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Small Businesses Hit Harder by VOC Regulations

BY Kate Fazzini

Many retailers who carry paint and coatings, whether they’re small or large, national or local, are sifting through an ever-increasing library of regulations on volatile organic compounds (VOCs).

One of the key problems among stores, especially small retailers, is keeping current with new regulations, explained Harry Ching, a project manager with the New York Small Business Environmental Assistance Program, a non-governmental entity that helps small businesses comply with, among other initiatives, regulation of VOC levels in coatings.

“One of the tough things for [small business owners] is just to be well-informed,” Ching said. “I’d probably have to say that the majority of people who are cited, if they knew, they would comply. The most common thing we hear from businesses is that they just didn’t hear about it.”

In New York, regulation of VOCs was the issue of hot debate this spring, when the New York Department of Environmental Conservation, faced with pressure to reduce its VOC output, changed the sell-through date on products with high levels of VOCs to May 15.

After lobbying by retailers and groups such as the Northeastern Retail Lumber Association (NRLA), that date was pushed back to July 15.

But the time period was still not enough for many retailers to move or sell off their inventory—if they were aware of the new regulations at all. That’s left some store owners with fines that can reach up to $15,000 per violation, per day, for noncompliance with the state’s Architectural and Industrial Maintenance regulations.

Aisha Tator, director of legislative and regulatory affairs for the NRLA, said none of the group’s members had been fined as of this writing, but financial pressures have come in other forms.

“We took a major financial hit with this issue—the independent lumberyards, our small guys, really…absorbed all the cost,” she said. “It’s a struggling economy right now, and some members have lost as much as $80,000 [from lost inventory].”

Ching said a small number of stores had been cited since the new sell-through date went into effect, and many retailers were struggling with the issue of what to do with excess inventory.

“One of the first questions we get is, ‘What can I do with the products?’ ” Ching said. “It’s not illegal to have the coatings on-site, but we tell them that you can’t sell it. The first thing they have to do is pull the coatings off the shelves and put them in the back. They ask, ‘Can I give it away?’ But they can’t even give it away, not to charity, not to Habitat for Humanity—at least not within New York State.”

Some of the NRLA’s members were able to donate their excess inventory prior to the July 16 start date for the new regulations, Tator said. Others sold the product on eBay, and the NRLA is continuing to work with enforcement officials on a comprehensive disposal strategy, she said.

The VOC regulations in New York and several other Northeastern and Mid-Atlantic states have been informed by the Federal Clean Air Act’s Ozone Transport Region legislation. States that comprise the Ozone Transport Region are Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Maryland and the Washington, D.C., metropolitan area, including suburbs of northern Virginia. New York was unique, however, in creating such an immediate deadline, Ching said—other states have allowed retailers to sell off inventory before having to comply or set further-flung sell-through dates.

The region is named as such because VOCs contribute to ozone in the atmosphere, leading to the need to control VOCs particularly in those regions where earlier ozone control measures failed—specifically, in the Northeast. The purpose, according to the EPA, is to address ozone problems in the entire region rather than only in large cities.

Small businesses can be at a big disadvantage, Ching explained, when it comes to selling down high VOC inventory. While larger companies with national operations can move product around when it becomes outlawed in one state, but remains legal in others, small businesses often find themselves stuck with unsold—and unsellable—inventory.

“We see if there are other stores they can contact in other states, whether there is something like a hardware store association where they can sell off the inventory,” Ching said.

Similar regulations were put in place in California several years ago—those regulations have served as the backbone of legislation in the Ozone Transport Region states.

Like New York, several other states in the transport region have recently put in place stricter VOC laws—New Hampshire and Maine adopted Architectural and Industrial Maintenance regulations of their own in 2006 and 2007, respectively. Rhode Island, Massachusetts and Connecticut have decided to adopt the regulations as well, to be implemented in late 2008 to early 2009. Vermont has opted not to adopt Architectural and Industrial Maintenance rules.

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Mansfield named chairman at Valspar

BY HBSDEALER Staff

Minneapolis-based paint and coatings company Valspar has named current president and CEO William Mansfield as chairman of the company’s board of directors, effective immediately.

Mansfield succeeds Thomas McBurney, who has served as chairman for the past two years. McBurney will remain chair of the board’s governance committee and lead director.

Mansfield, 59, joined Valspar in 1984. After working in lead roles at most of Valspar’s businesses, he was named COO in April 2004. He has served as president and CEO since February 2005.

Mansfield holds a B.S. degree in engineering from Drexel University and an M.B.A. from Lehigh University.

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Top 350 pro dealers cope in a difficult housing market

BY HBSDEALER Staff

When the Chinese Year of the Dog came to an end on Feb. 17, 2007, some pro dealers looked at their 2006 sales figures and saw an apt comparison. Sagging lumber prices and dwindling housing starts had a negative effect on many dealers’ revenues. But overall pro sales for the industry’s top 350 players, according to HCN’s annual survey, grew by 9.0 percent, to $55.98 billion. View the top 350.

Although some dealers posted double-digit declines, others were able to break even or grow their business through the downturn. Of the 350 dealers on the list, 119 reported revenue increases, 77 experienced declines and 154 companies are listed with flat sales.

In terms of rankings, Pro-Build, Stock Building Supply, 84 Lumber, BMHC and ABC Supply still occupy the first five positions among lumber and building material dealers. Several of the Big Five continued making acquisitions through 2006, which helped boost their revenues. Altogether, they accounted for 35 percent of the Top 350 sales.

One of the businesses acquired was Rowley Building Products, a 10-unit chain of lumberyards in New York’s Hudson Valley. Rowley’s owners decided to join Strober, a division of Pro-Build, when they noticed national builders moving into the area. But by the time the deal was finished, in July 2006, single-family permits in the New York, New Jersey region were on track for their weakest year since 1996.

“[Strober] has been around awhile, and they understand the cyclical nature of the business,” co-owner Brian Rivenburgh told HCN at the time.

Most of the pro dealers on the Top 350 list have been through housing downturns before, the last one beginning in 1995 and lasting three years. But this downturn is different, with production builders pulling back on the reins quicker than anyone can remember.

“Literally, in early July, it was just as though somebody turned off the faucet,” said Builders FirstSource CEO Floyd Sherman, speaking to a group of analysts last October.

Builders FirstSource showed a decline of 4.2 percent in sales last year, despite expanded manufacturing capacity in Greenville, S.C.; a new lumberyard in Lake City, Fla.; and an acquisition, Freeport Lumber, in the Florida Panhandle.

Florida dealers listed on HCN’s Top 350 scorecard showed a pattern of similar results, with 14 out of 18 companies reporting sales that were flat or down for the year. But the story behind the numbers is one of robust sales in the first half of 2006 followed by steady declines in the last two quarters.

“By the end of the year, many of our dealers had [experienced] a solid year,” explained Bill Tucker, president of the Florida Building Material Association.

Of course, 2007 is another story. “It continues to fall off the roof,” Tucker said. “I’ve spoken to dealers whose sales are off by 40 to 50 percent.”

One of the bright spots on the building landscape — commercial construction — is doing well in Florida, according to Tucker. Dealers across the country are turning in similar reports. O.C. Cluss, a nine-unit pro dealer based in Uniontown, Pa., acquired an Ohio truss manufacturer last year that makes, among other products, steel trusses used in commercial construction. Other Cluss acquisitions in the past two years include a glazing operation and a wholesale plumbing supply company, both of which serve the light commercial market.

O.C. Cluss reported a 30 percent rise in sales in 2006, from $85 million to $110 million.

Even the big guys, the ones who grew more muscle during the production home cycle boom, are turning toward commercial work now that times are lean. BMHC’s construction services division is “pursuing limited commercial construction work where it makes good business sense to do so,” according to SelectBuild president and CEO Mike Mahre.

Although the first half of 2006 was a busy time for acquisitions, M&A activity tapered off toward the end of the year as the outlook grew dim. Stock Building Supply announced employee layoffs in June and November, and the other major LBM players quietly reduced their work forces. Pro dealers who had relied on tract home builders for revenue began looking at multi-family housing, the remodeling contractor, and in some cases, the consumer.

Chip Mortimer, president of Mortimer Lumber in Port Huron, Mich., served home builders from his four locations in southeastern Michigan during the boom days. But with single-family building permits in the Detroit metropolitan area down by 44 percent this year, Mortimer calls his housing market “the worst place to be right now.”

Yet business is holding steady at this $25 million chain, which has shifted its customer mix by redirecting advertising dollars and beefing up its kitchen cabinet and decking division. “We never abandoned our remodelers and our consumers, so business is still strong,” Mortimer said. “The customer count and the transactions are just different.”

Dealers also turned to multi-family housing as single-family starts dried up. Although the condo market has weakened considerably, there are still pockets of intense multi-family building activity in some urban centers. Condo and apartment projects are going up all over downtown Seattle and Bellevue, Wash., some with commercial mixed in, all fed by the job growth in those cities.

In San Jose, Calif., ORCO Construction Supply store manager Mark Tabaldi said his sales figures are running 12 percent to 15 percent higher than last year’s. He attributes the growth to commercial and multi-family construction in the Bay Area.

“Everybody is going up,” Tabaldi said, referring to high-rise residential projects like those being built next to a Bart station near ORCO’s corporate headquarters in Livermore, Calif. “There’s a lot more hardware in these kind of projects, and the order is always pretty big,” he explained. Threaded rods that go between the floors of an apartment building — commonly known as a “hold down system” — can add up to $50,000 for a large project, according to Tabaldi, who isn’t mourning the slowdown in single-family construction.

For more on the Top 350 pro dealers, read the Aug. 27 issue of Home Channel News. 

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