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Building Materials Distribution: What Issues Are Dealers and Distributors Currently Facing?

It’s critical for manufacturers and distributors/ dealers of lumber and building materials to understand how distribution channels are rapidly changing. Principia’s latest additions to our data product lineup analyze the market and deliver insights on LBM distribution—specifically focusing on two-step distribution and on pro and retail dealers. Two-Step Distribution 2019 and Pro and Retail Channels in LBM Distribution 2019 explore a range of market forces and the likely impact facing industry participants. The research and analysis dig deep to understand the market condition and the drivers affecting the future of each channel, with several issues highlighted for each distribution product. 

Each of Principia’s data products include a series of interactive dashboards in addition to key insights summarized by industry revenue, industry growth, customer insights, and leading dealers/ retailers and leading distributors serving each channel. 

To learn more about these data products, download the brochures here. For more information about the data products, contact Principia today at info@principiaconsulting.com.  

Here’s How Far the LBM Industry Has Come

BY STEPH KOYFMAN

Our July/August double feature included our annual Top 200 Pro Dealer Industry Scoreboard and an analysis regarding the current State of the Lumberyard. Here’s a closer look at one excerpt.

Back in 2014, HBSDealer attempted to look into the future. In a feature story called “The Lumberyard of the Future,” we took a stab at describing the lumberyard of 2025, a place that, according to our imagination, was powered by alternative energy and inventory forecasting software, as well as interactive virtual-reality machines and materials-handling robots.

Of course, these were educated guesses stemming from observable trends in technology and dealer/builder relationships.

But what about the lumberyard of today? In a way, the future is already here, especially when evaluated according to the standards of Grandma and Grandpa’s heyday.

For one, the days of solely selling house packs or lumber packages are long gone. The modern lumberyard has bridged some of the gap between lumber dealer and hardware store to offer a wider variety of building materials and home improvement items.

Gone, too, are the days of “dump and run.” High-touch service has become a major differentiating point for pro dealers, who have taken on the additional roles of design consultant and project manager.

Moreover (and most obviously), technology has touched this gun-shy industry in many of the same ways that it has touched the rest of the world. Many lumberyards are going paperless, employing interactive touchscreen design centers and using forecasting software to manage their inventory.

Okay, but what about the high-tech stuff?

Ever slow to adapt, the LBM industry is now undeniably living in the present (or something like that).

Whether it’s the transactional front end, ERP back end, or iPads in droves, technology advances have paved the way for many productivity gains.

“The LBM industry was behind the curve from the standpoint of technology: how to barcode, how to track inventory, to the use of GPS to understand where trucks were in their delivery runs,” said Lou Rossi, managing partner at Principia.

Read Full Story

DOWNLOAD LBM DISTRIBUTION INDUSTRY REPORT BROCHURE

Multi-Channel Distribution Is The Norm In Windows

Windows Channel to Market, 2014

Windows Utilize Multi-Channel Distribution

The distribution of windows is one of the more complex networks among building products.  Part of this is due to the complexity of the windows product line based on an unlimited number of sizes, types (e.g. single hung, double hung), frame materials, glass types, hardware etc. This large number of product combinations results in the majority of windows being custom ordered rather than delivered from in-stock inventory. This complexity also drives the channel options for purchases as shown above.

Overall, window retailers accounted for the nearly 1/3 of the volume of window sales to end users in 2014 according to Principia’s latest window and patio door report. This includes sales of windows from factory-owned stores such as Renewal by Andersen and Pella Stores.  Lumberyards accounted for nearly as many window unit sales as retailers and serve both the home builder, professional installers and homeowners.

Big Box Window Growing DUE TO THE  the DIY and BIFM Sector

Despite window replacement being a fairly complex project and the wide range of window options available, big box retail is a large and growing path to market for both DIY and professional installers.  In addition there is an emerging segment of “Build it for me” (BIFM) buyers who purchase windows themselves but hire professional contractors or remodelers to do the installation. Each window value chain participant needs to understand the best path to growth for their particular product line, region and target customer groups.

Windows and patio doors 2015

LBM Distribution Industry Reached $147 Billion in 2014

LBM Channel Revenue Increase, 2014-2017

LBM Channel Revenue Forecast to Increase by $26 Billion

LBM distribution channel revenue is forecast to increase from $147 billion in 2014 to $173 billion by 2017, which represents a net $26 billion increase.  The total gross margin pool is projected to grow from $34.5 billion to over $40 billion over the same time period, a $6 billion increase and an average annual growth rate of 5%.  Two-step distribution and lumberyards will grow closer to 6% annually due to greater participation in new construction, which is projected to experience faster growth than repair and remodeling throughout the forecast period.

Lumberyards Will Be See Biggest Increase

The lumberyard channel is projected to increase its category lead in total revenue growing from $45 billion to $54 billion, and from $9 billion in total margin up $11 billion, a 6% annual growth rate due to the high increase in new housing starts.  Overall, specialty retailers will grow less quickly due to a greater reliance on repair and remodeling but will retain the largest overall share of the margin pool and account for $11 billion in margin by 2017.

Lumber will have the largest overall change in channel revenue with $6.6 billion predicated on continued growth in housing starts while it is projected that cabinets and countertops will have the greatest growth in the total margin pool with $1.5 billion. In the figure above the greatest margin growth opportunities by product category and channel is shown above indicated by the size of the circle.

LBM Distribution

Best Opportunities For LBM Dealer Growth And Expansion Are In The West and South Regions

Average LBM Dealer Revenue by Region, 2014

Regional Channel Revenue for Lumber and Building Materials

Principia recently published Lumber and Building Materials Distribution 2015, its third comprehensive analysis of the $147 billion industry. Through examination of revenue by region and number of dealer outlets, regional differences in the average revenue per outlet were identified.   Channel revenue is split between two major dealer categories, lumberyards and specialty 1-steppers. The national average revenue per location is $6.8 million which is the outcome of dividing $69 billion by the approximately 10,000 locations in these categories.

The historical development of the lumber and building materials distribution industry shows that branch locations were typically built in the major population centers in the post war era and there was a preponderance of locations in the Midwest and Northeast.  However, as the housing expansion took place in the 1970s to the South and West, the industry did not keep pace in terms of shifting the distribution base. In fact, during the housing downturn, much of the industry focused on closing underperforming locations without consideration of how to position when the recovery took hold.

Best Opportunities for LBM Dealers are in West and South

As shown in the figure the highest average revenue per location is in the West and Southwest.  Virtually everyone’s forecast projects the West and Southwest to continue to be the growth engine for new housing starts.  A key takeaway for LBM dealers looking to expand regionally should be to carefully examine their strategy and consider not only what is easiest to accomplish but which opportunities represent the greatest potential for revenue and margin growth.

LBM Distribution

Service as a Differentiator

Lumberyards account for the largest share of overall LBM distribution industry revenue with $45 billion, or roughly 30% of the total in 2014. As home building accelerated in 2014, 46% of revenue was from lumber, the largest category but only 29% of the margin, according Principia’s study Lumber and Building Materials Distribution 2015.

Read the entire article: Service as a Differentiator, LBM Journal – Nov/Dec 2015

Beat the Box Stores at Decking

Over the years, decking and railing has been a steady performer in the repair and remodel segment. Homeowner desire for outdoor living topped the list of exterior home improvement projects in research conducted by Principia. The survey shows 66% of respondents recently completed (in the past 12 months) or plan to build or replace a deck in the next 12 months, followed by patios at 51% of respondents, painting (41%), window replacement (31%) and roofing replacement (26%) to round out the top five project types (Note: multiple responses were permitted in the survey with nearly 600 homeowners).

Read the entire article: Beat the Box Stores at Decking, LBM Journal – October 2015

Loyalty Programs

Win the Contractor, Win the Market

Contractors exert a powerful influence on product choice across nearly all building products segments, and are successful at convincing their homeowner customers to switch materials or brands. Many manufacturers recognize this influence and have structured loyalty programs to reward contractors for repeatedly buying their products.

Read the entire article: Loyalty Programs: Win the Contractor, Win the Market, LBM Journal – September 2015

Siding and the Remodeling Market

Residential siding is arguably a fashion-driven industry, led by large product manufacturers selling curb appeal and home distinction to the homeowner. Pull-through marketing initiatives focused on the look of wood and low maintenance in lap siding alternatives, ranging from vinyl to fiber cement to engineered wood, have built sizeable businesses in the siding category. And the homeowner, not the contractor, has been the primary target to establish the brand.

Read the entire article: Siding and the Remodeling Market, LBM Journal – July 2015

Roofing Demand on a Upward Slope

Residential roofing was a challenging market for the entire supply chain last year as market demand and dealer sell through was lower than expected. Industry shipments were further impacted by lower price discounting which led to channel destocking. However, a pickup in repair and remodeling is forecast for residential roofing in 2015, driven by general reroofing projects and projected storm activity. So how will this increased demand be served through LBM distribution and how can pro dealers compete for a share of this demand?

Read the entire article: Roofing Demand on a Upward Slope, LBM Journal – June 2015

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