The State of LBM Today Have Your Plans Gone Awry?

Craig Webb, Editor, ProSales 2011 bisTrack User Conference

Oct. 19, 2011Las Vegas, NV

Using Outdated Equipment?

Worried About Your Source of Supplies?

Feeling, er, Short-Handed?

Concerned About Your Employees?

Hanley Wood

October 24, 2011

PROSALES presentation 1

What About Your Key Players? Relax! Were Here To Help You Find New Ways To Survive and Thrive

How Many Dealers See Technology This group is different.

Youre ahead of the crowd, and in excellent company. For instance

Award Winner: Millard Lumber

Honorable Mention: Concord Lumber

Hanley Wood

October 24, 2011

PROSALES presentation 2

Joost Douwes, Chinook Lumber

Riki Newkold, HPM Bldg Supply

2011 Excellence Awards Winner

2011 Excellence Awards Winner

Raymond Building Supply

Sanford and Hawley

35 Years of Reporting

Roads Scholar

..... . . .. ... ... . . . ... .. . . .. .. .. .... . . .. .. . . . .. ... ..... ..... .. .. . .. . . . . . . . .. .... .. .. .. . . . . . . . .. ... .. . ........ ... . . . . ..... . . .... . . . .. ...
48 states visited since joining ProSales in Sept. 06

Hanley Wood

October 24, 2011

PROSALES presentation 3

Todays Agenda
The Big Picture

1. Painful Medicine for the Economy

Whats New With Dealers

Favorite New Ideas

Dealers Seal the Deal

Cause and Effect

Red States, Blue States

Current Jobless Rates by County
Source: Moodys Analytics via HWMI

Red States, Blue States

Renters Still Say They Want To Buy

Source: Hanley Wood Housing 360 Survey of 3,000 Americans, September 2011

Hanley Wood

October 24, 2011

PROSALES presentation 4

So Why Arent They in the Market?

Lots of Pain, Little Gain

U.S. Housing Starts
(Thousands of units) 2,300 2,100 1,900 1,700 1,500 1,300 1,100 900 700 500 300
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Annual Starts: 2005: 2,068,000 2006: 1,801,000 2007: 1,355,000 2008: 905,500 2009: 554,000 2010: 586,900

571,000

417,000

2006 Source: Hanley Wood Housing 360 Survey of 3,000 Americans, September 2011

2007 Single-Family

2008

2009 Multi

2010

2011

Source: US Census Bureau

Three More Years of Burnoff

No Million-Starts Year til 2015

2,068
2,000

1,801
1,500

Housing Starts, 2005-2010 actual and 2011-2015 forecast, (000s)

1,355 803 671 554 587 587 961 1,080

1,000

905

500

0 2005 2006 2007 2008 2009 Spring 2010 Now 2011 2012 2013 2014 2015

Source: Hanley Wood Market Intelligence, March vs. September 2011

Top 10 Builders Market Share

2010 Share: 24.75%

Top 100 Builders Market Share

43.6% 34.5% 35.7% 36.7% 41.2% 43.4% 38.7% 36.7%

34.4% 32.6% 33.3%

Source: Builder magazine

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Builder magazine

Hanley Wood

October 24, 2011

PROSALES presentation 5

Dont Expect Help From These Guys

Mr. Homebuilder Is Feeling Besieged

Fannie/Freddie lending limits have shrunk Mortgage interest deduction is under attack Government tools to jump-start economy lose favor 20% mortgage down payment could become the rule Banks are both kingpins and pawns in the recovery

Whats a Banker To Do?

As C&D Lending Soured

30%

Banks C&D Loan Performance, 2Q07 to 2Q11

25%

20%

Charged Off 90+ Days Past Due

15%

30-89 Days Past Due

10%

5%

0% 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Source: FDIC

They More Than Halved C&D Lending

Bank C&D Loans Outstanding, $mlns, 2Q07 to 2Q11
$700 $600

And Theyre Still Hurting

Volume and percentage of past-due C&D loans, 6/30/11

$500

$400

$300

$200

$100

$0 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Source: FDIC

Source: FDIC

Hanley Wood

October 24, 2011

PROSALES presentation 6

What Needs To Change?

The of the Problem

Source: Hanley Wood Housing 360 Survey of 3,000 Americans, September 2011

2. Whats Happening With Dealers

Flags Have Fallen in Every State

LBM Facility Closures, Jan. 2008-Present: Near 1,625

Source: ProSales research

Red and Blue Redux

Current Jobless Rates by County
Source: Moodys Analytics via HWMI

Relatively Good Here

1. Oil Patch (TX, OK, LA, ND) 2. Ag-Dependent Areas 3. Dealers Serving Upscale Areas 4. Dealers With Solid Financials

Encore Flooring & Building Products, Springdale, AR

Hanley Wood

October 24, 2011

PROSALES presentation 7

New Flags Have Been Planted

LBM Facility Openings, Jan. 2008-Present: Over 330

Realistic Thinking
Youre talking housing starts going [in Las Vegas] from 30,000 to 5,000. We downsized our facility here and we got into a much cheaper facility and weve just hunkered down and tried to operate as efficiently as we can. We dont view this as going to end anytime soon, so we have to survive in the market as it is. Thats how weve designed our business.--Ron Mason, President, A.C. Houston Lumber

Source: ProSales research

Shifting Focus
Kimal Lumber, Nokomis, FL, changed its name to Kimal Lumber & Hardware. It added more than 2,200 new SKUs.

Cloud Cover

Advice You Can REALLY Use

"Never order barbeque in a place that also serves quiche. --Lewis Grizzard

Hanley Wood

October 24, 2011

PROSALES presentation 8

Pursue Home Buyers, Not Builders

Bringing Customers to Your Clients

TW Perrys All About the Home show, Montgomery County, MD

Pursue Architects, Too

Step Up Your Prospecting

Ruth Kellick-Grubbs says: On average, it takes 14 attempts to make contact. Successful sales reps today target 40+ calls per week. Keep a list of 10 to 15 active prospects at all times. Practice your voice-mail messages and actual conversations.

Prospect Prior to Building Permits

Sample OSR Profile

Average Sales by OSR: GM$ by OSR: Quote Value by OSR: # Penetration Meetings: # Penetration Sales: # of Prospect Contacts: # of Conversions: $ 276,045 $ 75,160 Target $250,000 $ 67,500 $750,000 15 2 42 1 Diff 110% 111% 101% 136% 60% 87% 133%

$ 754,959 20 1 36 1

Source: Ruth Kellick-Grubbs, Effective Sales Strategies for Todays Market, ProSales white paper, September 2011

Hanley Wood

October 24, 2011

PROSALES presentation 9

Analyze Your Sales Better

Analyze Your Sales Better

Dixie Lumber, Easley, SC

Analyze Your Sales Better

Sell More To Current Customers

Dixie Lumber, Easley, SC

Dixie Lumber, Easley, SC

Ask the Customer Why You Won

Discover Newer Ways of Talking

Hanley Wood

October 24, 2011

PROSALES presentation 10

Remodelers Want You Wired

What are the top three things that independent lumber and building material dealers (i.e., NOT the big-box chains) could do to improve the sale of building materials to remodelers?

Younger Remodelers Are Different

Offer broader range of products Facilitate online ordering Before- and after-hours pickup Deliver in smaller quantities Shorten lead times Make sales reps more available Improve materials ordering process

26% 25% 19% 16% 16% 11% 9%

Source: ProSales/Farnsworth Group survey of remodelers, January 2011

A Tablet To Take for All LBM Headaches

Competitive Challenges
Lowes is rolling out a website upgrade this month that will Store customers purchasing details Provide a site to get warranty info and installation guides Help customers envision how a wall color or flooring product will look. Remind them when its time to get new filters and such.

E-Mail Newsletters

Provide New Promo Opportunities

Don Abel Building Supply, Juneau, AK

Don Abel Building Supply, Juneau, AK

Hanley Wood

October 24, 2011

PROSALES presentation 11

Twitter

Follow Dunn Lumber, Get This Reply

Dunn Lumber, Seattle

Add QR Codes To Your Card

Dont Just Bid on Whats Presented

Turn in one bid with what the builder wants, and then a second bid showing how, for instance, selling energyefficient products could save the homeowner money. Or how delivering the stuff in a few big shipments rather than several small ones can save the builder $$$. Ruth Kellick-Grubbs, Jane Fesler

Doubling Up: Its Economic

But Also an Ethnic/Social Trend

Source: Census Bureau

49 million Americansabout one in sixlived in 2008 in a HH with at least two adult generations. In 1980, 28 million did. The number of multigenerational HHs grew by 500K in 2010 alone. Pew Research Center

Hanley Wood

October 24, 2011

PROSALES presentation 12

Whos Likely To Want McMansions

Household Type One person Two people Three people Four people Five or more people Renter Occupied Native Citizen 28.0% 35.0% 15.4% 12.9% 8.7% 22.8% Non.-U.S. Citizen 15.1% 20.8% 20.3% 21.1% 22.7% 59.7%

Reach Out to Remodelers

Source: U.S. Census Bureau, September 2011

Old Houses Need Repairs

Average Age of U.S. Housing Stock

Better Prospects Than in Homebuilding

Hanley Wood Market Intelligence Remodeling Index

2005 2013

34 years 37 years

(oldest in U.S. history) (projected)

Source: Harvard Joint Center for Housing Studies

Age Breakdown of U.S. Housing Stock 2000s

Before 1960

33%
1960s

8%
1990s

13%
1980s 1970s

12% 20%

13%
Source: Freedonia, 2009

Rental Housing Rehabs

Qualities That Remodelers Value

Timely Delivery Having Products in Stock Knowledgeable Sales Reps Product Selection Loyalty and/or Past Relationship Price Special-Order Capabilities Return Policy After-Sales Support Nationally Recognized Brand Credit Policy Can Communicate Electronically Learning Opportunities E-Commerce Capabilities 8.98 8.87 8.78 8.58 8.57 8.44 8.25 8.19 7.92 7.35 6.82 6.68 6.47 5.76 Vital

Difference Makers

Source: ProSales Survey of Remodelers, Dec. 2010

Hanley Wood

October 24, 2011

PROSALES presentation 13

Help Them Be Better Businessmen

Help Them Be Better Businessmen

What They

Fewer than 15% of all remodelers know the cost of being in business. 90% will eventually fail even if profitable. Every one of them reinvents the wheel. Remodeling consultant Shawn McCadden

Want
Tech know-how Product info Customer service Design trends Employee skills Advertising help Low prices

Need
* Biz management * Leadership skills * Financial mgt help * Sales/mktg training * Biz planning/budgeting * Industry awareness

Source: Shawn McCadden

What Architects Are Hearing

% respondents reporting popularity of room increasing minus % reporting decreasing popularity 2Q11 54% 41% 43% 34% 17% 26% 2% 2% -9% 2% 2011 2010
Source: AIA Survey

Silver Streak

Outside living Home office Mud room Au pair/in-law suites Hobby/Game Room

Source: Harvard Joint Center for Housing Studies

Universal Design Will Grow

Market More Creatively

The Annual Running of the Dachshunds in Kearny, NE

Kitchen Design, Takoma Park, MD
Source: Washington Post, 9/23/11

Hanley Wood

October 24, 2011

PROSALES presentation 14

Sell Condiments With Your Deck

Brush Up Your Shakespeare

Voyageur Lumber, Ely, MN

Miamis Shell Lumber Hosted a Production of Romeo & Juliet

Smile!

4. Dealers Seal the Deal

Four Recent Surveys What Dealers Really Sell: Knowledge

Russell Do-it Center Alexander City, AL

Hanley Wood

October 24, 2011

PROSALES presentation 15

Info Sources for Kitchen/Bath Jobs

Q: How useful are each of these sources to you?
Scale of 1 to 5, where 1 is not influential at all and 5 is very influential.
dealers/distributors/retailers web sites: manufacturers magazines: trade industry peers web sites: trade magazines subcontractors web sites: industry associations magazines: consumer manufacturers sales reps trade shows
3.83 3.74 3.65 3.44 3.35 3.33 3.08 2.99 2.97 2.92

Info Sources for Kitchen/Bath Jobs

Q: How useful are each of these sources to you?
Scale of 1 to 5, where 1 is not influential at all and 5 is very influential.
dealers/distributors/retai web sites: manufacturers industry peers magazines: trade subcontractors manufacturers sales reps web sites: industry web sites: trade trade shows magazines: consumer 3.41 3.40 3.31 3.24 3.20 3.18 3.02 2.97 3.87 3.73

Product Info Sources for Remodelers

The Internet 42%

Not So Good With Architects Yet

My LBM Suppliers

34%

Magazines and Catalogs

12%

Colleagues and Coworkers

9%

Trade Shows

4%

Source: ProSales/Farnsworth Group survey of remodelers, January 2011

Source: Survey for Hanley Wood, Summer 2011

Youre the Guys Who Seal the Deal

A spring 2009 ProSales survey of dealers found: Nearly 63% get asked daily about quality and performance of specific products. Another 27% are asked at least weekly. 44% said that, at more than three-quarters of their encounters with clients, they recommend particular brands. Another 42% more suggest products at half to three-quarters of all their meetings.
Lyndhurst (OH) Lumber

Dealers Train as Well as Sell

Hanley Wood

October 24, 2011

PROSALES presentation 16

The Place To Go for Hard Answers

What is the primary source of supply for the tools and supplies you will need to do RRP-related work?

You Teach Building Science, Too

Source: Remodeling magazine reader panel survey, September 2010

Face It: Some Builders Could Use Help

Coming Attraction: Savvier Customers

Its All About How You See Things

Learn From History

Hanley Wood

October 24, 2011

PROSALES presentation 17

Thank You!

Craig Webb cwebb@hanleywood.com One Thomas Circle, NW Washington, DC 20005 (202) 736-3307

Hanley Wood

October 24, 2011

PROSALES presentation 18