Davis Lumber, our family owned company, was hit with a downturn that lasted more than 12 years. Here's how we survived, and what you can learn from our experience.

Jon Davis Before the storm hit: Our headquarters was in Hutchinson, Kan., a prosperous regional trade center for central and western Kansas community with a population of 50,000 in 1978. Cessna had a manufacturing plant in Hutchinson that employed 3,500 people who produced hydraulic pumps for use in front end loaders for the construction market and tractors for the agricultural market. Large companies like John Deere and Caterpillar were Cessna's primary customers. In addition there were several smaller manufacturers, and Hutch was the home of Dillon's grocery chain. Single family housing starts in our community had ranged from 200 to 300 annually ever since World War II.

My brother Jim Davis and I owned Davis Lumber. I was president/CEO and Jim was vice president COO of our contractor divisions. We operated three facilities: a roof/floor truss and wall panel plant shipping components for multi-family projects, motels, assisted living projects, restaurants and tract builders into 16 states; a contractor building material distribution facility shipping throughout Kansas and northern Oklahoma: and a home center outlet focusing on remodelers and do-it-yourselfers.

Competition was friendly and times were good in the '70s throughout the Midwest. There were 3 truss plants, six building material locations and two millwork companies operating in Hutchinson at that time.

Trouble arrives: When President Carter imposed a grain embargo on Russia in the late 1970s, Cessna's agricultural business dropped precipitously and almost immediately. Within two years, Fed Reserve Chairman Paul Volker implemented his series of interest rate increases to attack inflation with interest rates eventually reaching 17%. This chain of events destroyed Cessna's core customer base and its employment dropped more than 80%, to 650, over a two year period.

Housing starts in Hutchinson plummeted 90% to 20 annually and remained in the 20-to-40 home annually throughout the 1980s. The population fell by 20% to 40,000 by the end of 1983 and remains at that level today. (Note: annual single family permits in the last 15 years still don't top 80 homes per year.) Our local builder business and retail business dramatically contracted. On a national basis interest rates soared, single family and multi-family housing starts collapsed and builder bankruptcies soared. Our regional truss and wall panel business shrank dramatically.

First responses: Through a series of strategic changes and tough-minded business decisions, we reinvented our company in the face of the new economic reality and dramatically changed our marketing strategy. Among the changes:

  • We changed our targeted customers, closed our truss and wall panel plant and consolidated our contractor distribution facility at our retail/remodeler facility.
  • We outsourced our manufacturing to roof truss manufacturers and door mill companies.
  • We liquidated all of our manufacturing equipment and much of our transportation fleet.
  • We eliminated 75% of our employees and liquidated one facility and subleased another facility.

    • Our new business model fit the economic reality of what our market was then and remains today. We successfully sold our business to Star Lumber of Wichita, Kan., in 1990. Today, the only building material location in Hutchinson is the location we sold to Star Lumber in 1990. The other two truss plants and six building material locations and one of the millwork operations have all been closed.

    I remained with Star Lumber for 17 years until I retired in 2007. At that time our annual revenues were $126 million. For many of my 17 years with Star, I was Star's senior vice president in charge of both their contractor and store divisions. During my tenure at Star we faced several severe sudden downturns of up to 25% in annual single family housing starts caused primarily by the cyclical nature of the aircraft industry.

    Next:

    Jon Davis retired from Star Lumber in January 2007 and started Davis Consulting. He works with clients in several states on a variety of projects including: strategic planning in a downturn; succession planning; operations; sales and marketing management; effective builder incentive programs; acquisitions and divestitures; and builders' showroom design and operations. Contact him at [email protected].