As Big LBM Companies Get Bigger, Independents Are Challenged to Get Better

These are boom times for sign companies that count LBM operations as clients. Through early December, we have seen nearly 200 construction supply locations nationwide change owners, and by year-end, roughly 150 BMC locations will begin to carry the Builders FirstSource banner. In addition, roughly 50 greenfield locations have opened for business—all of them presumably needing signage, too.

It’s not just the frequency of these changes but also their size that matters: Harvey Building Products, Zeeland Lumber, and TW Perry all are top-75 companies that are being absorbed into Lansing Building Products, US LBM, and BMC, respectively. And when Kodiak Building Partners took in Carpenter Contractors of America, it doubled its employee count. LBM appears to have entered a new era of consolidation.

You might recall hearing this same story before, back 15 years ago when operations like Stock Building Supply and ProBuild ballooned into giants by gobbling up scores of companies. You might also be hearing skepticism about how long these new behemoths will survive, given how ProBuild and Stock both collapsed. It has long been a matter of faith that, to cite veteran LBM observer Greg Brooks, you’d be hard-pressed to find a dealer that’s doing better today inside a conglomerate than it accomplished when it was on its own.

I’m not so sure that assertion holds up today. There are several reasons why:

• First, the rollups earlier this century were hobbled by the Great Recession. It’s hard to erect a nation-sized lumberyard while the number of new-home starts is plummeting 75%. But today, lots of economic fundamentals suggest robust times ahead. The modern rollups are riding a wave.
• Second, command-and-control management styles, in which everyone everywhere had to act the same, have given way to a type of leadership that promotes more regionalized and specialized approaches. Firms like Kodiak and US LBM operate like a family-of-brands approach, with more local decision-making power. You can’t quite call them nimble, but they are at least more agile than in the past.
• Third, going big isn’t simply about creating a company with the breadth and depth to serve the national builders. BMC has said for a couple of years now that it wanted to expand its base of small builders and remodelers. Its Nov. 30 announcement regarding the purchase of remodeler-centric TW Perry must remain part of its plan, as the deal was completed after BMC’s intention to merge with BFS became known. BFS operates the same way; when it took over ProBuild a few years back, there had been concerns that Spenard Building Supply in Alaska and California’s Dixieline and San Lorenzo yards would lose their identity. None did.
• Finally, big dealers are getting smarter, often because of technology. Roofing specialist SRS has harnessed artificial intelligence software to help both speed and boost sales. BMC has an in-house lean expert. And US LBM has been among the industry’s leaders in rolling out hand-held apps.

Small dealers like to claim they are nimbler and have stronger ties with customers than the big companies do. Both are true, but those advantages are worth less today. Because technology helps big dealers get a better handle on the cost of serving each customer, they can quote more individualized (and yet profitable) prices. Meanwhile, customers’ increasing preference for digital rather than personal communication means that the dealer who provides a better online experience has better odds of winning the job.

What to do? Lucky for you, most of the technology tools you need to fight back already are at your disposal; you have to learn how to use them. Do this:

• Ask your IT provider to tell you about the best practices employed by fellow dealers who have solved some of the same problems you’re facing.
• Talk to your customers about the ecommerce they engage in with other suppliers—including Amazon and the big boxes. What functions do those companies provide that they like most and that you lack? It could be that some of the biggest desires have simple solutions.
• Likewise, pay attention to how your customers communicate. Which ones prefer to use text messaging? Email? Phone calls? In-person visits? How are those four areas shifting in size and style?

If you want to remain independent, you have a good chance for success so long as you don’t underestimate that big bear of a competitor coming your way. Bears may be big, but they can run fast, too.