Real Issues. Real Answers. Hire or hold off?

While business remains rock-solid in most markets, economists remind us that a slowdown is inevitable. It’s impossible to know when that’s going to happen, but headlines about some prominent LBM dealers shutting stores prompted one reader to ask if he should fill a couple of open positions now, or hold off until the future is more certain. His question, which is at the heart of this month’s Real Issue, boils down to this: Hire or hold off?

This month’s question came from an LBM dealer in Missouri who wrote: “I’m concerned that things are slowing down. A big regional chain just  closed six stores, and Lowes announced plans to close 20 stores nationwide in 2019. We were looking to hire another estimator and truck driver. Should we hold off or hire and train them for the future? I am nervous to hire someone and then have to let them go.”

To learn how other readers would advise this dealer, we sent a very brief survey to the subscribers who’ve opted in to receive our email communications. A big thank you to the nearly 300 dealers who took time to weigh in. If you don’t receive our Real Issues surveys, and would like to be added to our opt-in list, please drop me an email at Rick@LBMJournal.com and we’ll get you added.

- Sponsor -

First, we wanted to gauge reader attitudes about where we are in the business cycle—whether a slowdown has already begun or is still several years away, so we asked:

Question 1:
While business remains very strong in most markets, an eventual economic slowdown is inevitable. How long do you believe it’ll be until the next slowdown affects your business?

As the chart below shows, almost exactly one quarter of respondents (25.1%) report that their market has begun to slow, but nearly double that number (48.4%) believe that the next slowdown won’t begin for another year or two. Just over one-in-five respondents (21.5%) believe we’re still three or four years away. Comments to this question emphasize the regional variations in economic health, the impact of un- usual weather, along with a number of unknowns.

“Due to the oil and gas industries and the Texas economy being strong, all indications is it will be at least seven years before local business will be affected by any outside sources.”

“I believed we peaked in early-mid 2018 and are starting to see some headwinds. Business is still very strong and will be very profitable for organizations that are skilled at expense control and managing margins.”

“Residential business backlog is down even though current sales are good. Commercial sales and backlog remain strong.”

“As a rural lumberyard with a little over 50% of our business coming from the agricultural sector, we began feeling a downturn two years ago.”

“While our market (DC area) has shown signs of slowing, we’re not quite sure if it is weather-related yet or not. We experienced record rainfall in 2018, which hindered building. Our market is now also dealing with the effects of the partial government shutdown. Those federal employees affected by the furloughs are potential end customers for us and if they are uncertain as to when the shutdown will end, they won’t start that addition or home improvement project any time soon.”

“The tariffs and vendors raising their prices all trickle down back to us consumers. We are the ultimate ones paying the tariffs and at the same time hurting the businesses that we run.”

“We’d love to see it continue with no end, but that’s not realistic. Luckily, the region we operate in (Northeast) never got too high in this upswing and never got too low several years ago. We’re lucky enough to deal in an area where there is always money for renovation and high-end new homes.”

“I keep reading that it is strong but vendors tell me that it’s not, it isn’t great for us and our competition is cutting profit margins to the bone to get the sale.”

“As of now we are projecting a sales increase of 5% to 7% in 2019, but in our case, some of that increase comes from a large new location just getting up closer to its likely annual sales potential. Also, some increase could come from the lumber price yo-yo going back up in 2019 after the sizable downturn in 2018. But, as always, our crystal ball is strictly knowledgeable guesses.”

Question 2
How would you advise this dealer? “I’m concerned that things are slowing down. A big regional chain just closed six stores, and Lowes announced plans to close 20 stores nationwide in 2019. We were looking to hire another estimator and truck driver. Should we hold off or hire and train them for the future? I am nervous to hire someone and then have to let them go.”

“I would move ahead with my hire. I am not worried about what the regional chains and national chains are doing. I will prepare my company for the business at hand.”

“Hire the estimator and truck driver. If they are good, competent help, they will help you fend off the downturn. If not, then let them go.”

“Hire part-time help.”

“I would use overtime to cover all customer needs until there is a clear vision of what the future holds. Additionally, the labor market is very tight, and most applicants are not blue chippers. If I came across a blue-chip candidate, I would definitely make room on my team.”

“Hire away and take market share. If the new hires work out, carry them through the down times.”

“Hire them and get ready for the future. They may be better than the people you have.”

“People are crucial to success, so if you find a good one or two, hire them. We’re not talking about a 2008 recession but a much more minor downturn.”

“Lowes and big regional chains have a good number of stores. They often close stores that are underperforming and cover those areas with other locations. I would study your market areas and make your choice after talking with builders and other retailers in other industries to get their take on the future. Sometimes smaller building material suppliers can move and change with what is going on easier than big chains. In the end you can always budget for flat sales and see if you can still make a good profit with the extra employees.”

“Back in 2007, we faced the same decision. Though the economy wasn’t certain, we decided to aggressively staff up. When the downturn came shortly thereafter, we had no choice but to let lots of folks go. Lesson learned. We’re much more cautious now.”

“Try temporary measures first such as overtime or contract estimators until you’re sure you really need additional staff, or cross train existing staff to step in when needed.”

“Must look at your own business and hire based on your needs and expectations, not what is happening to somebody else.”

“I would move forward cautiously.”

“Depends on two factors: How good are the candidates? Can you get the work done with overtime? If the candidates are only just okay, don’t hire new and use overtime to get the work done. If the candidates appear to be outstanding employees, hire them and they will pay for themselves.”

“Hire the truck driver.”

“I would consider the need for each. While estimating is important, deliveries drive business. The most accurate estimate can be negated by bad performance in shipping.”

“Hire new. If layoffs become necessary, layoff your ‘weak link.’”

“If you find a reasonably competent candidate, hire him/her and train for the future. I share your same concerns but have filled two positions in the last three months on the bet that they will be solid, well-trained employees when I need them.”

“Hire and train them up.”

“Depending on your proximity to the stores being closed there may be a real opportunity to show the worth of a small dealer like yourselves in this shrinking market. Better to be prepared for the coming business and pull back if necessary than lose the opportunity when it presents itself.”

“Only you know what you can handle payroll-wise. You must have enough knowledge and muscle power in your staff to help customers. If there are stores closing in your area that would have knowledgeable folks, you should consider them on your team. Another option is to bring someone on part-time with the ability to work more hours when the workload needs are there.”

“Depending on ownership age/ succession plan, I would suggest you grab good talent while it’s available. Plan/look to the future.”

“Hold off until business picks up in the spring.”

“Hire and train for the future. You can always cut back if needed.”

“When others move down or out, that is a prime time to offer better service to fill the demand and offer great service. Their bad is your good as long as it is a reasonable risk.”

“It takes time to train a new employee, so hire and train for the future. When and if the time comes for staff reduction, eliminate the ‘bottom feeders.’”

“Hire them now. Just because certain segments of the industry are hurting does not mean that all segments are.”

“If I could find a truck driver or estimator who would fit our future plans, I would hire him or her in a heartbeat. Qualified help is too difficult to find. These new people will help put you in a position to survive whatever is out there.”

“Don’t judge the economy by how the big boxes are opening and closing stores as their store and regional financial decisions are not necessarily directed by the health of the economy, particularly not in regard to new home sales as new home construction is not their primary customer or business driver. Assuming you are a contractor store based on the need for an estimator, strike while the iron is hot and make some money while you can. Inaction while waiting for the housing market to fail based on box store performance is akin to not investing in the stock market when a few major individual stocks falter slightly. No investment, no return.”

“Business climate is positive, hire them now. Don’t put yourself in a position to have to play catch up.”

“I think you always need to be looking to better your staff, and if the current economy has you in need of additional staff, you have to move forward with hiring. This next estimator or driver hire may turn out to be better than someone you currently have. Unfortunately, when the economy turns you may have to let someone go, but it may not be your most recent hire, and you’ll be better equipped to handle the downturn with a higher quality staff.”

“If the business is strong and can sustain both employees now, you should hire them. No one has a crystal ball and you should take advantage of this opportunity to keep customers happy.”

“I would go ahead and hire them. Make your mark now and this is the time to really emphasize your commitment to your customers/business partners.”

“Invest! Talent will be what separates the winners and losers during any correction that comes in the future.”

“I’d hold off until you can see what the spring brings. It sounds good in our area but until that lumber hits the ground onsite, you’re never positive. We’ve resisted the urge to hire and expand too quickly. That said, it always pays to keep your eye out for the next younger person who is capable and shows an interest in the business. You can’t have too many of them.”

“It is difficult to find quality personnel, so if you have an immediate need and have quality candidates, I would hire them now.”

“Hire if adding them will make you more productive and profitable. If the economy does slow and it impacts your operations, be willing to make the necessary cuts.”

“Overtime is better than another hire. Can a yard man be trained to drive in a pinch? Can a salesman be trained to estimate? Consider giving them a bonus per print. Have you looked into outsourcing for estimating? Maybe a retiree is looking to pick up some extra cash doing their old job?”

“I would hold off until after the 2nd quarter of 2019 and make your decision then.”

“I would not hire.”

“Go ahead and hire as you plan for the future, since employees are your greatest asset. These two positions are critical.”

“At this point in the business cycle— with the economy slowing after an extended expansion—I’d hold off on hiring for now.”

“Wait a year and see what happens, go from there.”

“No one has a crystal ball to know what the future holds. If your business can support that estimator and truck driver for what looks to be at least six months, go for it. It may take an extended amount of time to find someone and get them ready for the job. In that time, you could lose another employee for an unrelated reason and be left even more short of proper help. Being unable to service your customers properly could cost you more business than a slow-down would.”

“We are a small business so we do more with less. What we cannot do in-house, we farm out to third parties. Example: trucking. Where the load is large and requires a bigger piece of equipment such as a gooseneck trailer, I will farm it out to an owner-operator. For estimating, you might check your network for recently retired experts in that field that might want to pick up some side money but not necessarily want a full-time job.”

“I’d like to say go for it, you’ll be prepared when things heat up again, but experience has taught me to be more cautious. Besides, it sounds like there will be help available when you do decide to hire.”

“Get in there and take the lead. Do what works for you, and don’t worry about competitors’ problems. With over 48 years’ experience I think I know what I’m talking about.”

“Depends on the sales staff already on the payroll, dependability, experience etc. If the right person walked in looking for a job, I would have to do some evaluating as to what would be best for the business. I have always believed in being prepared for when things turn around. When that happens, it is likely too late to hire a good employee. I want them on my side, not theirs.”

“Grab them.”

“We are hiring five people this year (bringing our head count from 10 to 15), three of which are outbound sales people. I would advise this dealer to hire as normal. If changes need to take place later due to unforeseen circumstances, then a business has to do what a business has to do.”

“Given the market jitters, we’re holding off on any new hires.”

“With the labor pool as shallow as it is, I’d hire them and let them prove themselves. They just might be better than what you have on staff now. That will make the decision easier if layoffs become necessary. Always be prospecting for customers and staff.”

“We all recognize that labor costs are typically the second largest expense. Along with that, having the right members on our team, at an appropriate staffing level, differentiates us from our competitors. That in turn, drives the level of service that supports the higher margins we strive for. Consistently, we should be looking for people to help upgrade the team, irrespective of the timing or current economic conditions. We should always be searching, you never know when or under what circumstances that opportunity will reveal itself. That new opportunity can be a person to help upgrade a current position, address bench strength shortages, or represent fresh, new concepts to grow the business. In any case, it is all about keeping a balance between labor cost as a percent of gross margin dollars generated. Staffing levels, and the related payroll dollars invested, have to financially make sense, all of the time. Especially when business is good and sales and margin dollars seem to be free-flowing. At that point in time, our labor costs should be on the low end of the scale. Staffing questions are answered by looking at the return on the dollars invested.”

“Be positive and keep moving forward.”

“Independent lumberyards have to out- service the big box stores. The business is still out there, so go and increase your market share by concentrating on the pro business. Hire the estimator and hold off on the driver until you see revenues appreciably increasing.”

“Hire. Customer service will help you stand out from the crowd. If it comes down to layoffs it may not be the new guy that has to go. Keeping competition alive in any business will help keep the business sharper in the long run.”

“Truck drivers are in high demand. Hire the driver and use him in other spots when it is slow.”

“If you can find talented staff with great potential, hire them, train them well, and involve them with your customers and suppliers. Five years from now you will be glad you thought long-term and took action.”

“Never pass on a good man or woman.”

“Hire, educate, nourish and empower. Young people want to do meaningful work. Create the leaders of tomorrow leading to the success of your customers. People are your most important asset.”

“If you are nervous then raise the bar. There is likely some very good talent available to be picked up. When you find an all-star, hire them. They will add value even through a downturn. If it gets bad, then release under-performers and ultimately you’ll emerge from the downturn even stronger.”

“If you need them now to service your current market or you see an immediate or near-term market opportunity, hire. Otherwise, hold off.”

“Hire the best you can afford, and invest the time and money now to be ready for 2021.”

“The future is never certain, so don’t wait until ‘the future is more certain’ as that will never happen. Hire based upon what you have in front of you presently and your own business history.”

“Are these positions necessary currently or are they for growth? If they are for growth, I would be more cautious. However, if you need young blood and current business supports the additions, I would move forward.”

“Hire now. Run your business and make hay while the sun shines.”

“Still move forward with your plans, but be transparent with them so they are not surprised if things go south.”

“Do the best with what you already have.”

“What if business doesn’t slow down? Hire if you need more help. Deal with the slow down when it arrives.”

“Hire now, labor markets are also getting tight. When things turn around, it will be harder to find good labor.”

“Depends on the business and how much you have in cash reserves to weather the storm.”

“Hold off, business appears to be slowing in the Midwest/Northeast market that we are in. Can’t believe that other markets are that strong that you would need to hire additional help.”

“A slowdown is coming eventually, so study your market conditions very carefully before making hiring decisions.”

“Don’t wait. The big guys cut costs in the short term to improve reports to their stockholders, which comes back to kick them in the rear end when they can’t service their customers.”

“You need to service the business that you have well. If that means hiring, then I would hire. We hire part-time people to cover the growth before we hire full time. Then, if we have to lay off, it shouldn’t affect our full-time employees.”

“Given the chance to hire an experienced person in either position, I would probably jump on it, assuming this person is equal to or better than current staff in the same position. When it slows down, you can then decide who needs to go.”

“If the need is there, hire and train. Keep moving forward and take advantage of the big guys’ inability to be nimble in times of change.”

“Go forward and hire if the business is there. Cannot make decisions based on Big Box stores. Two different business models.”

“Hire for when things improve. That way you won’t be behind the 8-ball.”

“I would consider the hire if my current situation warrants it. If you are concerned about not being able to grow to support this person, I would hold off.”

“Hold off until the economic uncertainty passes. The last thing you want to do is hire someone, train them in, then have to let them go. That’s not good for anyone— especially remaining staff who wonder if they may be next.”

“Hire them. There is a lack of talent in the current workforce and trends show that a qualified workforce shortage will remain in the future. Train them to be productive and competitive in the future markets.”

“Hire. If you’re looking to hire, you evidently need the personnel.”

“Big chains no longer believe in customer service. You should position yourself to take advantage of this reality because people still value it. That is why your bigger chains are losing business. Market your business traditionally and on social media, advertise regularly and be sure to push customer service as one of your top priorities.”