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LBM products multiply in shades of green

BY Kate Fazzini

NEW ORLEANS —Builders are talking up a storm about “green,” and a lot of that talk is turning to whether dealers can keep up with the needs of pros and with the newest trends in the marketplace.

This year’s 10th annual National Green Building Conference, held in New Orleans by the National Association of Home Builders, drew 1,557 attendees and 120 booths, up from 1,098 attendees and 64 booths at last year’s conference in St. Louis. With the national housing market in a downswing, many of those in attendance said they are seeking alternative ways to increase profits. Both in remodeling and new building, green seems to be a trend that fills that niche.

During one of the conference’s educational sessions, Michael Strong of Houston-based remodeling firm Brothers Strong told those in attendance that frustration is a part of the gamble in going green.

“Don’t expect miracles at the retail level,” he said, adding that some retailers are holding back on green products until older, “irrelevant” items are moved first. “There’s been a sea change in the last six months, though,” he added.

At the same time, he said, there is some difficulty in finding the green lumber and building materials needed to get various certifications, such as LEED for Homes, Energy Star for New Homes and NAHB’s Model Green Home Building Guidelines, all of which have nuances that create different needs for each pro.

And there are, of course, more programs—the Green Builders Initiative offers the Green Globes certification program, while the American Lung Association offers the “Health House” designation. Further local programs like Green Built North Texas and the Chicago Green Homes Program add to the certification opportunities—and the confusion.

“Not all your employees are going to be on board,” Strong told fellow builders at the conference. He said green builders deal with a “lot of stereotypes” when it comes to green building, such as cost of the projects and materials used. “We have to deal with our trade contractors, with our vendors and with our customers,” when it comes to those stereotypes, he said.

Still, there are some advantages to joining the green movement now while the idea is fresh and growing. “There’s a lot more free products than ever before,” he said. “When it comes to green, vendors and manufacturers are falling all over themselves giving this stuff away.”

Among Strong’s most popular green products are Sherwin-William s’ Harmony paint and Panasonic’s “Whisper Green” HVAC fans. Scott Sevon, a custom home builder with Palatine, Ill.-based Sevvonco pointed to battery-operated plumbing fixtures and new building materials made from cork, bamboo, composite veneer or Forest Stewardship Council (FSC)-certified lyptus.

“There’s just a myriad of products coming out,” Sevon said, “and you’re just seeing the tip of the iceberg.”

FSC-certified wood has been a green building entry point for many retailers. Home Depot has seen sales of FSC-certified wood—today a part of the retailer’s Eco Options program—grow from around $15 million in 1999 to more than $400 million in 2007, according to the company.

Other names are joining into the increasingly lucrative market for these products. Earlier this year, Standard Supply & Lumber, a 12-unit chain of lumberyards and showrooms in western Michigan opened a lumberyard devoted exclusively to FSC certified wood products, in addition to green kitchen and bath products. The heavy need for green building materials, including FSC-certified wood, led to the opening of Green Builders Source, an exclusively green pro dealer in The Woodlands, Texas.

But the availability of FSC-certified wood is limited, and regulations on identifying FSC certified products are getting more complicated. Most recently, the U.S. Green Building Council’s Materials and Resources Technical Advisory Group changed how FSC-certified wood is rated for LEED-certified projects, the highest profile green ratings system in the country.

The new LEED rules require vendors that supply FSC-certified wood to have valid chain-of-custody certificates. Otherwise, if contractors don’t obtain that documentation, the wood will not “count” toward the points system required by a LEED project.

And there are numerous other considerations that contractors are required to consider when building green homes.

“We don’t do ‘demo’ anymore, we ‘deconstruct,’” explained Sevon, adding that one of the most important components of several green ratings systems is the amount of waste that each project produces. “Building accounts for 30 percent of waste output [yearly in the United States],” he told builders in attendance.

Steve Needle, a custom home builder with Needle Point Homes in Westfield, N.J., builds homes under the Green Building Initiative’s Green Globes program. Needle said that he has run into some of those waste disposal problems.

One home, he said, “was full of sheetrock—we wanted to recycle sheetrock, and it was hard to find somebody to recycle it. I mean, we weren’t even going to give it away, we were going to pay somebody to take it, and we still couldn’t find anybody.”

Eventually, Needle said he found a business in Allen town, Pa., that would take the material.

“It’s an aggravating thing, it seems like there is nobody here who is really looking to recycle,” he said.

Outside the deconstruction issues, Needle’s main concern is in HVAC construction and maintenance, where a variety of specialized products and building techniques come into play.

“The fact is that the most important thing is sizing your heating and air conditioning properly,” Needle told HCN. “Getting very well insulated windows with argon gas between the glass and making sure you don’t have leaks around the frame of the window.”

Many new green products displayed at the National Green Building Conference go back to the goal of providing builders with a source of LEED points or otherwise satisfying the requirements of various programs. Some products are more attuned to the “outside the box” mentality.

Millenia Wall Solutions unveiled a new line of retaining wall units that are made of a composite façade and a hollow interior, surrounded by a resin body. The “bricks” are filled with crushed stone, potentially a receptacle for some of that “deconstruction” waste.

Weyerhaeuser has updated its line of iLevel software for home builders. The planning program allows builders to use various structural frame design tools to reduce job site waste, through helping generate accurate material lists.

Addressing water conservation, a big topic in places like Atlanta and the Carolinas, Rainwater Collection Solutions introduced a rainwater “pillow,” a fully automated system that works to collect rain water for outdoor watering needs. The system can collect 1,000 to 40,000 gallons of rainwater and store it in a crawl space or behind a deck.

Michael Strong of Brothers Strong echoed one sentiment expressed by a number of those in attendance—the shear number of products, on top of the proliferation of national and regional ratings systems, have made the process of green building just a little bit crazy.

“It’s chaotic right now. Years from now, it will calm down and everything will be figured out,” Strong said. “That might be a little boring, so right now, enjoy the chaos.”

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Restoration Hardware buyout gets green light

BY HBSDEALER Staff

Corte Madera, Calif.-based Restoration Hardware received shareholder approval for a planned buyout by private equity group Catterton Partners for about $179 million, a deal that was challenged at several points by Sears Holdings.

The company said that more than 99 percent of votes cast by shareholders at a meeting held yesterday were in favor of the deal. Catterton will purchase Restoration Hardware’s outstanding shares for approximately $4.50 in cash.

The deal is expected to be completed by next week.

“We are pleased with the outcome of today’s vote and appreciate the strong support demonstrated by our shareholders,” said Gary Friedman, Restoration Hardware’s chairman, president and CEO.

Restoration Hardware also announced that it reached a preliminary agreement for the settlement of a shareholder complaint filed in the Superior Court of the State of California. The class action complaint was filed against Restoration Hardware, each of its directors, Catterton Partners and certain shareholders participating in the deal.

According to the settlement, Restoration Hardware will pay $3.7 million, approximately 10 cents to 13 cents a share, to shareholders involved in the complaint.

Board member Raymond Hemmig said that the lawsuit was without merit, but settling would expedite the merger agreement. The settlement is conditional on successfully closing the merger.

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Top 500 Annual Industry Retail Scoreboard

BY HBSDEALER Staff

The numbers are in and — no surprise — they reflect a challenging market.

For the first time since Home Channel News began compiling the Top 500 Scoreboard more than 20 years ago, home improvement retailers showed an overall decline in sales in 2007. On the positive side: hardware stores and farm and fleet retailers showed surprisingly strong sales results, boosted respectively by smaller projects around the home and big-time agriculture spending.

Click here for the chart.

The worst housing downturn in recent memory has led to sub-par performances for several major retailers, dragging down overall sales of the Top 500 retailers to $251 billion — a 2.1 percent falloff from the list’s $256 billion posted the previous year.

In 2007, pro dealers were the hardest hit retailers on HCN’s Top 500 list, which also includes large home centers, hardware stores, farm suppliers and paint and floor covering retailers. Pro dealers, who cater to both new home builders and large remodelers, showed a 14.6 percent decline for the year, with Top 20 players like Builder’s FirstSource (No. 17), BMHC (No. 12) and 84 Lumber (No. 10) down 28.9 percent, 28.7 percent and 20.9 percent, respectively. Most notably, Ply Mart (No. 34) went out of business altogether.

On the other hand, hardware stores and farm and fleet retailers showed surprisingly strong sales results, boosted respectively by agriculture spending and smaller projects around the home. Overall, decliners led gainers. Just 162 companies on the list showed sales gains, while 281 showed sales declines. Compare those numbers to a good year — in 2004, for example, 404 companies showed gains, with just seven showing losses — and it brings the severity of the housing crisis into sharp focus.

“Almost certainly, the decline in these sales is a sympathetic reflection of the plunge in new home building, the steep decline in existing home sales, a slowdown in renovations and a drop in property values,” said James Glassman, managing director and senior policy strategist with JPMorgan Chase & Co. in New York.

“And 2008 sales comparisons could be worse than 2007 because activity late last year and early this year has been so abysmal. Home building remains weak, home prices are still falling and credit remains expensive and in short supply for housing.”

Two years ago, the weakness was concentrated in the industrial Midwest — places like Detroit and northern Ohio, with strong ties on the auto industry. But in 2007, the housing crisis spread to metro markets that had seen rapid price appreciation over the previous five years. The worst of these were California, Las Vegas, Phoenix and all of Florida, while Texas, the Pacific Northwest and parts of the Southwest have been somewhat more insulated.

“We’ve seen the biggest decline in the housing market since the Great Depression,” said Paul Hylbert, CEO of ProBuild Holdings (ranked 7th), which was down 16 percent in sales after an almost 30 percent increase the previous year. He said the “housing depression” has been the most pronounced in Florida, Arizona, Atlanta, Denver and Chicago because of the high incidence of exotic mortgages and subprime activity in the mid-2000s. Hylbert also pointed to deflation in wood prices from 2006 to 2007 as a driving factor in the sharp decline for LBM dealers.

Large home centers were basically flat (down 0.2 percent) for the year, but that doesn’t tell the whole story. No. 1-ranked Home Depot suffered its first-ever sales decline (2.1 percent), while the critical comp-store sales number was negative 6.7 percent. And to underscore what CEO Frank Blake called “a difficult year financially,” the retailer announced in May that it would close 15 underperforming stores — leading to the layoff of about 1,300 employees — and remove 50 future openings from the new store pipeline.

No. 2-ranked Lowe’s fared little better, with earnings down 9.5 percent and comp-store sales down 5.1 percent, while No. 5-ranked Sears suffered a 6.5 percent sales decline, with net income off almost 45 percent. “We need to come up with bigger and better ideas,” Sears chairman Edward Lampert said during the company’s annual meeting May 5, adding that he sees “no evidence” of a U.S. economic recovery in the near term.

There were, however, some bright spots on last year’s cloudy landscape. The farm & fleet segment — aided by the booming agricultural sector — showed a 12.9 percent increase, as markets like Iowa, Idaho, and parts of Ohio, Illinois and Indiana prospered because of soaring corn and wheat prices. This, in turn, led to increased sales of farm equipment and farm animal-related products and a generally better economic climate in those areas.

The jump in sales for these farm suppliers speaks volumes: No. 167 Valley Co-Ops in Jerome, Idaho, was up 66.7 percent; No. 219 C-A-L Stores in Idaho Falls, Idaho, was up 64.7 percent; No. 273 Agland Co-op in Canfield, Ohio, was up 31.9 percent; and No. 126 Farmers Cooperative Elevator in Arcadia, Iowa, was up 23.9 percent.

“Farmers have money, which is good for us in those markets, too,” said ProBuild’s Hylbert. “Of course, it’s not a large share of the business, but it does help offset what’s happening in the metro markets, which have been hardest hit.”

No. 11-ranked Tractor Supply — up 14.1 percent — opened 89 new stores in 2007, venturing into new markets like Louisiana and New Mexico. According to president and chairman Jim Wright, some of his company’s best-performing products involved the health and well-being of animals and pets, including pharmaceuticals and housing for agricultural animals, vaccinations, animal feed, and all price levels and brands of pet food.

“When you look at the categories that have performed well for Tractor Supply, it’s categories that aren’t really available in the hardware and home improvement channels,” said Wright, whose company now has 791 stores in 43 states. “The real markets we serve are not as impacted by housing, and our customers tend to be conservative in terms of taking on debt.”

Hardware store sales were also up (11.7 percent), which Do it Best president and CEO Bob Taylor attributes to homeowners focusing on smaller projects in the current economy. “When you look at the general hardware piece of it, in many cases, the members cater to more day-to-day care and maintenance,” said Taylor. “If people are staying closer to home, they’re investing in the home, so it’s more stable. We’re not talking about the major remodel — it’s the everyday activity.”

In fact, remodeling activity showed a decline in 2007 (4 percent), according to NAHB chief economist David Seiders, who estimated a 7 percent drop-off for 2008. Not quite as hard-hit as those catering to new home builders, retailers relying mainly on remodeling jobs experienced declines in the high single-digit range, according to Kermit Baker, director of the Remodeling Futures Program for Harvard University’s Joint Center for Housing Studies.

“The decline in the sales of existing homes has really taken the wind out of the remodeling market,” Baker said. “With housing prices declining, homeowners have less equity to tap into for renovations, and there’s enough uncertainty to give a lot of people pause as to whether to invest — even to sell — because they’re afraid they won’t get that money back.”

Baker believes the slide will continue this year as the commercial construction market — considered healthy in 2007 — is also slipping. “And with non-residential construction down, flooring stores (up 2.1 percent) and paint stores (down 0.6 percent) could fare even worse this year because they won’t have that market to fall back on,” he said.

Some companies have taken aggressive measures in response to these trying times. 84 Lumber announced the closing of nine stores in March and another 30 in April — bringing the total number of closures to 118 since April 2006. In other news, BMHC announced last month the intention of closing an undisclosed number of underperforming units and possibly cutting about 2,000 jobs.

Glassman, from JPMorgan Chase & Co.’s, believes we are beginning to see some positive signs, including the fact that subprime adjustable rate mortgages are being reset to lower levels, and that — in accordance with the government’s stimulus package — rebate checks began to go out April 28 and are starting to show up in retail sales.

“Most of the excess valuation in housing markets has been flushed out, with house price now back into alignment with income (affordability) that we had in 2003,” he said. “And the broad economy is looking more like it stalled last winter than falling into recession.”

Still, most experts agree, the housing market will probably not significantly improve until the early to middle part of next year. “I think the bottom is kind of in sight, and then we’ll possibly bump along for a couple of quarters as the financial markets begin to reset,” Hylbert said. “Maybe by mid-2009 we’ll start to see some things getting stronger. I hope it’s earlier, but there’s so much inventory, it will take awhile to absorb it.”

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