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Distribution Nation

BY Ken Clark

The nation’s leading wholesale distributors of home improvement products and building materials saw an increase of 2.23% in 2011 sales, according to the research that produced the 2012 Home Channel News Top 100 Distributor Scoreboard.

It wasn’t easy.

According to the data culled from surveys, financial reports and estimates, the nation’s top 100 distributors produced a total of $40.263 billion in sales, compared with $39.385 billion in 2010.

In a year when an anticipated building boom never materialized and economic recovery seemed agonizingly slow, several companies showed high performance. How? It wasn’t easy.

“We knew going into 2011 that the industry was still effectively in a zero-sum environment, and that if we and our customers were to grow, it would be due to increased market share more than from an improving economy,” said Ron Beal, CEO of Memphis, Tenn.-based Orgill.

Orgill is one of a short list of home channel distributors to achieve sales growth in the double digits. Others include Amerhart, Blish-Mize, Cedar Creek, ENAP, PACOA, Progressive Affiliated Lumbermen Cooperative and Weyerhaeuser. If there was any common thread from the 2011 success earned by these distributors, it would be a combination of staying aggressive in both customer acquisition and expansion opportunities, and honing efficiencies wherever possible.

“Some of the changes have been small,” said Nate Jorgensen, VP, Weyerhaeuser Distribution. “We saved significant dollars through more efficient truck routing, for example. Other changes have been larger, such as adding entire product lines or bringing rebar cutting in-house.”

Amerhart’s Mark Kaspar had a simple answer to how his company scored a 10% increase. He said the company added a major product line — functional cabinet hardware — and expanded its footprint. Of course, it only sounds simple.

Here, in the words of the executives who pulled it off, are some of the high-growth stories on the Top 100 Scoreboard:

Orgill, up 11.7%
“We focused on retaining every customer, and doing everything we could to help them grow their sales at retail. Continued operational improvements helped us maintain fill rates at consistently high levels, tighten the delivery windows for our truck fleet and improve the overall quality of our services in practically all areas,” Beal said. “The cumulative impact of these efficiencies enabled us to profitably operate with lower margins, thus allowing reduced prices to our customers. Expanded assortments in almost every product category and aggressive new promotions helped our retailers seek out new avenues for growth in their local markets. Not surprisingly, the things that worked for our existing dealers also proved to be attractive to the several hundred new customers who came on board with us during the year. Everything combined to make 2011 a very good year for Orgill.”

PACOA, up 27%
“Investments were made in three key areas: technology, people and infrastructure,” said Steven Geismar, president of the Port Washington, N.Y.-based paint and hardware distributor, formerly known as the Paint Applicator Corporation of America. “We launched a scanner initiative that gave our sales force the ability to more efficiently scan orders and service customers. We upgraded our website, as it became more user-friendly and is the preferred website with several of our customers where we share the business with our competition. We invested in new trucks and material-handling equipment to handle our increased business and improved our service levels by offering next-day service on our trucks as we grew into new markets. We added more than 4,000 new stocking SKUs to support the new business that we are now servicing, as well as used the new products to grow share in our existing customer base.

“We strategically added new salesmen to our sales force where we felt they would best complement our existing sales force, and kept to our core business and territory of strength to ensure that we could sustain the investment.”

Cedar Creek, up 19%
“First of all, we have a number of branches operating in one of the better recovering housing regions (Texas and Oklahoma) and so have benefited from that, as well as from the overall increase in housing starts across our entire operating area this year,” said a company spokesman for the Oklahoma City-based LBM distributor. “We service several building market segments, including new construction, R & R, home centers and industrial customers (cabinet shops, furniture, outdoor play sets, etc.) We created separate growth initiatives this year for each segment and were successful in the first half in reaching many of our objectives.

“Finally, some of our revenue increase has come from our geographic expansion, although most are startups that will take time to reach the revenue level of our established locations.”

Weyerhaeuser Distribution, up 14%
“In 2011, we re-focused the business on market and customer needs,” said Jorgensen, VP, Weyerhaeuser Distribution, based in Federal Way, Wash. “After years of fine-tuning our supply-chain skills, we leveraged our relationships and our reputation in the marketplace as a strong and reliable company to fuel our growth. We’ve continued to build momentum in 2012 with a growth pace that is far greater than what we achieved in 2011.

“A few key areas for us in 2011 were expanding our market-tailored product offerings, growing our already-expert sales and service team and continuing to keep costs in check.”

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Readers Respond

BY HBSDEALER Staff

Employee morale
The following is a response to the article, “Unhappy employees are staying put.”

“[Unhappy employees are] soon to be going, or at least when the economy improves — that’s when they will leave in droves because of extreme low pay and lack of respect from employers. Why wouldn’t they? No one likes being used or abused. Do you?”
— Rick Heath

Swipe fees at the point of sale
The following letters refer to the proposal that would allow retailers to charge customers a fee for using credit or debit cards to cover the swipe fee:

“This will become a competitive-advantage issue with leading retailers using the absence of any fees against any that charge the fees, or providing no fee to frequent-shopper card holders. A useful statistic would be a compilation by IRI or Nielsen of cash-to-card ratios by basket size to better understand the impact of any charges.

“One sees many online sellers dropping or discounting shipping fees as an analog to this potential set of charges.

“Net: Any additional fees will disappear within six months.”

— David D Harvison 

“I think the retailer should add the fees as a surcharge. I know that would encourage me to pay cash and likely most other consumers who have the cash. It would serve three purposes.

“Cause pause to people about building credit card debt;

“Hopefully reduce sell price on goods where the bank fees are already built into the cost of the goods; and

“Potentially cause banks to reduce fees if they want people to use their cards.”

— Gregory Phillips

“It is my opinion that almost every business that accepts credit and debit cards for payment has built in the fees as a part of their expenses in their budgets, and that expense appears as a line item on their income statements. Businesses shouldn’t consider a surcharge for credit/debit transactions, since those expenses have already been considered in their retail pricing structure as a part of their planning process, and adding a fee would be charging the consumers twice for the same expense line item. If businesses create a change in retail pricing (discount) for paying cash, then most businesses will experience better ratios and profitability in the first year or two. After a year or two of that activity, they will be able to more accurately adjust their budgets to reflect a new percentage for credit/debit card sales and the associated fees, and be back on track.

“Most consumers understand and know that businesses consider all costs of doing business when setting retail pricing, so any surcharge could be looked at as ‘gouging,’ and those who offer discounts for cash could take advantage of those who try to take advantage of their customers by adding a surcharge.”
— Wayne G. Reimer

“How many other fees will the banks think of? Let the banks take better care of their house. Regulate them or they continue to dream up additional charges.

“They make plenty on interest.”
— Don McDonald 

“The first time it happens to me, I will just leave my grocery cart and walk out. These fees do not need to be itemized on a customers receipt. What’s next, $2.99 for milk, plus 3% for CC fee, plus 1% for wearing out the floors, 1% for electricity, 2% because I choose to go to a person cashier instead of a self-serve checkout? Don’t itemize your cost of doing business onto the customer; just build it into the price of the items. The first ones to try it will lose a lot of customers. I for one do not want to take that chance, or put a ‘bad taste’ in anyone’s mouth. Once that is done, it can not be cleaned back to the way it was — never happens.”

— Rick Baker

Crime and punishment
The following letter is a response to: “Illinois contractor gets 10-year sentence for asbestos violation.”

“All contractors should be licensed.  Part of the licensing process should be environmental awareness and the process associated with it. I get more and more angry every day seeing dishonest, unscrupulous contractors putting customers at risks, while driving down prices so that capable honorable contractors can not compete.

“As you can tell, I have little sympathy for people who willingly violate any laws, environmental or otherwise. I may not agree with all the laws, but if it is the law then we should be accountable to it. Too often nowadays people are not held responsible for their actions. This case did not appear to be about someone caught up in a situation of which they were unaware, but more of an intent to subvert the law. His unethical action put unknowing workers and the public at risk.

“However, I do feel that our courts have lost sight of fairness in penalties of certain crimes. If crimes concerning murder, rape and assaults were dealt with this harshly, I think we would be living in a safer environment. It seems if you kill someone, the penalty for killing them would not be as severe as dumping their body in a river and being convicted for polluting the river.”
— Joe Patton

Fighting foreclosure in California
The following letters refer to an article about several California cities considering seizing foreclosed houses to combat the housing slump.

“Let the market take care of itself, or we will have another government agency with high wages.”
— Ellis Goebel

“My opinion only: Home foreclosures are an unfortunate consequence of the recession, but we would have been better off taking our medicine quicker — not letting this drag on. 

“If I were to design legislation for this current situation, I’d require the banks to take care of the foreclosed property in a reasonable fashion. Too many homeowners who live near these unoccupied foreclosed homes pay the price in lower values of their own homes. To enforce this legislation, the penalty to the lender would be equal to the book value of the foreclosed home at the time of foreclosure.

“The lenders got us into this mess. The federal government bailed them out. Now it’s time for them to have skin in the foreclosure part of the game.”
— John McGraw

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Support your local hardware store

BY Ken Clark

Remember that scene from “The Longest Yard” when Burt Reynolds’ incarcerated character snaps his fingers, and boxes of sparkling new football uniforms are delivered to his rag-tag team of inmates just in time for their big showdown with the guards?

That was a great moment for prison procurement. One feels inspired by it.

One gets a very different feeling from the procurement policy of the real-life Eastern Correctional Institution in Westover, Md.

Here’s how Bill Harris, owner and operator of two Ace Hardware stores in Maryland, explains it:

“My wife, who runs the Princess Anne store near the prison, was told by a supplier, ‘Have you heard about the new mandate? The prison system is going to be buying from Grainger from now on.’ ”

A few days later, a UPS driver breaks some news to Harris: “I hate to tell you this, but I just delivered 40 Grainger boxes to the prison.”

Illinois-based industrial supply house: 2; Local hardware store: 0.

During a period of rising concern for Main Street businesses and growing sentiment for support-your-local-store, the long-range procurement policy seems out of touch. It’s the anti-cash mob for downtown businesses.

Harris believes an important principle is being trampled.

“This is sad not just for me, but for the community,” Harris said. “It’s going to affect local jobs and hiring, and it’s money going to an out-of-state company.

“Why can’t the state see that if they shop local, the local economy will benefit?” Harris asks, with airtight logic.

We called the warden of the prison. Couldn’t get through. But at the Maryland Department of General Services, which manages procurement for the prison, spokeswoman Susan Woods said: “This is basically to protect taxpayer interests and streamline the quality service across the board.” 

I’d call it penny-wise, pound-foolish, but that would concede that Grainger offers better pricing, and Harris will not concede that.

The rule has been in place since at least 2007, according to Woods. That’s news to Harris. And it was also news to Senator Jim Mathias, who called Harris after a local newspaper article brought light to his position. “He told me, ‘I’m in your corner,’ ” Harris recalled.

For the record, Harris is no fair-weather hardware store retailer looking for special treatment. Seventeen years ago, a Walmart opened in his small town on the bypass. Six months later he packed up and moved out to the highway. “I had to do it to survive,” he said. “I had to be out where they were.” Then five years ago, Lowe’s opened some 500 ft. away.

He’s a survivor.

In “The Longest Yard,” the inmates beat the guards. Is there a happy ending for Harris Ace Hardware? Harris has an answer:

“It’s amazing the number of people who have come into both of our stores and said, ‘We’re glad you said something. We’re with you. We’re going to continue to shop right here.’ ”

                       
— Ken Clark
[email protected]

 

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