State of the Lumber and Building Materials Industry

Lumber and building materials (LBM) distribution, a $120 billion industry, is part of the larger building products industry in North America. Channel participants handle a range of products from basic materials of construction to highly branded manufactured goods. The industry holds substantial potential for profitable growth over the medium- and long-term based on improvements in remodeling and commercial spending, increases in U.S. population size and age, existing housing stock profile, and favorable lending markets.

Attractive Market Fundamentals Recovery in new residential construction is now mid-cycle and is strengthening due to low mortgage costs, and renewed demand for new housing driven by changing demographic trends. Remodeling expenditures are also improving, helped by the aging housing stock and provide balance to the overall growth in the home construction market. A greater demand for housing and remodeling projects, combined with concentration among distribution’s customer base, contribute to the expected growth and profitability in LBM distribution.

Market Share Capture
LBM distribution companies are adding complementary product lines to leverage cross-selling opportunities with existing customer relationships. Distributors and dealers are also looking to “out of category” products to reach customers in brand new areas that are not traditional LBM markets.

“Value-Added”
An increasingly larger segment of LBM distribution has manufacturing capabilities including roof trusses, wall panels and stair production, with installation service available. In addition, valueadded services such as direct takeoffs from building plans, quick-turn jobsite deliveries and advice on project design are offered, and merchandising including product showrooms and vignettes are a growing trend among more progressive distributors and pro dealers to reach builders and the trades, as well as property owners.

Expanded Margin Opportunities
Distributors and dealers are carefully reviewing which products represent the best margin opportunities and how to support these products with current and prospective customers. Working capital requirements are also an industry-wide issue as suppliers and distribution manage uneven demand. Just-in-time inventory and lower turns has forced even more diligence balance sheet management in this upper part of the supply chain.

Concentrated Builder Demand
Over the past two decades, a significant increase occurred in the concentration of production among homebuilders. This consolidation trend in homebuilding has also helped to drive consolidation among pro dealers, primarily in order to meet the service needs and margin pressures from large builders. Focus on the custom builder and remodeling contractor has been an offset for many small- to mid-sized distributors and dealers where product knowledge and personalized service is more valued.

Continued Box Channel Competition
The home improvement center channel has taken more direct aim at the pro dealer segment by focusing on builders and the trades with services aimed at the builder and contractor. Home installation programs offered by the box retailers have also spurred sales through the box stores that were historically serviced from the independent dealer or specialty distributor. The result is an increase in share for this channel in virtually every LBM product category.

Shortened Supply Chain
Building product manufacturers have driven shortening of the supply chain with different tactics. Several suppliers in different product categories have either bypassed wholesalers going directly to pro dealers or even further directly to builders or contractors in an effort to shorten lead times, lower logistics costs and capture more margin. Other suppliers have ventured down channel into company-owned distribution in an effort to get closer to the customer and at the same time capture more margin dollars. Understanding the value chain for each product category and where the margins are captured is critical for continued success.

Increased Industry Consolidation
The rate of consolidation in LBM distribution has increased over the last few years, driven primarily by large pro dealers and retailers looking to broaden their portfolios, gain access to attractive regional markets, and acquire specialty services. This trend is expected to continue due to changing competitive and market dynamics.

LBM distribution continues to support attractive M&A valuations reflecting solid long-term fundamentals. The current low cost capital available and high returns in this part of the cycle are driving interest from strategic participants, serial acquirers and private equity.

Report Scope 
The report focuses on the LBM distribution chain, from manufacturer to dealer sell-through to builders / contractors. Geographical scope is North America (US & Canada).

Using the Report
This report will serve as an important baseline analysis for forecasting and business planning purposes by existing and new industry participants. Using 2014 as the baseline, the report will analyze the drivers and trends of the LBM distribution industry by region, distribution channel, market segment and product, and will provide forecasts covering the next three years.

  • Total revenue and margin pools at each level within supply chain
  • Changing market conditions likely to impact distribution channels
  • Channel strategy evaluation for building products manufacturers
  • Market share review for leading product brands on national / regional level
  • Voice of Customer feedback on major product and service trends
  • Strategic insights into opportunities within LBM distribution

Included Features

  • Voice of Customer – Voice of Customer feedback will be captured directly from interviews with contractors, builders, distributors, dealers, retailers and leading building product producers and other relevant trade sources. The results of the interviews will be portrayed in graphical and tabular form to provide insights on the current and projected future state of the market. Comparisons will be depicted among the different types of industry participants, building product categories and geographic regions. Subscribers will be able to zero in on the issues most pertinent to their business.
  • LBM Distribution Database – The LBM distribution industry is a complex web of interrelationships. Subscribers will have access to a database of over 20,000 North American distribution outlets. The searchable database will enable users to assess key building product manufacturer relationships with wholesalers, lumberyards and specialty one-steppers. Leading channel participants in each product category will also be detailed.
  • Market model and forecast tool – interactive market model tool enabling subscribers to evaluate the market through whatever lens they choose

Subscription
All subscribers to the full program are offered a private presentation by the Principia project team with an open discussion about the report and to address any company-specific issues. The consultation is included in the subscription price. Contact us to learn more at info@principiaconsulting.com.