Supply chain leaders look online
Steeped in tradition and firmly entrenched networks, the building products distribution industry has avoided “disruption” more than most other industries, even as players begin shrewdly buffing up their e-commerce platforms.
For the sake of argument, let’s consider things disrupted. These days, the question is less “Will I have to compete in e-commerce?” and more “How much longer does the building products channel have left before everything moves online?” And if these changes are afoot, what kinds of logistical challenges are we talking?
To everyone’s interest at the 2014 Building and Infrastructure Conference, which took place Oct. 2 at the New York Athletic Club in New York City, one attendee put a panelist on the spot when he asked, “What is happening with online as a distribution channel in building products?”
Ryan Brewer, COO at Build.com, Inc. — the largest online-only home improvement retailer — had taken the stage to tout the benefits of the Chico, California-based company. In that sense, it wasn’t altogether surprising that his answer partially served to promote Build’s intimate knowledge of the consumer-based sell cycle.
“We say we’re the garbage men of the industry,” said Brewer. “Who wants to be dealing with that toilet and moving it to the customer’s house? Traditional suppliers don’t want to deal with those types of phone calls and that type of consumer.”
In other words, a handful of distributors may try to go it alone by going direct to the consumer — and they may have a fair amount of success doing it. But Build.com and its ilk believe everyone wins more when there’s a middleman bringing much-needed resources and networks to bear on the equation.
Outside of that, Brewer’s view is pretty bullish regarding the industry’s potential to beat the e-commerce giants at their own game.
“I don’t necessarily see shingles on Amazon’s website in any point in the future,” he said. “I think the people who are focused on the home improvement market and building in general will be the ones who can win in that space.”
Sure, there are challenges ahead. For one, we’re not usually talking about lightweight shipments (or super large margins) where building materials are concerned. And that may be terra incognita for Amazon as well, but not everyone echoes Brewer’s view that the retail juggernaut isn’t paying attention.
Robert Rourke, managing director in L.E.K. Consulting’s Basic Industries Practice, pointed out in a recent L.E.K. “Executive Insights” newsletter that Amazon Supply, the B2B marketplace that’s got everyone nervous, “is happy to survive on razor-thin margins, and they seem committed to this industry.”
So how does one move ahead? “Brick-and-mortar distributors’ competitive advantage remains speed and service,” Rourke said. “Anything that requires a service proposition, such as job-site delivery, advice on product selection, physical inspection of the product before purchase, installation guidance or ease of product returns, is an area of competitive advantage for traditional distributors.”
Attention to detail at the local level will endure for the old guard, even if Amazon does figure out how to bring same-day delivery to its B2B customers.
Brewer envisions a model that works almost like a traditional supply house or show room, where professionals can send their customers in with their ideas and translate that vision into a simple online purchase.
Another rule of thumb is to keep things in perspective. According to Rourke, the online channel share contributes only about 3% of total sales in the industry, though that number has more than doubled since 2006. He expects further, quickening growth in the years ahead.
The shape of yards to come
What will the lumberyard of 2025 look like and act like? HCN put the following questions to the industry — as represented by the ad hoc lumberyard of the future advisory panel assembled below. Here are the highlights.
What will the lumberyard of the future look like physically?
“New and different types of forklifts that move front-back and sideways will allow lumberyards to put more product in less space.” — David Helmers, director of business development, Weyerhaeuser Distribution.
“Instead of a counter and terminal with a keyboard, the lumberyard will have that on the sales floor.” — Doug Smith, Epicor product manager for Eagle N Series
“Dealers will be moving into larger, more specialized showrooms to combat big boxes.” — Brett Hammers, chief merchandise officer, Orgill
“I feel it’s going to be a digital marketplace, and it’s going to be faster and wilder than ever. Every transaction is going to be online somewhere. And the builder isn’t going to come into the store. The payment will take place when he pulls into the yard.” — Gentry Hipp, Hipp Modern Builders Supply
“Building materials are not going to shrink in size, so having a footprint that will allow for ample storage area and room to move products and load and unload trucks will remain. I do, however, see an increase in showroom features to assist builders and contractors in making product selections.” — Karen Steele, senior channel marketing manager, CertainTeed Insulation
“Dealer yards will be storefronts with distribution facilities. Inventory will be managed much like in an automated warehouse. Everything has a home, and inventory is tracked in real time down to the piece — while in the yard and while in transit to the job site.” — Fran Monk, marketing director, Lumbermens Merchandising Corp.
What products or services will emerge as increasingly important?
“The growing focus on energy efficiency and the related building codes are going to move us to more sophisticated products. Safety considerations are going to play a role — for instance, sprinkler systems in residential homes. I also think you’ll see continued growth of engineered lumber.” — Gary Nackers, VP lumber and building materials, Do it Best
“[I expect] more of a focus on specialties, rather than being a full-service supplier.” — Brett Hammers
“The value add is going to move upstream. Lumberyards are going to be asked to do more value-added services: some assemblies and more manufactured work that will arrive at the job site in condition to be installed more quickly by the builders.” — Randy Aardema, executive VP supply chain, US LBM
“The store of the future will focus on products that promote indoor air quality, resource conservation, energy efficiency and fewer toxins in the environment. And the store will promote these goals.” — Augie Venezia, owner, Fairfax Lumber
“Ordering, scheduling deliveries and tracking them will become more like ordering on Amazon.com for pro customers — seamless, easy, mobile.” — Boyden Moore, president, CNRG
“With builders increasingly looking for ways to increase efficiency and profitability, I anticipate that lumberyards will continue to expand their installed services. And I see their installed services portfolios growing as well.” — Karen Steele
How will it interact with builder customers and vendors?
“I believe the store of the future will be an omnichannel experience, where you can shop the store physically and the website from home or mobile. This will become more the norm than the exception.” — Boyden Moore
“The breadth of product available to a dealer will be featured better in stores. For example, the power tool set will include a link to all available power tools.” — Boyden Moore
“There will be less in-person interaction at the physical location of the lumberyard. The yard will still be brick-and-mortar, but will operate more as a distribution point for their customers instead of a place that customers come to place an order. Technology will now play the biggest role in communication.” — Fran Monk
“Material handling equipment and sheds might become more robotic in nature.” —Fran Monk
“More business will have to be more consultative, and not just be the guy in the tower.” —Doug Smith
“I think as yards get more tech-savvy, they’re going to communicate in a lot more and different ways with contractors and consumers.” — Gary Nackers
What type of employee skill sets will be in demand?
“Being able to discern a trend or predictive type of behavior. People who understand analytics and can wade through the data — those people will be very valuable. They’re going to have to be able to get to information quickly.” — Doug Smith
“We’re going to be hiring folks who have not been part of the industry. It’s not just being able to run the computer. It’s how to use the computer to increase productivity and effectiveness.” — David Helmers
“I believe we, in this industry, will become respected professionals in building science, rather than just order takers, as we learn more about building systems. Our employees will need to talk about the health of ourselves, our families and our community as it relates to the products we sell. This to me will be the biggest challenge and opportunity to transform this industry.” — Augie Venezia
“Being knowledgable about products will remain a top priority for employees in order to assist all of their customers. This will include digital and electronic interactions and fast response time. So, having the right tools and skills for these interactions will be critical.” — Karen Steele
Independent and progressive
The 2014 Independent Pro Dealer of the Year knows its customers, knows its community and knows when to adapt to both.
It’s a recipe that has served S.W. Collins Co. well for the past five generations of in-the-family ownership.
“I think the one constant for the company is that we’ve evolved with the times and provided services that were needed in our community,” president Sam Collins said. “We used to be a manufacturer. We used to have a grist mill. And we used to be in the home-building business.”
The pro dealer serving the rural communities of Maine’s northernmost county continues to evolve. In March 2013, S.W. Collins bought Haskell Lumber in Lincoln, Maine. That was just the beginning of its expansion project. Today, a new facility is under construction, including a 25,000-sq.-ft. drive-through lumber and building material warehouse, and a new 18,000-sq.-ft. store and millwork warehouse.
In 2009, the company expanded its Caribou retail store and lumberyard to include a Kitchen and Bath Home Design Center. S.W. Collins operates lumberyards and retail stores in Presque Isle and Houlton, and a millwork shop in Limestone rounds out the operation.
In the early 1990s, S.W. Collins took a bold approach to expansion. The company set its sights on a new yard in Presque Isle, even though the mighty, nearby economic engine of Loring Air Force Base was closing down for good.
It was a classic example of challenge versus opportunity and risk versus reward.
“That was a move that proved to be successful for us, even though the Air Force base represented about 10,000 to 15,000 people,” Collins said. “In Presque Isle, we diversified our business geographically. Even though it’s only 15 miles away, it’s a completely different market.”
The highly rural demographics of Aroostook County can be summed up as follows: The county’s population of 70,000 lives in an area the size of Rhode Island and Connecticut combined. That math indicates a need to make every customer count.
And as the historic swings and the bubbles and busts of the housing market are considerations for distant economists, Collins said his team’s focus is intensely local.
“We don’t see the big ups,” he said. “But we don’t see the big downs, either.”
Transforming itself over the generations from manufacturer to builder to dealer, the company clearly hasn’t shied away from dramatic decisions. After World War II, the family business saw the opportunity in home building as demand for housing rose, and it remained in the home-building business for about a quarter century. S.W. Collins moved into retail lumber with the proliferation of builders and contractors, and the emergence of the opportunity to serve them.
Collins described the home-building business as an excellent corporate path to the lumberyard business. “It certainly helps being able to understand the components of building and the builders’ needs,” he said. “We also understand the need to educate the builders on building techniques that add value.
“We’ve always taken some risk in trying to grow the business and remain sustainable,” he added.
So far, it’s working.
2014 Independent Pro Dealer of the Year
Slogan: “The Pioneer Lumberyard”
Headquarters: Caribou, Maine
Color commentary: “We’ve evolved with the times and provided services that were needed in our community,” said Sam Collins, president.