Delivering the right product, to the right location at the right time is never as easy as it sounds. This year’s Top 150 Distributors Scoreboard reveals that in 2007, the degree of difficulty rose to another level.
But the Scoreboard also has its share of success stories. Educated by one of the toughest markets in memory, many of the Top 150 are finding ways to grow, or at least get better at the business of wholesale distribution.
“In 2007 we worked hard at PrimeSource to make lemonade out of lemons,” said Paul Redwood, vp and national sales manager for the Carrollton, Texas-based distributor and fastener specialist.
PrimeSource ranks 11th on the Scoreboard, with some $1.7 billion in sales. (The company, a division of Japan-based Itochu Corp., does not release its sales numbers. Those on the scoreboard are estimates that the company declined to confirm or deny.)
Redwood pointed to a surge of benefits in 2007 from the acquisition of Pacific Steel Supply in 2006. Other activities included the opening of a distribution center in Canada in February. “Our growth strategy is simple: organic growth with existing products, further development of the Grip-Rite brand with new products and meaningful acquisitions,” said Redwood.
PrimeSource was one of 36 companies to buck the trend and post year-over-year wholesale sales gains. Almost half of the list—72 companies—actually showed negative sales; that’s much worse than the 22 decliners on last year’s list. Combined sales for all 150 companies dropped 4.2 percent in 2007, after dropping 1.4 percent the prior year.
This year, lumber prices remain low, deflating sales for many. Added to that factor is the sudden rise in many other building product prices. Connectors and fasteners, for instance, are up more than 40 percent from Jan. 1. For the wholesaler distributor operating on tight margins, there is little choice but to try to pass on the costs to the customer.
At the top of the list, heavyweights Weyerhaeuser and BlueLinx showed declines, which continued into the first quarter of 2008. Weyerhaeuser posted a first-quarter loss of $148 million, while BlueLinx posted a $10.6 million loss in the same period.
Weyerhaeuser CEO Daniel Fulton lamented the downturn in single-family housing starts.
“In response, we’ve taken out oriented strand board and softwood lumber capacity, and we will continue to take action as necessary to balance production to demand,” he said.
Howard Cohen, who took over as BlueLinx interim CEO in March after the resignation of Steve Macadam, finds himself at the top of the Scoreboard, but challenged to stay there.Methodology: Toward a list of two-steppers
In years past, HCN’s Distribution Scoreboard included building material dealers who had significant sales to both retailer customers (two-step sales) and builder customers (one-step sales). This year, to make this Scoreboard more relevant to traditional wholesale distributors, HCN included only those who are primarily two-step distribution companies.
On last year’s list, 87 percent of total sales derived from two-step business. This year, that number is 98.1 percent.
We replaced the companies we dropped with smaller wholesalers, and we ranked the list by total wholesale sales (with ties broken by sales growth).
Look for most of the excluded companies to appear on HCN’s Top 350 Pro Dealer Scoreboard in August.
The research for Home Channel News’ 2008 Top 150 Distributor Scoreboard was conducted by HCN’s sister company, Chain Store Guide. Individual companies were contacted by phone or fax; every effort was made to gather information directly from top-level executives. Some data were collected from company Web sites and public documents. Data were prepared by CSG senior editor Arthur Rosenberg and HCN managing editor Michael Moran Alterio.
Most of the information in the Distribution Scoreboard is therefore self-reported by privately held companies. The great majority of companies contacted recognize the value of participation, especially that all companies benefit from this unique look at the inner workings of the home channel. Some distributors, however, choose not to provide data about their operations or sales. HCN estimates data for these companies, based on editorial research, historical performance and in comparison with similar companies operating in the same area. All estimated data are noted as such in the footnotes.
A deep historical data set on these companies and others is available on HCN’s Premium Top 500 Retailer Scoreboard on CD. For ordering information, please contact Michael Moran Alterio at (212) 756-5235 or visit
“We remain focused on managing cash flow by tightly managing inventories, receivables and our operating expenses,” said Cohen. He added: “Our company is financially positioned to be able to continue executing throughout this housing downturn.”
For optimists, the current downturn is a good time to position oneself for the upturn. That’s exactly how start-up company Greenleaf Trading sees it. Robert Snyder and Mike Harley, who worked together at BlueLinx, joined with investors to form a start-up in March. The Denver-based company has six Western distribution points and plans to add two more this year in Chicago and Fort Worth. The four-month-old company also expects to open trading offices in Tampa, Portland and Chicago this year.
“A great number of traders have never experienced such a down market,” Snyder said. “But now is a good time to gear up for the eventual recovery.”
According to Snyder, customers need reliable service, and they need options to help them maintain or grow their market share. Nothing new there, but one area of growing importance is financial incentives to customers. “Payment terms become more important in these challenging housing industry times,” Snyder said.
Of all the big names among the top 10, only two managed to increase wholesale sales year over year: Ace Hardware grew 1.0 percent; True Value, 0.5 percent.
Ace is eager to move beyond 2007, a year which included a distracting $152 million accounting issue on top of macroeconomic forces affecting the en tire home channel.
Ace CEO Ray Griffith said: “We’ve had to look at our business differently and make some difficult strategic decisions to operate smarter and leaner.”
Cost containment is taking priority throughout the Top 150. At Huttig Building Products, number 15 on the Scoreboard, here’s how CEO Jon Vrabely explained it to investors after the company posted a first-quarter loss of $9.8 million.
“We continue to pursue all avenues aimed at controlling expenses, improving operating efficiencies, reducing inventories and generating cash,” he said. He pointed to some positives: increased market share from fewer locations, and no loss of gross profit margin percentage.
The company’s actions reflect a mission to be lean. In the first quarter, the St. Louis-based distributor closed DCs in Kansas City, Mo., and Greensburg, Pa. Huttig is also intensifying its efforts to sell slower moving inventory to free up capital and reduce debt.
Huttig has been in business since 1885.
As pro dealers tighten their inventories, an opportunity exists for wholesalers to prove their worth. As dealers buy in smaller quantities, they may take less than full truckload orders and rely on the wholesaler to fill in when needed. That trend tends to boost the two-stepper’s margin, as well as turns.
“To some extent, all organizations today in the channel are under tremendous pressure, because of the market,” Vrabely told Home Channel News. “But the specific trend of dealers tightening up inventory helps wholesale distribution, at least in the short run.”
Against the backdrop of economic and market forces, societal trends have stepped onto center stage. The leading player: green building.
“Green—that’s the big buzzword,” said Quent Ondricek, vp-lumber and building materials for Do it Best, ranked 6th on the Scoreboard.
During a presentation to member-dealers at the co-op’s most recent market, Ondricek stressed the potential of green products from a sales and margin perspective.
“The point we’re trying to get across to everyone is just be prepared,” he said. “You are going to have customers who are going to walk in and want to talk about green. The last thing you want to do is turn those individuals off, because it is a tremendous sell-up opportunity for a person who truly does want to embrace that.”
When things break around the house—as they do in good economies and bad economies—hardware stores benefit. That’s why Do it Best, Ace and True Value all consider their core hardware stores to be somewhat insulated from the housing market down turn. The finetuning, the realigning and the restructuring occurs regularly.
At Do it Best, one of the latest efforts at internal improvement deals with the conversion of millwork account executives to building material account executives—a change that will happen at the end of the Fort Wayne, Ind.-based co-op’s fiscal year.
The company’s building material products—which included siding, garage doors, garage door openers and construction adhesives—had in the past been treated like most hardware items. “We put it in the warehouse, and we kind of expected people to buy it, and maybe we didn’t give you all the best information of what we were carrying and the price variables,” Ondricek said.
The new structure will bring the millwork account executive over the building materials at the same time. “It will give you one destination to make the phone call to cover all those products to give you pricing and availability and all those other things,” he said.
For Huttig, the business strategy includes a focus on value-added products and those that require a wide breadth and depth of inventory—composite decking and prehung doors, for instance. Composite decking holds a particular appeal, because it’s still at a relatively early stage in the product lifecycle, and it’s a complicated category.
There are plenty of the companies on the list vying for that decking business, as well. The winners will be those who deliver the basic tenets of service and execution.
“People always ask me: is wholesale distribution doomed, and my answer is always that the service that wholsesale distribution provides today—those services will always need to be there,” said Vrabely. “The issue is: who is going to own them.”