By Walt Stoeppelwerth Virtually every industry in the United States has seen major consolidation in the past decade. Companies like Microsoft, Intel, and Cisco have bought or invested heavily in smaller niche companies to develop expertise in a market. General Electric has acquired over 300 companies.
Outsourcing the manufacture of products, development of services, creation of technology, or even assembly of products is commonplace in American industry. In building materials retailing, companies such as Carolina Builders, Builders First Source, Hope Lumber, Lanoga, and BMC West have gone from small to large very rapidly. Many of these consolidations have occurred following an alliance between the larger company and some smaller operation.
New home market
Alliances in the new home market may provide a look at the future for larger remodeling players. Early last year, I spoke with a top executive at one of the seven lumberyard leaders in consolidation. In the early '90s, his company had less than 15 locations and prided itself on serving 56 categories of contractors from design/build remodelers to framers, painters, drywall installers, insulation installers, kitchen and bath, and so on. Today that company is part of a roll-up dedicated to serving large home builders exclusively. The company provides those top builders with a full menu of services, as well as products, offering panelization, framing, installation of roofing, siding, windows, kitchen cabinets, closet interiors, stairs, and more.
Big builders are 95% of its business. The company doesn't even want people coming to its stores to pick up materials. Such companies have selected this market niche as their future. Their approach may falter if the economy tanks in the next couple of years, but I believe it's likely to be a long-term relationship.
What's in it for remodelers?
Remodelers should forge alliances of their own by seeking out lumberyards and distributors that are slightly smaller than these larger outfits who will offer them the same kind of alliance-type relationship that large builders enjoy. What's to be gained?
1. Regular stocking by the supplier of materials the company uses, at fair prices.
2. Use of a showroom where contractors can send clients to make selections -- perhaps upselling where possible or having a separate showroom where a contractor could bring customers at night or on weekends.
3. Timely delivery of all products; pickup of excess materials as necessary.
4. Partnerships with manufacturers to provide training on product sales and installations for a remodeler's employees.
5. Help with new technology, including estimating, lead management, CAD, scheduling, accounting, and more.
6. The option of offering home improvement financing for a remodeling company's customers. Many banks and savings and loans are more interested in offering financing through retailers than directly to remodeling companies, especially those under $2 million in volume. (This is a good example of how a relationship between remodeler and retailer benefits both parties.)
7. Installation services -- either hiring the lumberyard to install or providing the service for the supplier. As large remodeling companies grow and diversify, they're more likely to sub out much of their work. When this happens, lumberyards may be able to offer product installation. Such alliances can work both ways. Lumberyards and manufacturers are being asked to offer installation by all their end-user customers, but the history of installed sales shows that when retailers go into installation with their own employees, they usually fail miserably. The solution is to turn to their contractor customers for installation, which will provide a high quality installed product and produce satisfied customers.