BlueLinx opens a new chapter
With a blockbuster merger settling into shape, CEO Mitch Lewis sat down with HBSDealer.
Atlanta-based BlueLinx Holdings makes its living by moving bulky building materials across long distances. It knows logistics. It knows building products. It knows trucking. And these days for Mitch Lewis, the CEO who orchestrated the acquisition of Cedar Creek to create one of the largest wholesale distributors of LBM products in the industry, there’s another skill that’s been elevated to mission critical.
That skill is communication.
Since the deal hit the books in April, the company began what it expects to be an 18-month process of merging and integrating two large building products distributors. With more than 70 locations in 40 states, the combined company reached about $3.2 billion in 2017 sales.
Last month, the company announced its decision to move ahead under a single brand — BlueLinx. Many more decisions remain.
“For an acquisition of this nature, one of the things you do, in my experience, is you over communicate,” Lewis told HBSDealer during a recent interview that covered a wide range of industry topics. Here are some of the highlights.
On the first steps toward integration of BlueLinx and Cedar Creek:
“One of the early moves we made= — and we think it was the right thing to do — was split up and hit every facility in overlapping markets. [COO] Alex Averitt [Chief Transformation Officer] Shyam Reddy, [Vice-Chairman of Operating Companies] D. Wayne Trousdale and I in one week developed that sense of community early. We told our team what we could tell them. We told them what we didn’t know. And we told them when we could tell them what we didn’t know. And I think that communication helped reinforce our culture of honesty and transparency.”
On the vision behind the acquisition:
“One of the things we said from the outset may be counter-intuitive from a synergy perspective. The goal here is to grow the business, not to shrink the business. The number one benefit is the sales growth opportunity.”
On the legacy strengths of the company:
“Cedar Creek had a tremendous entrepreneurial spirit, and they had experience acquiring companies – both of those factors will serve the consolidated company and make us better. As for the legacy BlueLinx business, it had incredible knowledge as it relates to products and analytics. And from a logistics standpoint, BlueLinx is state of the art.
“What may have surprised me most is how the core values of the organizations were very similar. For both companies, the customer centric orientation at the local level were dead on.”
On the branding decision to unify under the BlueLinx name:
“Generally, our customer base understands who we are. And most importantly, they want to talk to the same people that they’ve talked to in the past. They want to know that they’re going to get great service, competitive pricing and someone who is knowledgeable from a product standpoint. The name does matter to customers. But we’ve verified that the branding isn’t as important to our customers as quality service and quality products.”
On the growth challenges facing the industry:
“Labor right now is problematic. It’s challenging. And it probably puts a restriction in the short-term on the highest level of accelerated growth. We see manufacturers trying to develop solutions and products that enable cost savings and reduce hours at the job site.
“Meanwhile, tariffs are challenging in that they create uncertainty. I don’t think anyone knows exactly what the tariffs are going to look like, a month from now or a year from now. And uncertainty in business is never good — especially in housing.”
On Amazon and industry disruption:
“Most of our products are flatbed friendly. If you deal with products that can be picked up by a drone, then you’re definitely more at risk – much more so than a company that ships 20 2x4s that are 16 feet long.
“Another point to make about Amazon; they have so much access to capital, if they decided they wanted to go after a space, they would be a formidable competitor. However, when a disrupter comes into a market, they typically aim for a space where they feel they have a lot of margin opportunity. Would you chase the pharmacy industry, the retail electronics industry or the local dealer industry selling lumber? The chances are your margins are going to be better in pharmacy and electronics than they are here.”
On the importance of variable contribution margin:
“A lot of times, you’ll run into this view that if you move a lot more volume, you make a lot more money. And that’s not necessarily the case. Recognizing the importance of variable contribution margins has played a significant role in our revival. It helps us track how much incremental profit we make on each incremental dollar we sell. So, if you send out one more unit, how much do you make on that? Obviously, if you send a truck one mile or 200 miles, then your profitability differs dramatically. So, understanding the variable contribution margin is really important.”
On the importance of relationships in the LBM industry:
“Relationships really matter, everywhere. The way it moves from theoretical to real is when you have a sales person leave and take a lot of business with them. If that happens a few times, it certainly makes it feel like we’re in a relationship business.”
On innovation at BlueLinx:
“For us, innovation is primarily tied to one of our core competencies: logistics. We also try to leverage technology and have put tablets in the hands of our sales force, so our team can order from the road and customers can better understand the inventory and products we have. We’re on the forefront of some of the things being done in logistics. We’re always thinking about ways to lower the costs in the supply chain. But developing the next iPhone? That’s not us.”
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