Orgill puts the O in Oh, Canada
Suddenly, Memphis, Tenn.-based distributor Orgill views itself as a full-blown player in the Canadian market, thanks to a partnership with Canada’s Castle Building Centres. Orgill CEO Ron Beal walked Home Channel News through some of the thought processes that led to the venture.
• The partnership
“We have had a very good working relationship with Castle Building Centres for several years. Orgill and Castle think and operate alike in many ways, especially in our total focus on providing value to the retailer. They are a very knowledgeable, highly efficient and low-cost operation. We hope the same can be said of us.”
• The service
“From a service standpoint, we are very complementary. Castle has strong relationships with very solid, competent retailers. They have excellent programs on building materials and commodity products. Our expertise is in the front of the store: broad product selection, efficient replenishment and the sales and marketing support to help move the product off the shelves.”
• The challenges
“There are significant challenges in servicing Canada from a distribution center located in the U.S. Many are compliance issues related to product: ensuring every item meets Canadian labeling requirements, have the proper code approval, have NAFTA and harmonized codes, just to mention a few. Others relate to documentation and licensing to make sure trucks can expeditiously cross the border and clear customs. None of these are trivial or easy. We have spent a great deal of time and considerable expense to make sure each of these issues has been satisfactorily addressed.”
• The market
“The recent changes in Canadian hardware distribution have made it necessary for a significant number of Canadian retailers to re-examine supplier relationships. After much analysis and consultation, we, together with the Castle management, determined that all of the key components were now in place to provide world-class distribution services to Canadian retailers.”
Green all along
Throughout the downturn of the last four years or so we have seen the lumber and building materials industry shrink dramatically. Some estimates of sales shrinkage at the dealer level put it beyond 50%. In some markets, that estimate is absurdly low. There is no denying that everyone in all segments and steps in the chain is battered. Unfortunately, even the homeowner/consumer is somewhat damaged as well.
Current commentary would have us believe that newly popular saving (a supposedly unheard-of concept) has replaced spending. The army of people at the malls during the Christmas season indicates otherwise. Presuming that there is pent-up demand in residential single-family and multi-family building, I would say that there is work to be done preparing for a new era in home building. None of this will be handed to us; there’s no bailout coming, no more stimulus. Not that we’d even want it. We need to find our own way out of the woods (no pun intended), and it’s up to us to determine how to retool the industry.
One of the emerging trends of the last few years, and in fact much of the sales opportunity in the industry in that time, has been “green.” And though I challenge anyone to agree on just how to define that, there is no doubt that the buzzword has taken hold. The mainstream definition of green building might be that a consumer, product or construction endeavor emphasizes efficient use of natural resources during the life of the product or building. Of the many different players in the green movement, none has taken as large a leading role as the U.S. Green Building Council, or USGBC, with its Leadership in Energy & Environmental Design, or LEED, certification program. LEED has brought green building into the public eye and has made incredible inroads in guiding developers, architects and owners to “build green.”
The list of possible points to achieve a LEED certification is wide ranging and encourages wastewater management, HVAC efficiency and decreased energy use, among other things. There is a credit for the installation of bicycle racks and showers; there is also credit for the use of certified lumber. Both are worth one point. The entire building of lumber has “green” value equal to placing racks for bicycles. It is easy to see why the certified lumber specification is so often overridden on a project.
The requirement for certified lumber is that it must be certified by the Forest Stewardship Council, or FSC, and it must flow through the supply chain with the requisite paperwork to establish Chain of Custody every step of the way. In short, it cannot be handled by an organization that is unqualified. The qualifications are strict compliance with the Chain of Custody rules, with a costly annual audit as verification. Certainly the Chain of Custody requirements are necessary, otherwise the unscrupulous would attempt to pass off normal lumber as certified. But how could they? It’s not the same product … is it?
Commercial production of lumber is by definition green. Is anyone worried about running completely out of timberland? Will it be gone by 2030, 2050? Are there people screaming from the mountaintops about peak lumber production like they do peak oil production and metals? Or is the consensus that in some cases lumber can’t be cut fast enough — British Columbia for example? Unlike steel and concrete, the clean-looking and beautiful darlings of modern architecture, lumber is a crop — pure and simple. It has all the characteristics of corn and soy (remember biofuel?), with a longer life cycle. If there was ever a product that should be in the news for its sustainable and clean manufacture as well as its efficient transportation, often by rail (also cleaner), this is it.
The LEED requirement of FSC-only lumber hurts the industry’s ability to participate in the program. The FSC certification is a costly addition to the suffering bottom lines of the manufacturers, distributors and dealers. The single-source avenue for LEED-qualifying certified wood creates a monopoly and stifles the kind of innovation that would lead to “green” stamps and other ideas that would mainstream sustainable lumber production, as well as illustrate the point that for the most part modern harvesting is done in a planned, responsible way.
There is a wonderful opportunity to rebrand the industry as modern and clean; we shouldn’t let burdensome requirements hold us back. It is time for us to insist on change in USGBC/LEED point structure and recognize not only that forest products today naturally represent green building, but also that all certification of good harvesting and production practices should be equally valid.
John W. Steinman is VP purchasing at Forge Lumber. e
Romancing the pros
Drive into any Home Depot parking lot and you’ll find a collection of rag-tag pick-up and utility trucks parked near the store’s pro entrance. The owners of the vehicles represent almost one-third of Home Depot’s $66.2 billion in annual sales. Yet they only spend, on average, $5,000 a year apiece.
Home Depot is where they stop if they run short of something or to grab a few items on their way to a job.
This reality — that Home Depot serves as a convenience store for the pro customer — is readily acknowledged by the Atlanta-based home improvement giant. At the company’s 2010 Investor & Analyst Conference on Dec. 8, executives discussed how they have come to terms with this.
“The pros shop us for more convenience than what we had believed in the past,” Marvin Ellison, executive VP U.S. stores, told analysts. “I think we had a self-developed idea of what we were to the pro customers, but the more time we spent with them in focus groups and town halls, we started to understand it.”
Ellison went on to say that Home Depot — as a store of convenience — had the potential to expand its business with professional customers.
“We’re taking the things that worked on the retail side of the business — simplicity and service — and we’re transporting those things to the pro side of the business, but specific to the needs of the pro customer,” Ellison said.
The new initiative, called “First for Pros,” has already been piloted in Home Depot stores on the West Coast and in the southern and northern divisions. Although the company is protective of the details of the program, Ellison highlighted its main features on Dec. 8:
• Special store hours for pro customers
• Dedicated cashiers
• Loading assistance
• Simplified returns process
With a planned 2011 rollout, Ellison said he hoped to have the program up and running by spring, “[when] hopefully we [can] reap the benefits when our traffic picks up during that very busy season for us.”
Both Ellison and his boss, CEO Frank Blake, outlined modest goals when it came to “First for Pros.”
“Obviously, we have a very small share of the pro’s wallet,” Blake said, referring to the $5,000 average annual spend. “And while we will try to broaden that spend, our principal effort will be … to make that purchase of convenience the best possible experience.”
Satisfying the pro customer has always been a struggle for Home Depot. The retailer has made numerous attempts over the years to tailor its services, staff and store format to this diversified — and notoriously demanding — customer segment. In 1998, the company began testing a “pro-only” format in Colma, Calif., just south of San Francisco. The 89,000-sq.-ft. unit, located right across the street from a regular Home Depot store, carried no lawn and garden, home decor or paint, but offered a deep inventory of plumbing, electrical and building materials. Another Home Depot Pro store was opened in Phoenix in 2001, and then three more pilots were added in 2002 in the Dallas, Denver and San Jose, Calif., markets.
By this point, the name had changed to Home Depot Supply, and the design had changed. The stores were bigger (130,000 sq. ft.), and each department had its own pro desk. Meeting space was set aside for builders and their clients, and delivery vehicles were added. An expanded rental program was also tested at six stores in the Las Vegas market; scissor lifts, skid steers and other heavy equipment was brought in to attract members of the building trades.
Bob Nardelli, who served as Home Depot’s chairman, president and CEO in 2002, told an audience of builders and contractors at the International Builders’ Show that year that the retailer was happy to serve as a convenience store for their job sites.
“We want to be your 7-Eleven,” Nardelli said during a panel discussion in Atlanta.
But in 2004, Nardelli revealed much bigger ambitions when he purchased White Cap Construction Supply and Creative Touch Interiors, both aimed at the residential builder market. More acquisitions followed, and by 2005 the companies had been rolled into their own division, HD Supply, that targeted professional customers of every stripe, from municipal water line installers to school janitors. For home builders, HD Supply hoped to provide the whole package, starting with the sewer pipes and ending with the roofing tiles. Fast forward three years to 2007, and HD Supply had grown to nearly 1,000 locations and racked up annual sales of $12.1 billion.
But Home Depot has a new CEO, Frank Blake, and the construction industry has entered the doldrums. Blake announced that it was time to refocus on retail: fixing up the stores, retraining the sales associates, perking up the merchandise. HD Supply was sold to a group of private equity firms in August 2007.
Home Depot still needed to hold on to the small repairer and remodeler, who accounted for 30% of its sales on the retail side in 2007. So the company launched its “Own the Pro” initiative, which included a loyalty club program, expanded credit offerings, volume discounts and direct shipment to job sites for large orders, negotiated with vendors through Home Depot’s corporate office.
Home Depot executives were careful not to set any monetary goals with this latest pro initiative. Their philosophy seemed to be: Make the pro happy, and he or she will open his wallet wider.
“[Pros] got a big share of wallet outside Home Depot, which we know,” Blake told investors Dec. 8. “We do spend some time thinking about … how you gain that share of wallet. But we’ve got a lot more opportunities making sure that the folks that are in there now who are using us as a store of convenience have an even better experience as they shop.” e