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Cash and leverage

BY Ken Clark

It looks so simple, from an outsider’s perspective.

First, you buy a lot of building materials in bulk. Then you distribute them to the tens of thousands of lumberyards, pro dealers and home product retailers across the country.

Pass out free carpenters pencils emblazoned with a phone number and logo—and you’re in business.

Of course, it’s not that simple. Every company on the Home Channel News Top 150 Distributors Scoreboard can attest to the difficulties and challenges of two-step, wholesale distribution. It’s not just the size of the products and the vast territories covered. There’s also the matter of breadth and depth of assortment. (Quick: does that caulk meet or exceed APA AFT-01 specifications?)

Then there are market forces to withstand, and rising costs. All told, it’s a tough business.

In the past weeks, our editors working on our Top 150 list (see page 26) spoke with several two-step executives to check facts, to spot trends or just to catch up. One particular conversation—with Jon Vrabely, CEO of St. Louis-based Huttig Building Products—lends itself well as an introduction to our special “Distribution Issue.”

“Distribution, whether you’re one-step or two-step, is about cash and it’s about leverage,” he said.

What does he mean by that? I’ll let him explain.

“At the end of the day, it’s all about are you generating positive cash flow or are you having to borrow money to operate your business? A good distribution business will find that they spin a lot of cash. They’re doing all the right things to manage cash. And they’re not making investments in product lines that don’t sell, or that don’t turn.”

And what about leverage?

“You’re trying to leverage the greatest possible revenue stream across the lowest possible cost structure,” he added. “The goal of a good wholesale distributor is to sell as many possible products to the same customer, because that’s when you begin to leverage your resources.”

So that begs the question: how does the two-stepper get more products into the same number of customers? That is where two other classic terms in the LBM distribution lexicon take over: service and relationships.

The 150 companies on the Home Channel News Top 150 Distribution Scoreboard each have their focus, and their unique fingerprint on the LBM industry. They have disciplined delivery teams, smart buyers and the sales staff to find new business and maintain current customers.

Companies of the Top 150, HCN salutes you.

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Honda lawn mowers recalled

BY HBSDEALER Staff

American Honda Motor Corp. is recalling about 20,500 Honda Lawn Mowers, according to the Consumer Products Safety Commission.

Arear shield attached to the lawnmower can break off and be thrown at the operator, posing a laceration risk. The company has received one report of this incident, but no injuries have been reported.

The recall includes HRX walk-behind lawn mowers, and the items were sold from Oct. 27, 2007, through June 2008.

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Fannie Mae, Freddie Mac woes could lead to Fed takeover

BY HBSDEALER Staff

Following a slew of funding problems for government-sponsored mortgage finance companies Fannie Mae and Freddie Mac, the federal government is considering taking over the two organizations, according to a report by the New York Times.

The two mortgage companies, which are government-sponsored entities (GSEs), have had difficulty raising funds in the face of the housing market downturn.

According to the report, a plan is under consideration by the Fed to place Fannie Mae and Freddie Mac into conservatorship, which means losses on home loans under their names would be paid by taxpayers. The newspaper cited individuals briefed with the government’s plan, although the sources also said no action is imminent.

Congress created Fannie Mae during the Great Depression and created Freddie Mac in the 1970s. Later, legislators eased some restrictions on the two organizations to help spur growth, allowing them to cash in on the slew of jumbo mortgages that eventually entered the market. Like many other mortgage companies, the two groups were deeply hurt by fallout in the housing market. But unlike other mortgage companies, Fannie Mae and Freddie Mac collectively hold huge relative chunk of the outstanding mortgages in the United States.

Shares of Fannie Mae and Freddie Mac are expected to slide further today, after plunging throughout the week. If the government were to take over the companies, their stock would be worth “little or nothing,” according to the New York Times.

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