Pro dealers tough it out

When Home Channel News took a look at the nation’s biggest pro dealers last year, at the tail end of the housing boom, 277 of the Top 350 reported that their sales had grown in 2005. With this year’s report, only 120 said they had increased sales in 2006 (see page 15). Now, well into 2007, housing starts and other indicators show that the business environment has gotten even tougher.

Was 2006 really that bad? After all, according to our Top 350 report, total sales rose 8.6 percent in 2006, and sales to pro customers rose 9.0 percent. But take the top 10 biggest players off the field. The remaining 340 companies saw total sales rise only 0.6 percent, and sales to pros rose 1 percent. So even though total sales are up for the Top 350, the story is not that business was good in 2006, but that a handful of the biggest dealers managed to push their totals, with restructuring efficiencies and acquisitions playing a key role.

In lean times, as business dries up, the payout of a takeover may look attractive—and the big guys with deep pockets go shopping. That’s one big reason that the Top 10 pro dealers saw sales growth of 18.2 percent last year. But equity is getting tight, and credit to fuel acquisitions simply may not be available. What about the independent dealer who can’t find a white knight, or who wants to stay independent?

The new housing market is a cyclical business, of course, and so long as Americans dream of owning homes, the dollars will come back. The conventional wisdom holds that homeowners who refuse to sell when house prices are low instead decide to fix up the homes they have. The remodeling and maintenance markets stand to gain from consumers with enough cash on hand to do improvements. Some pro dealers, especially those focusing on high-end remodels for more affluent customers, will survive on this business.

Diversifying in the other direction, pro dealers may take another look at the potentially lucrative industrial/commercial side of the industry. Builders FirstSource just bought a truss maker in Alabama, but it was the steel truss capability that CEO Floyd Sherman crowed about. And those steel trusses aren’t going into residential housing—BFS is thinking about other customers.

That’s true across the board—the dealers who will see this downturn through are the ones who think about customers, and who come up with ways to sell them on what dealers have to offer.

With the addition of HD Supply this year, the editors decided to prune away companies and divisions that do not clearly serve the core pro market. We excluded HD Supply’s plumbing and HVAC business from our calculations, for example, and removed a few non-core companies, such as Rinker. We hope this year’s Top 350 Scoreboard gives pro dealers a clear picture of the state of their business.