Rallying around the business

BY Brae Canlen

San Antonio — The layoffs, bankruptcies, pay cuts and long hours that have cast a pall over the industry for the last several years were pushed aside for three days last month as LBM executives gathered here to greet old friends, catch up on gossip, and maybe learn a thing or two about how to run a better business. The 2011 ProDealer Industry Summit, co-sponsored by the National Lumber and Building Material Dealers Association (NLBMDA) and Home Channel News, hosted 100-plus pro dealers and LBM distributors from more than 65 companies Oct. 26 to 28.

ProBuild alumni were there (Paul Hylbert and Bill Myrick) and current top executives from the nation’s largest pro dealer (Michael Mahre and Paul Dodge). Other large LBM chains, such as Builders FirstSource and BMC, also sent their C-list representatives. Distributors included Lumbermen’s (LMC), Do it Best, Orgill, Empire, ENAP and BlueLinx. But the backbone of the industry, independent dealers from across the nation, filled up the seminar rooms of the Grand Hyatt hotel in downtown San Antonio.

The agenda was jammed this year with presentations that covered everything from the latest U.S. census data and its impact on residential construction to succession planning for family-owned businesses. The keynote address, by Guy Blissett of the National Association of Wholesaler-Distributors, focused on the services being offered — and in many cases expected — by distributors today.

“Services are pushing the distribution business in directions it’s never been before,” Blissett said. Financing, Web hosting, managing rebates, lighting retrofits — the list keeps evolving, he said. Smart operators will look at these extra duties as opportunities, he pointed out.

“The whole negotiating dynamic changes when you’re offering services instead of responding to requests,” he said. Just make sure you have the right people in your organization who know what questions to ask to uncover a customer’s needs, he suggested.

Texas dealers turned out in full to welcome one of their own, Cally Coleman Fromme, executive VP of Zarsky Lumber, as the NLBMDA’s first female chair in its 94-year history. Fromme replaced outgoing chair Joe Collings of Ferguson Lumber. At a banquet where he passed the torch, Collings noted some of the progress the association has made lobbying on legislative and regulatory matters. And, he joked, “We’ve had some very short meetings, which in the past was not the case.”

Connie Podesta, a motivational speaker and executive coach, gave a well-received talk that helped audience participants identify their strengths and weaknesses by determining their geometric shapes. There were plenty of circles in the audience, but not too many squiggles. (You had to be there.)

David Vandenbroucke, a senior economist with the U.S. Department of Housing and Urban Development, analyzed the 2010 census in terms of its impact on residential construction. He delivered a dark short-term forecast but a brighter long-term outlook.

“I don’t have much comfort to give right now,” Vandenbroucke said. “We’re going to be seeing what we’re seeing for at least a couple of years.” He cited the shadow inventory of foreclosed houses, plus the geopolitical upheaval in Europe, as factors that helped put his odds of a double-dip recession at 40%.

According to the economist, housing is still too expensive for a large percentage of the population, creating an unhealthy imbalance in the economy. “More and more people are finding it more and more difficult to pay for housing in the past few years,” he said.

And the good news? Demographic trends will ultimately require the construction of new housing units.

“There is a long-term tide that is moving in that’s going to require building more houses,” Vandenbroucke said.

Foreclosed homes came up again in a presentation by Greg Brooks, president of The Building Supply Channel, who cited a study that pegged January 2022 as the year when all foreclosed housing inventory will finally be cleared. In the meantime, 30% to 40% of those homes will become uninhabitable in the next four to five years because of mold problems.

Brooks’ chief concern, however, seemed to be finding ways to further lower home-building production costs. A recent study by Arizona State University found that the construction of the average single-family home still incurs $1,800 in callbacks, $4,000 in wasted materials and $6,750 in labor costs for idle days. “There is going to be tremendous pressure for builders to keep prices down, and you know what happens then,” Brooks warned.

Not all the educational sessions were about new housing; Joe Emison, founder and VP research and development at BuildFax, showed through building permit data that consumers are focused on “comfort” remodels and repair work as opposed to renovations that increase the value of a home. Based in Austin, Texas, BuildFax aggregates building permits from MSAs across the country.

Not surprisingly, consumers are often acting as their own general contractors, mostly to keep control over expenses. “Homeowners are pulling a third of the remodeling projects,” Emison said. “So they’re getting involved in these projects.” He recommended that pro dealers make their websites more consumer-friendly with a tab that says “homeowner.”

For family-owned lumberyards addressing succession issues, Gary Pittsford of Castle Wealth Advisors outlined some of the steps each company must take to ensure a smooth transition between generations. While some of the issues and decisions can be painful, the alternatives, Pittsford stressed, can be disastrous. One piece of advice: Never split a business evenly between two heirs.

“It’s better for one child to be 51% owner and the other 49%. Otherwise they’re at loggerheads,” he said.

Jim Schaffer, a former LBM executive (Diamond Lumber, Erb Lumber and Builders Square) who now does consulting work for the industry, addressed the issue of employee compensation. Schaffer cited a Deloitte survey finding that 75% of the U.S. employment work force is either discontented, disengaged or discouraged. He warned the PDIS attendees that once the economy recovers, “It’s going to be your top performers that are visible in the [job] marketplace.” Among Schaffer’s suggestions were to avoid across-the-board salary cuts and hold managers accountable for employee retention. Also, don’t underestimate the value of health benefits. “We’ve seen people leave dollars on the table in favor of better benefits,” Schaffer said.

Their heads crammed with the contents of six seminars, PDIS attendees were more than ready for a cocktail reception with the event’s 29 sponsors and a dinner honoring TW Perry, chosen by Home Channel News as the 2011 Pro Dealer of the Year. 

The conference ended on Oct. 28 with a yard tour of McCoy’s Building Supply in San Antonio. But the early risers got to hear an informal panel discussion with Michael Cassidy, president and CEO of TW Perry, and Meagan McCoy Jones, director of field support, McCoy’s Building Supply.

In a free-flowing exchange of ideas, both executives talked about the consolidation they’ve seen and how they’ve picked up market share as a result.

“Our yards can probably handle double what we’re doing now, and I think that’s because we’ve had to run so lean,” Cassidy said. Another benefit of the recession, he said, is a widening of the available talent pool.

“Young people are now coming to us,” he said. “We’re hiring college grads who might not have looked at us before.”

For McCoy Jones, working for a family-owned business “allows us to make decisions that we want to make regardless of market forces.” One example: closing on Sundays.

McCoy Jones and her father, Brian Jones, graciously led a tour of 22 conference attendees around their San Antonio yard, one of 83 units they own in five states. LBM executives from around the country marveled at the spotless store and jotted down notes of ideas they wanted to try back home. For Diana Perenza of Florence Corp. in Huntington, N.Y., it was a simple wire cable strung across a vertical stack of 2×20 boards. On either end, the cable was secured with a hook-and-eye closure. Such a simple safety measure, Perenza marveled, to keep the boards from falling on someone. And it’s one that she intends to implement as soon as she gets back home, even if she has to do it herself. 


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How concerned are you that a trade war could hurt your business?

Building on cooperation with “CNC”

BY Brae Canlen

On a perfect residential job site, all the different subcontractors are working together in harmony, coordinating their schedules, collaborating to keep costs down and never charging a builder because some other crew damaged their work. This “Contractor Fantasyland” is, in fact, a real-life business model that has been in existence for two years now. It’s called Contractors in Collaboration, and if you call any of its members, they’ll say pretty much the same thing: “We’re just a group of business owners who will work together to save you time and money.”

CNC, for short, is not one company. It’s more like a constellation of companies, based in Southern California, that currently includes County Line Framing, West Coast Drywall, Trimco Finish, J. Holt Plastering, Martinez Construction (concrete work), Dynamic, Masters & Associates (electrical contractors), HCI Railing Systems, Turn Key Tubs and Soltis Landscape Services. There is no CEO or executive staff, and each member company operates independently. But they also do jobs together, as part of the CNC team, and that’s where things get interesting.

“There are four or five trades that dictate the speed of any job,” said Michael Mahoney, a VP and CFO at Dynamic. “So why don’t we coordinate and bring the job in faster?”

The original CNC members met through the California Professional Association of Specialty Contractors. They were all reputable companies that often crossed each others’ paths on building sites and heard the same complaints from their clients: charge-backs, cost overruns, low-bid contractors who never finished the job.

CNC decided it would market itself as an a la carte menu of trade services: A builder could choose as many, or as few, companies as he wanted. Discounts apply with each additional trade. Although each company has a separate contract with the client, all scheduling and charge-back disputes are worked out within the group.

“If the Martinez [concrete] guys crush our pipes, I call them and then fix it and send them an invoice,” Mahoney said. “We have agreements between us.”

Weekly meetings are held on site to discuss scheduling and collaborative value engineering. Working with the architects and owners, the CNC trades will make suggestions if they see an opportunity to do things quicker or cheaper. Change orders are not required; their goal is to deliver the project on schedule or maybe ahead of time.

Dynamic does plenty of business outside of Southern California that doesn’t involve CNC, as do the other firms. There’s no shared purchasing, although his vendors — HD Supply, Delta, Moen, Kohler and others — sometimes supply him with leads. So do the other CNC members.

Mark Louvier of Trimco, the finished carpentry firm, focuses on doors and exterior trim. Each member of CNC is like a can opener, he said. “We always ask [the client] ‘Do you need a landscaper? A drywall [installer]?’ Even if they have someone, you never know what’s going to happen. Somebody stubs his toe. Or people just don’t show up.”

Trimco is working mostly on multi-family projects these days. Huttig Building Products, one of its vendors, supplies window flashings, millwork and doors. Huttig president and CEO Jon Vrabely noted that Trimco, like other door shops in Southern California, prehangs and installs its own doors. Huttig sells them a “knock-down” unit with all the components they need.

“It’s much more efficient,” Vrabely admitted. Although Huttig makes more profit selling prehung doors, “Everybody in the supply chain needs to be thinking about how to be more efficient,” he said. “We should be taking costs out of the supply chain.”

The CNC model is not unprecedented in the LBM industry: SelectBuild, the construction trade arm of BMHC (now BMC), offered builders framing, concrete work, electrical and plumbing, and a number of other services. During the building boom, it served 17 of the nation’s top 25 production builders. But the housing slowdown eventually caused BMHC to dismantle the division in 2008.

Michael Mahre, the former president of SelectBuild who now works as senior VP corporate development for ProBuild, noted that SelectBuild and CNC “share the [same] objective of process efficiency.”

But Mahre takes a dimmer view of the collaborative aspect of the organization. “Internal disputes will arise with no single person accountable for resolving internal issues,” Mahre said. “Other collaborations have been attempted and failed because the trade partners could not resolve internal disputes. Building a house is a complicated process. I believe it requires command and control discipline to be executed efficiently.”

CNC, which has lasted two years in the middle of the nation’s worst housing crisis, thinks it can resolve these issues. Mahoney of Dynamic said the association is very careful about who they let in. “The people who are left in this industry who have the same work ethic and core values have not done it by luck. They’ve done it by sticking to their principles,” he said. 


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How concerned are you that a trade war could hurt your business?

LP posts Q3 net loss, appoints COO and CFO

BY HBSDealer Staff

Louisiana-Pacific has posted a third-quarter net loss of $65.6 million, compared with a net loss of $32 million in the third quarter of 2010. Net sales for the quarter ended Sept. 30 totaled $351 million, up 8.7% from $323 million in the year-ago period.

"The building products market moved ahead at a slow place in the third quarter," CEO Rick Frost said. "Housing activity remains at low levels, consumer confidence has been negatively affected by the political situation in Washington, and job recovery remains muted. LP was agile in our response to the market conditions and ended the quarter with slightly higher cash balances than at the end of June."

For the nine months ended Sept. 30, LP reported a net loss of $124.1 million, compared with a net loss of $32.2 million in the year-ago period. Net sales for the nine months totaled $1.04 billion, down slightly from $1.07 billion in the first nine months of 2010.

LP’s Oriented Strand Board (OSB) segment reported net sales for the third quarter of $139 million, compared with $140 million in the third quarter of 2010.

The company’s Siding segment, which consists of SmartSide siding and LP’s prefinished Canexel siding line, reported net sales of $112 million in the third quarter of 2011, an increase of 7% from $105 million in the year-ago third quarter.

The Engineered Wood Products (EWP) segment, comprised of I-Joist (IJ), Laminated Veneer Lumber and Laminated Strand Lumber (LVL and LSL), saw third-quarter sales of $55 million, an increase of 44% from $38 million in the year-ago quarter.

"LP will continue to act cautiously for the rest of 2011 and into 2012," Frost said. "While there has been some recent good news in housing starts and remodeling activity, the base economy seems to be fairly flat. Longer term, the estimated 23.2 million adults now living with their parents should eventually become homeowners."

In other company news, LP has announced that executive VP Curt Stevens, LP’s chief financial officer since 1997, will assume the interim position of executive VP and chief operating officer, newly created by the LP board of directors. Sallie Bailey will join the company as executive VP and chief financial officer.

Beginning Dec. 5, Stevens will become responsible for LP’s sales and marketing, operating units and support functions, while Bailey will oversee financial matters. Both will report to Frost.

"LP will continue to benefit from Curt’s experience and deep knowledge of LP in his role as chief operating officer," Frost said. "We are also very fortunate that someone of Sallie’s caliber and experience has chosen to join the LP team as CFO."

Stevens is a certified public accountant and a member of the board of directors for Quanex Building Products Corp.

Bailey is also a certified public accountant and has held a variety of senior finance roles, including CFO at Ferro Corp. and senior VP, finance and controller at Timken Corp.


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How concerned are you that a trade war could hurt your business?