The challenging return to normalcy
LAS VEGAS — The housing market recovery with all of its optimism, its forecasts of 20% increases and its clear path to 1 million starts had plenty of people smiling at the International Builders’ Show.
It also had some people thinking, and maybe worrying. The causes of concern include scarcity of product and the idea that delivering the product to a market returning to normalcy may come with shocks to the system.
Granted, in the aftermath of record lows in home building (and home improvement spending) the idea of a boom-driven scarcity falls squarely in the category of "good problem to have." But that doesn’t mean it’s not still a problem.
This problem was the topic of discussion here in Las Vegas during IBS at a meeting of the Presidents Council, a business group of hardware and LBM executives, distributors and retailers.
"Simply put, there is not the capacity of lumber production to return to the historical levels that we saw before," said Wayne Guthrie, who as the senior VP sales and marketing for forest products giant Canfor has a front-row seat on raw material trends. "On top of that we have had environmental issues and other cutbacks in certain lumber producing areas that will restrict them."
Make no mistake: The mood of the Builders’ Show, and of builders in general, was upbeat. But then again, the recovery brings supply chain challenges.
"When builders ask me about 2013, I try to temper their optimism a bit," said Tony Callahan, formerly an executive of a major builder, now CEO of Callahan Consultant Group. "I think you’re going to have higher costs, tighter skilled labor and more government regulations."
A risk to the recovery is the possibility that raw material prices will "crank up too fast," slowing down the recovery itself. That is a real possibility given that a lot of builders have four- to sixth-month backlogs, with a lot of the pricing unprotected, Callahan said.
"Lumber prices are definitely on the rise," Guthrie said. "It was a little intimidating when I saw the No. 1 concern [among builders] is higher material costs."
Guthrie said history is about to repeat itself. Lumber prices peaked in 2004 — a full two years before the peak demand kicked in. The reason for the early peak? "The supply chain simply broke down," Guthrie said. "We had the lumber. We just couldn’t get it to the marketplace in an efficient way. There weren’t enough rail cars. There weren’t enough trucks. And there wasn’t enough capacity to get that lumber out. You can see that scenario again soon."
This "supply chain crunch" will be the first wave to hit the recovery, he said. But there’s also the shortage of actual lumber. That second challenge is largely the result of a little bug. The beetle has ravaged forests for about 10 years. And while many forests remain with harvestable timber, the beetles’ path has pushed some of it farther from the mills, which will add costs to the manufacturer, Guthrie explained.
The supply chain serving the United States is not up to world-class standards, in terms of efficiency. "I think people would be somewhat surprised to learn that we can ship today a container of lumber to Shanghai from British Columbia for less costs per unit than we can ship a railcar to Chicago," Guthrie said.
There is work to do: "It is going to be incumbent on us to study that supply chain and try and figure out the most efficient manner to get product from the sawmill to the job site."
The panelists, which also included Ron Beal, CEO of Memphis, Tenn.-based Orgill supply, and Paul Hylbert; CEO of Kodiak Building Partners, also hit on the need for improved technology as a response to the coming shortage of labor, particularly skilled labor.
Figuring out how to move products is what the lumber industry does, and has done for decades. Today’s challenges are just another chapter in that story of adapting. At least that’s how Hylbert of Kodiak Building Partners wrapped up the panel presentation.
"There was the issue of scarcity back in the 1960s — when we thought we were going to turn out of everything from oil to wood and the like," Hylbert said. "But there’s the capitalist system and the creativity of mankind. We’ll find ways. And we’ll find cheaper ways to do things."
Menards makes room for ‘essentials’ upfront
Customers entering the Menards store in Fort Wayne, Ind., pass through a turnstile and immediately confront a great wall — the wall of "household essentials & more."
Just beyond the shelves of chips and cereal and sparkling cider, the wall marks an increased presence for cleaning supplies. While not exactly standard fare for your typical home improvement giant, some experts say carrying everyday items makes perfect sense in today’s retail environment.
Jeff Edelman, director of Retail and Consumer Advisory Services for McGladrey, said stores "irrespective of type" should continually search for ways to make space more productive and more profitable. "Smart managements are continually addressing this issue — by type of merchandise, sizes and brands," he said. "The goal is to increase the dollar size of the average transaction. Often floor placement will help drive the impulse purchase."
Known for its eclectic mix, Menards is regarded as a regional destination store where customers can find everything from lumber to groceries to cleaning products in one trip.
Menards, which features up to 10 categories of cleaning products, is not alone among hardware dealers that have expanded into this realm. Cleaning supplies generally have a strong presence at the co-op and distributor shows. And in December 2012, Home Depot launched its HDX private-label chemicals line, with products ranging from all-purpose cleaners with bleach to wood floor care cleaners.
"Our associates treat the cleaning aisle like any other aisle in the store, so if customers don’t know how to handle a cleaning dilemma, we usually have that solution for them," said Melissa Richards, senior merchant for cleaning at The Home Depot. "Our customers usually start a project or end it by cleaning, which makes this category an important overall project solution."
Edelman said it makes sense for customers shopping in a home improvement store, who are there primarily for traditional products like power tools or batteries, to also pick up household items "just to make sure."
"So now the purchase becomes more of a want item than a need item, and so the customer is probably less interested in price comparison, and thus it is more profitable for the retailer," he said. "I doubt that a home improvement store would have been the original destination for that merchandise."
But by having it in stock, the retailer and customer win, he said. "It is easier in the one-stop environment where value is a function of many variables other than price … in this case convenience."
Pet projects on display in Atlanta
ATLANTA — Pets, paint and credit figured prominently at the True Value Spring Market here.
"We’ve talked before about the scope and steady growth of the pet business, which is driven by the fanatical devotion of pet owners to their pets" said Mike Clark, senior VP and chief merchandising officer for the Chicago-based co-op. "We know customers shop multiple channels and retail outlets, and that they make more than 15 shopping trips a year to purchase their pet product needs. That’s nearly five times the number of trips the average customer makes to our stores."
It was the second year for a farm-and-ranch emphasis on the show floor, which again included live animals, along with neatly stacked merchandise.
True Value unveiled Stihl as a new co-op vendor. The partnership is expected to kick off in the fall.
New paint in new packaging is in the works at True Value Co., as its interior and exterior paint lines are getting a makeover. The latest iterations of EasyCare and WeatherAll paint were unveiled, along with new color display fixtures and collateral selling tools. One of the most notable changes on the cans of True Value paint are icons indicating the attributes of the product — mold and mildew resistance, extra-rich colors and low-VOC, for instance.
"People want information right away," said Dawn Garrett, product manager of color collateral and design for True Value, referring to the icons on the paint cans.
In credit card news, after completing the planning and the soft launch, True Value Co. plans to launch its Discover credit card program for consumers in stores March 7.
"We soft launched this program in 75 stores the past two weeks with no glitches," said True Value CEO Lyle Heidemann, during the general session. "I actually applied and was accepted for a co-branded card. It was easy and took less than two minutes to apply."