Economic forecasting has been a tough task for the past few years, given supply chain disruptions, changes in the labor market, and other long-lasting effects of the COVID-19 pandemic. As the economy continues to find its “new normal,” the LBM industry is no exception to these changes.
Our team kept that in mind this year as we kicked off gathering data for this year’s LBM 100, a ranking of the top lumber and building materials companies in the U.S. For the fourth year in a row, dozens of companies participated in this year’s survey, providing insight and hard data into how they fared in 2023.
While 2022 saw nearly all companies in the LBM 100 post sales gains, 2023 data showed the majority of companies in the LBM 100 saw gross sales drop. While just six companies reported a year-over-year decrease in gross sales revenue in 2022, more than 70 companies reported drops in 2023.
“This year-over-year softening may not be as bad as it seems,” states John D. Wagner, managing partner of 1stWest Mergers & Acquisitions. “Many companies’ 2022 performance saw strong sales, coupled with the higher gross profit dollars they earned from selling over-priced lumber. In some product categories in 2023, dealers may have actually sold the same amount (or more) material than in 2022 (especially commodities) but sold it at a lower price.”
“Secondly, high interest rates have put a crimp on new home construction growth—as well as the companion activity of repair and remodeling—or, at the very least, higher rates have slowed the rate of new housing growth,” he said. “The bright side for 2024 is that sales that seem to be ‘missing’ from recent months in 2023 may likely return when interest rates dip to the high 5% – low 6%, something we all know is coming … we just don’t know when.”
However, sales are just one part in the overall picture of the industry. The LBM 100 also aims to show the growth, investment, and innovations in the LBM world, which are rarely in short supply. Dozens of companies reported expanding operations, making acquisitions and mergers, and celebrating milestone anniversaries in the past year—all signaling investments for the future.
“[We want to] ensure we maintain a positive culture and stay directed towards the right path, especially as we are coming off the highest peaks the industry has ever seen,” said Jacob Dufrene, owner of Dufrene Building Materials in Louisiana (No. 48).
Planning for investment
Despite 2023 declines, a majority of dealers in the LBM 100 indicated they still expect to grow in 2024 and beyond. Nearly a quarter of the LBM 100 added one or more new locations in the past year. Colorado-based Kodiak Building Partners (No.4) led the pack, adding 20 locations in 2023.
When asked if they have plans to expand in the next 12-24 months, nearly 60% of companies said yes, with only about 14% of companies saying they did not have plans. That 60% is about 10% higher than the previous year’s respondents, according to past data.
Of those that responded to our question on how they planned to grow, 51 companies indicated they planned to grow through acquiring existing companies, and 38 said they expect to open new locations. Nearly 20% of survey respondents said their company had made at least one acquisition in 2023.
Much of the investment seen in 2023 took place in the physical space as opposed to online. This year’s LBM 100 saw a slight drop in the number of companies that offer online sales, dropping to 30% from 32% in 2023. Some companies recognized that while they expect to implement new processes in the future, for now, they choose to focus on a more human approach.
“While we have to adopt processes or procedures that keep us efficient and relevant as we grow, we still try to maintain that personal touch that often gets lost with our corporate competitors,” said Orlando Alamano, general manager for Northwoods Lumber in Blackduck, MN (No. 97).
Additionally, LBM 100 dealers indicated interest in adopting new technologies now or in the near future, with nearly 40% of companies expressing interest in takeoffs and inventory management systems, and 36% interested in GPS delivery management.
In addition to more common programs, some companies reported unique upgrades, such as inventory robots to scan for retail outages and pricing at Stine in Sulphur, LA (No. 26), and AI-powered tech to sell to commodity buyers at LENCO Supplies in Buffalo, NY (No. 90).
Some companies are also looking at expanding other parts of their business as a means to continue growth. Mark Ely, director of marketing for Carter-Jones Lumber Co. in Kent, OH (No. 5) said the company plans to focus more on production and multi-family business in 2024.
“Relative to custom builder business, these are new areas of opportunity for us, and both have shown tremendous growth over the last several years,” he said. “We have good teams in place to manage the opportunity here, we’re now a known commodity with the builders, and we’ve proven our worth to them. We feel that the hundreds of millions of dollars and sales to these customers in 2023 are just the tip of the iceberg of what we are capable to doing.”
Industry challenges
Despite optimistic outlooks for the future, a number of challenges still remain for the present, one of the biggest concerns being labor shortages. As of March 2024, U.S. unemployment measured at 3.8%, largely unchanged from the 3.5% recorded in March 2023, according to data from the U.S. Bureau of Labor Statistics. This has resulted in a continuation of the tight labor market seen during the past year, making hiring an ongoing challenge. Of the 100 companies in this survey, 72.4% reported that recruiting, hiring, and retaining talent remained a major concern—down only 0.4% from the previous year.
Drivers remained the hardest position to fill, with yard workers and outside sales representatives trailing close behind, also similarly to 2023 results.
However, as with many of the economic obstacles seen in the past few years, innovating new solutions is often the answer. Several dealers reported utilizing online job sites such as LinkedIn and social media, while others are investing in their human resources team to help in recruiting.
“[We have a] dedicated recruiter on our HR team, external recruiters, [and we’re] working with local organizations and school counselors,” said Rachel Huntman, president of Preston Feather Building Centers in Petoskey, MI (No. 74).
As these challenges have been an issue for the past few years, some companies are looking to adapt to changes in the labor market.
“Our manufacturing capabilities provide a competitive advantage given our scale down to the market. This enables us to support our customers in the most effective way given the labor challenges [they] are facing,” said company officials with Builders FirstSource in Dallas, TX (No. 1). “We believe we will maintain this advantage even after the labor markets normalize. New adoption of manufactured products was born out of customer necessity; and now many customers have commented that they will never return to the old ways of constructing a home. Customers that consume our manufactured products are freed from labor challenges, job site waste, and job site delays.”
Companies are also focusing on retention and development for existing employees, a hot topic as the industry faces the retirement of Baby Boomers and the need to train the next generation.
“One of our biggest opportunities in 2024 is training and development of our staff,” said company officials with Koopman Lumber in Whitinsville, MA (No. 22). “We have been working really hard on this, since they are our asset. To accomplish this, we have been working on implementing a learning management system. This platform is helping us manage and track all of our training materials and assignments, and helps us map out paths to promotion for our emerging leaders.”
Several LBM 100 dealers expressed similar sentiment, signaling optimism not only in the face of current challenges, but for the future as well.
“[There is] still an underbuilt housing market in our area,” said Jeremy Hammel, corporate operations manager for Morsches Lumber in Columbia City, IN (No. 89). “Even with rising interest rates and inflation pressure, there still is not enough available housing in our area. Even with the forecast of a possible housing slump, we are still gearing up for the next rush. We feel if rates take any decrease and inflation stabilizes, there will be many opportunities for new construction in 2024.”
Many companies wrote that sticking to their core values is what carried them through 2023, and is the key to taking them through 2024 and beyond.
“We care about people—both our people and our customers as people,” said Michael Weekley, CEO of HT Building Products in Houston, TX (No. 91). “Our core purpose is to improve the lives of our team and to make a difference to our customers, and we live that purpose every day.”
