John A. Somerville is the president and CEO of Lumbermens Merchandising Corporation. John joined LMC in October of 2009. LMC is a lumber and building materials buying group serving 390 Stockholder companies, with over 1,400 locations from coast to coast including Hawaii and the Bahamas. Last month, LMC announced that Somerville will retire this June.
Q: With new construction and residential remodeling still strong in many markets, even during the pandemic, what do you see as the biggest opportunity for LBM dealers?
A: It goes without saying that this global pandemic has been a terrible ordeal for many but, as you noted, the industry has stayed strong and it has opened up some big opportunities for LBM dealers.
With the outset of COVID-19 in 2020, and the prospect of spending significant time in the house, homeowners exhibited a desire to create a retreat within the footprint of the home and its outdoor space. While the pace might slow a little in 2021, homeowners are likely to continue on that trend. LBM dealers have the expertise and product assortment to satisfy a large segment of this residential repair and remodel (R&R) market.
Another opportunity is inventory management. LMC Dealers did a great job of managing inventory and had product availability during the height of the pandemic when others struggled. Inventory management will continue to be key even as the global pandemic slows.
Finally, suburban and rural areas have seen a growth in construction due to the desire of people wanting to move out of big cities. With remote work allowing people to work from anywhere, there’s been major growth outside of cities. Remote work coupled with record low interest rates have led to a significant growth in new residential construction in suburban and rural areas.
Q: The flipside of that question—what do you see as the biggest challenge?
A: The greatest challenge is universal to the industry which is supply side constraints. The unexpected surge in business caught LBM yards, distributors, and manufacturers off-guard. Preemptive caution from the manufacturers witnessed many temporary shutdowns and curtailments exacerbated by pandemic-related delays in employee availability. The volume, coupled with the supply disruption, led to significant delays in getting a wide assortment of products from dimensional lumber to decking to appliances.
While some of the dynamics have changed, overall demand in R&R and a surge in new home construction, there is a real likelihood that some products will remain tight going well into 2021.
Another challenge is holding onto the client base created by the global pandemic. Finding ways to keep these new customers satisfied and coming back for their next project will not only depend on customer service, but the ability to supply the materials and keep up with the demand.
In addition, LBM dealers who need to adapt to different ways of doing business and changes to commerce, particularly e-commerce. Our industry needs to move forward to keep up with businesses in other industries that continue to evolve into a digital world.
Q: How has the pandemic changed the way that co-ops and buyer’s groups serve their dealers?
A: As a leading dealer-owned co-op, the pandemic reflected why relationships with LBM dealers and suppliers are so important. There was a need at various times of the year to be flexible to quickly changing dynamics. State mandated closures of businesses led to diverting orders or delaying shipments. COVID-19 fueled mill shutdowns and strained lead times, causing dealers to buy differently than they might have in the past. We were able to find alternative suppliers or products. The key is being able to adapt quickly and pivot to find the best solutions the market can provide.
Another change is that in 2021, LBM dealers became very focused on product availability. In a typical year, the focus has almost always been on price but this year, getting the product itself became more important than the price.
Finally, how we serve our dealers has changed. Nothing will replace face-to-face interaction but the pandemic has taught us how to serve them in a virtual environment. We’re likely going to see a hybrid of the two ways of serving them moving forward.
Q: From your perspective, what are the biggest changes happening in the LBM industry?
A: By far, consolidation is one of the biggest changes in the industry. Consolidators are purchasing retailers; distributors are purchasing other distributors and mills are buying mills. Maintaining and growing scale becomes more important for competitive pricing structures and access to products.
Additionally, because of the pandemic, businesses had to adapt to new contactless ways to serve their customers and change internal processes to protect employees. As I mentioned earlier, nothing is ever going to beat the face-to-face personal interaction that dealers have with their customers.
But historically, the industry has been slower to adapt to keep up with changes in technology and new ways to conduct business. Again, e-commerce will be a key moving forward.
Q: From your experience, what separates great LBM dealers from the rest?
A: The best LBM dealers are financially strong, have the expertise, product assortment and logistics to get goods into the market. Perhaps, more importantly, they are an essential fabric of the communities they serve. They are independent multigenerational owners driven by a culture of service. LBM dealers invest in their community because they are a part of that community. They are little league coaches, school volunteers, serve in politics and public service, involved in local non-profits, and are the familiar face around town. This also leads to them providing better service because they truly care about those they serve.
The best LBM dealers have fostered a company culture of respect, honesty and trust. By example, they instill this culture in their teams. They take the time to develop personal relationships with their customers and their employees. The best LBM dealers also appreciate their people and make sure they know that they are a valued and important member of the organization.