LBM CHANNEL RESEARCH

The Next Decade in North American Building Product Distribution is a groundbreaking research project that will examine the rapidly-evolving distribution network serving residential and light commercial contractors in the U.S. and Canada.

It combines primary research with secondary data from a wide range of sources, plus historical context and insights from experts both within and outside the industry to draw a clear portrait of the structure and direction of the supply chain.

The study’s researchers and authors bring more than a half century of combined experience in building product distribution, in the field as well as in a research capacity.

The Next Decade will be an invaluable reference guide for strategic planners and senior executives at all levels of the supply chain.

 

SCOPE

In a mature industry such as housing, incremental innovation is commonplace but significant advances generally occur only in response to periods of economic stress.

In the late 1940s, for example, assembly line methods were the solution to an unprecedented housing shortage following the Great Depression and World War II. Engineered wood products and wood substitutes went mainstream at a time when a series of energy-related recessions underscored the need for resource conservation. Even stud framing itself emerged in response to a crisis—the need for rapid urbanization during the second Industrial Revolution.

As the world recovers from the worst economic crisis in nearly a century, American and Canadian housing markets are facing a new dilemma: an urgent need for more affordable housing coupled with an equally pressing need for greater energy efficiency that can’t be achieved without more stringent quality controls that would raise costs.

U.S. housing starts are still nearly 45% below their previous peak and 25% below the estimated minimum level needed to keep pace with population growth. But as the market recovers, pressure is mounting. Builders are changing the way they build, and that inevitably creates turmoil in the supply chain as suppliers and subcontactors assume new roles.

The Next Decade explores how the channel is structured, how it evolved into its current form, and how players at each level are repositioning for a boom cycle that may play out differently than any other housing boom in modern history.

 

CHANNEL SEGMENTS

Consolidation always dominates the discussion, but specialization has had an equal if not greater impact on the structure and direction of the industry. The Next Decade will bring clarity to the complex network of specialty segments that make up the channel.

Construction suppliers. Full-line lumber and building material (LBM) dealers are a relatively recent phenomenon, dating back only to the “building material supermarket” model pioneered by Wickes in the late 1940s. But as early tract builders migrated away from the use of employed crews in favor of independent trade contractors responsible for specific phases of the project, opportunities began to emerge for distributors with narrower but deeper inventories.

PROJECT LEADERS

GregBrooks2-sqLead author. Greg Brooks of the Building Supply Channel, Inc., in Louisville, Ky., is editor of LBM Executive, a former editor of ProSales, and a steering committee member at the Harvard University Joint Center for Housing Studies. Research credits include The State of Professional Building Product Distribution (Hanley-Wood, LLC, 1998), Building Products Distribution 2008 (Principia Partners, 2008), and Scope of the Lumber & Building Material Industry (National Lumber & Building Material Dealers Association).

FrancoisRobichaudResearch leader. François Robichaud, Ph.D., is a research scientist at Littleton, Mass.-based Forest Economic Advisors (FEA). FEA is one of North America’s leading consulting firms specializing in the forest products industry.

With a limited scope of activity, the only path to growth for those trades was to find similar work in other market segments, for example, commercial or remodeling projects. Their supply needs changed as a result, and specialty distributors emerged to fill the void.

In major metro markets, many lumberyards have also become specialists. They serve as “shell construction” specialists providing design and engineering services, manufactured components, and framing labor as well as bulk materials.

Others have reorganized around the needs of luxury home builders and design-build remodelers. Most also sell finish products such as windows, doors, millwork, and cabinets, but often bring them to market through separate specialty divisions. As specialists in any category reach the limits of their markets, further growth requires expansion into new product lines. Sooner or later, that leads them to competitive conflicts with other types of specialists.

The report will define the segments that make up the residential construction supply universe, examine each group’s value proposition and strategies, and explore the relative strengths and weaknesses of each group in its core product lines.

The rise of specialists doesn’t mean full-line LBM dealers are disappearing. Managed correctly, a “traditional” lumberyard with hardlines can be a viable niche even in major metro markets. In secondary and rural markets too small to support most types of specialty distributors, a broad product offering is necessary.

A full-line LBM dealer’s primary competitors are typically warehouse retailers. Much has been written about the aging of the “big box” model, and many local dealers have found ways to compete or at least coexist successfully. At the same time, warehouse retailers continue to pursue initiatives designed to grow their business with contractors. The Next Decade will examine those strategies and explore the threats and opportunities facing warehouse retailers and full-line LBM dealers as the housing market recovers.

Wholesale distributors and buying groups. Housing and its supply chain are still among the most fragmented industries in the U.S. and Canada, but ongoing consolidation—be it gradual or rapid—means fewer, larger builders served by fewer, larger construction suppliers. That has had an impact on two-step wholesalers and buying groups.

The danger is not necessarily extinction—experts have been predicting the imminent demise of wholesale distribution since the late 19th century. The issue is whether and how individual companies adapt to a rapidly-changing competitive landscape. The Next Decade will cover distributors of both commodities and branded products, and explore how companies are responding to changing purchasing strategies.

Integrated distributors. Vertically-integrated companies that combine manufacturing with distribution exist in virtually every segment of the building products channel. Some sell within the channel; others bypass it and sell directly to contractors or consumers. The report will explore their strengths and weakness and examine the factors that enable them to sell through multiple channels.

 

CONSOLIDATION

Consolidation is a well-documented phase in any industry’s maturation process, occurring in what economists call a “virtuous cycle:” Large companies become stronger as they grow, eventually amassing the size and scale to drive smaller competitors out of business.

But in both home building and construction supply, acquisition activity is predominently roll-up consolidation—large companies buying smaller but often stronger competitors to gain access to their markets.

The recent wave of M&A activity in housing and its supply chain is no mystery. Housing has lagged behind the general economic recovery and investors see greater-than-normal growth potential.

But a number of key questions remain unanswered: If true nationwide home builders emerge in this boom cycle, can the largest suppliers turn their national footprint into a competitive advantage? To what degree, if any, will the channel’s evolution from product- to service-based business models offset the advantages of scale? Will investors continue to support equity-backed suppliers if they are unable to achieve a measurable competitive edge by the time the next boom cycle peaks?

The Next Decade will chart the diverse investment strategies of the major private equity firms currently invested in the industry, explore the relative strengths and weaknesses of the largest construction suppliers, and examine the implications of national dealer chains for independent suppliers, wholesale distributors, and manufacturers.

 

CHANNEL RELATIONSHIPS

Every few years, another survey comes out asking builders, remodelers, and suppliers at various levels of the channel to weigh in on the question, “Who has the greatest influence over brand selection?” The answer is always the same: “I do.”

Actually the evidence suggests that they’re all correct. Brand selection has always been complex, and the combination of new services in the channel plus easy access to information (and misinformation) suggest that brand equity may be more collaborative than competitive.

The report will examine how each level of the channel contributes to a brand, and explore how channel players with strong multi-level relationships build brand equity for their products and services.

 

INNOVATION

If the incoming generation of entry-level home buyers turns out to be as financially strapped as most expect, builders will be hard-pressed to produce housing that is both energy-efficient and affordable.

By all accounts, housing and its supply chain are behind the curve in their use of technology. But the greatest opportunities to reduce cost are all technology-related: building information modeling, automated manufacturing, warehouse management, and business management systems to name just a few.

The Next Decade will take an in-depth look at technologies that have the potential to revolutionize site-built construction, and explore their impact on traditional channel roles.

 

REPORT STRUCTURE

  1. Executive summary. Overview of major findings, summary of marketplace trends, recommendations for future success by channel segment.
  2. Industry structure. Channel segments, market size by segment, number of firms and establishments, impact of the recession by segment.
  3. Marketplace trends. Demographic analysis, home buyer preferences, remodeling trends, housing affordability, community trends.
  4. Market analysis, top U.S. and Canadian housing markets. Economic base, market size by product category, predominant construction activity, leading builders and suppliers.
  5. Channel strategies. Products/services offered by channel segment, target customer groups, supplier service priorities, branding strategies, financial strategies.
  6. Dealer/distributor profiles. Company background, revenue, markets served, ownership, products/services offered, apparent strategies for companies over $500 million.
  7. Competitive analysis. Strengths and weaknesses by channel segment, company size, and ownership structure; consolidation activity and trends,
  8. Emerging opportunities. Housing technology, construction practices, environmental considerations, materials and manufacturing methods, long-range threats and opportunities.

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TIMETABLE

Primary research began in 3Q 2016 and the final report will be published in 1Q 2018.

 

FORMATS

The Next Decade will be available in both print and digital formats. Two editions will be published: 1) an abridged edition that will be available for sale to the general public through industry associations, direct from the publisher, and through the Kindle store; and 2) a special edition for sponsors only, that will include complete survey results.

 

SPONSORSHIP INFORMATION

Sponsorships are available at $12,500 USD if purchased by March 31, 2017, or $15,000 after that date. All sponsors will receive

  • A special sponsor edition of the report with complete survey results;
  • Two full pages in the report for an advertisement or a company profile;
  • 50 digital copies plus 20 print copies of the abridged edition of the report for distribution to your colleagues, customers, and/or prospects;
  • Your logo and tagline on all promotional materials and the inside cover of the book.
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FOR MORE INFORMATION

Greg Brooks, 303 845 4880 or BY EMAIL
François Robichaud, 418 806 4869 or BY EMAIL