Volume 47, Issue 5 - June 2008
Surviving an Economic Downturn
Distributors and Dealers Share How Their Markets are Faring and More
John Campbell believes that experience is truly the best teacher—especially when your company is faced with an economic recession. Campbell is the sales/store manager of Fairmont Lumber, a Hackensack, N.J., lumberyard founded in the middle of the post-WWI recession.
“Since then, there has been the Great Depression and six other significant recessions and [the company] is still here,” Campbell says.
Campbell believes companies need to have a positive attitude. “It is so amazing what the human spirit can accomplish if you stay positive,” he says. “Along with that comes effort. If you don’t try you can’t succeed …”
Campbell’s advice for facing a recession could be taken to heart by other building supply distributors, dealers and retailers. David Seiders, chief economist for the National Association of Home Builders, blames the deepening slump in the nation’s housing markets for seriously eroding consumer sentiment and pushing the economy into a mild recession.
“The worse-than-anticipated housing downturn, combined with systematic weakening of the labor market and rapidly rising energy and food prices, has taken a heavy toll on American consumers,” Seiders says. “It’s now clear that we have entered what we anticipate will be a mild recession, running through the first half of this year, and there are substantial downside risks to this economic scenario.”
Stopping the downward trend in housing prices is key to bolstering consumer confidence as well as mortgage credit quality, and a temporary homebuyer tax credit is the best way to do that, he notes.
Given the ongoing erosion in housing finance markets and buyer demand, Seiders has adjusted NAHB’s official housing forecast to indicate continuing downward movement in housing starts through the end of 2008, bringing the decline for the year to 30 percent. A month ago, Seiders expected housing starts to bottom out in the third quarter, with a 27-percent decline for 2008.
“This change in our forecast indicates that, barring immediate action by Congress to stimulate housing and the economy, the housing sector will continue to be a serious drag on economic growth until the beginning of 2009,” Seiders says.
Is the Sky Falling?
While Seiders says the nation is in mid-recession, some areas of the country are doing better than others. Shelter staff talked with building supply companies throughout the nation to see how they are faring and what changes they have had to make during this homebuilding and economic downturn.
“We are still here, but badly bruised,” says Tom Klug, owner of Reserve Lumber Co. in Macedonia, Ohio. “At this point, I think we can last the storm.”Klug’s company has reduced its workforce by 20 percent and isn’t allowing any overtime. “Homebuilding has been hard hit in Northern Ohio,” he says. “I think we are seeing a slight increase in activity.”
Nelson-Young Lumber Co. in Deerfield, Wis., is holding its own, according to its manager, Eric Nelson. “Our largest customer will be building 60-plus homes this year—the same or more than the previous two years,” he says. “Other customers are relegated to additions, remodels, roofing jobs—rather than their normal homebuilding. We’ll be off about 10 to 15 percent in gross sales, although due to the soft lumber market, we may actually be shipping more product.”
Les Stenerson, president of Stenerson Lumber in Moorhead, Minn., says that sales for his company are down dramatically, and this has forced the company to make some changes and “tighten its belt.” “With the last several years being record sales, we tend to get a bit fat and choosy and need a reminder to get lean and aggressive again,” he says. “Reacting to the declining market early on has helped us control expenses and find some sales that we probably would have passed on in the last several years. Our management team has reacted very well.”
Stenerson also says that the building supply business is cyclical. “Ups and downs are the way it has been, is and always will be. While the economy is certainly not real healthy, the gross domestic product is still in a positive growth (not much but still up).”
Stenerson sees housing starts as spotty, and, while probably down in most areas, there are markets that are still going strong and markets that are downright awful. “A huge problem is that the news media is only focusing on the negative and making things worse than they really are or making it seem like it’s bad everywhere. In talking to the general public, one would think that the sky is falling,” Stenerson says.
Growing like Weeds
And Stenerson is right. There are areas of the country where building supply companies aren’t only saying they are doing okay, but better than okay.
Scott Stover, district manager for Carter Lumber in Columbus, Ohio, says his company is doing quite well despite current housing news.
“We have invested over the past years to be able to withstand downturns and be prepared for the up-tick in the economy we expect,” Stover says.
Carter Lumber actually has been hiring during this economic downturn. “We have been expanding our payroll during this time to gain market share and position ourselves to capitalize on the market when it starts to expand as well,” Stover says.
Adair Lumber Co. in Adair, Iowa, has seen growth this year, too. “Currently, my sales are 45 percent above last year for the first quarter, and sales have been consistently higher than last year,” says Brian Wendt, owner. “At no time have I been below last year’s sales level. My store is located in Western Iowa in the I-80 corridor. Adair is a small community of 800—mostly farmers and commuters. Sales for the past two years have been just about $1 million.”
Wendt attributes the current demand his company is seeing to the price of corn and gas. “Farmers in this area have reaped large amounts from the high price of corn and the gas price has kept customers in town and buying locally,” Wendt explains. “I fully expect the high price of corn to be offset by higher prices in planting and harvesting, therefore, causing the farmers to start pinching pennies.”
Another reason fewer housing starts hasn’t hurt Adair Lumber is because there really isn’t a housing market in the area. “An average of two houses a year is built in this community. The materials that we move are for remodeling and outbuildings. The ‘recession’ that we are in can certainly remain, but historically, this area of the country is behind about one to two years economically.”
Vitus Matare & Associates Inc. in Malibu, Calif., has seen its total number of commissions equal to slightly higher than both 2006 and 2007. “The slight increase in projects is attributable to the fire rebuilds as a result of the October and November 2007 fires,” says partner Vitus Matare. “Take the reconstruction projects out of the mix, the arrival of new projects has remained steady, and we are receiving about the same number of calls from individuals looking at vacant land for residential construction.”
Matare says he has seen a significant decrease in the number of inquiries regarding remodels—a line of work that he says his firm usually doesn’t get into. “There may be a general recession, but it has not yet affected our niche in the architectural market,” Matare says.
While some building supply companies are growing, others are facing dismal days.
Jerry Broderick is owner of Broderick Lumber in Gower, Mo., and he says the housing market in his area is terrible and that his company has had to lay everyone off.
Dayton Kayler’s company, CK Supply in Greensboro, N.C., hasn’t seen results quite as bad as others as a result of a slower market, but the company has had to reduce staff and equipment.
Mark Reasbeck owner of Coyote Springs Window and Door in Las Vegas and a Shelter columnist has seen similar results as Kayler. “Vegas is healthy in the convention/tourist business, but the housing industry is the complete opposite,” he says. “I think people are holding out for ‘one more day’ to see if the bottom is recognized.”
Reasbeck has had to cut 50 percent of his workforce. He had 14-15 workers, and now he has 6-7.
Many who have been in the building supply industry for years say that going through recessions is a normal part of business; it’s just hard for those that haven’t been through one before. Managers who have been through a recession have some good advice for their counterparts in the industry who have less experience dealing with recession.
Klug says, “The advice for others is that ‘slow and steady’ will win the race. That is, we won’t get out of this drought very soon.”
Kevin Wilson, president of Timber Fab Inc. in Tarboro, N.C., says this recession is different than those in the past because upper-end construction was not as affected in the past. He says, “Cut back and get lean, but don’t stop the marketing.”
Blodgett says he believes its too late to tell people what to do if a recession hits as he feels we are in a recession now. “If you don’t have your ducks in a row now, it might be too late,” he warns.
Stenerson hasn’t been through a recession before as a manager, but as a fourth-generation lumberman, he says, “Our company certainly has, and I think and hope that I have learned from those that have been through it … Hang in there and remember the phrase, ‘it’s them or me’ when making decisions. Be prepared to roll up your sleeves and lead by example.”
John Posen, technical sales manager of Arcadia Sash and Door in Arcadia, Calif., says recessions are a normal course of business, but “it is just time to get lean and watch expenses.”
Ed Gegen, manager of Mount Vernon Building Center in Mount Vernon, Wash., says, “Don’t panic. Get your inventory in line, keep your good sales people on staff, try to find some new niches and service the heck out of your current clients.”
Jim Griffin, owner of Walker Building Center in Walker, Minn., agrees. “I managed a yard in the Jimmy Carter days and basically went from a three-man operation to one man. If you haven’t been through it before, stay positive and cut expenses where you can,” he says.“
In 27 years in the business, I have seen other meltdowns,” says Tapani Pekkala, president of Allwood Industrials in Palm Beach, Fla. “The key remedy is to cut the side products and concentrate on your key business, and keep an eye on those receivables.”
Craig Walz is the previous owner of Custer Do it Best in Custer, S.D. While he doesn’t own the business anymore, he is assisting the new owners and he agrees with Pekkala about watching receivables. “Manage your business, which means controlling inventory, stocking lower levels and watching your margin. [Also] watch all expenses and consider cutting bells and whistles,” he advises. “Just tighten up in general. Hit receivables harder and watch ordering dates in relation to vendor billing dates.”
Walz says he has found that margins generally increase sales, but he says that companies should be cautious not to over extend themselves. “Stay positive. We just came off some very good years and know that they will return again. Call it a market correction, a plateau or whatever [you want.] It [the home building industry] can’t always go up; there have to be some flat spots.”
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