Real Issues. Real Answers: The future of the independent LBM dealer

Real issues. Real Answers. Future of independent lumberyard
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Over the past couple of years, the LBM industry has experienced an unprecedented amount of consolidation, with fresh news about yet another acquisition coming faster than ever before. This month’s Real Issues question is from an independent LBM dealer who wonders what the future holds for their company, and whether staying independent is the smart move, or if it’s better to consider buying or selling.

First, we asked our readers via an email survey whether they are independent dealers, or part of a larger organization. Overwhelmingly (90.7%) of LBM Journal readers responding to the survey indicated that they are independent and are not part of a larger group.

Secondly, we asked respondents to the survey to weigh in on the question we received from the independent dealer questioning his future. Thank you to the nearly 300 LBM Journal readers who took the time to respond to our brief survey. Here’s what they had to say:

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Question:
“Consolidation has long been a factor in our industry, but with so many acquisitions in the past couple of years, I’m curious what the future holds for independent lumber dealers. We’re still independent, but I’m beginning to wonder if that’s smart, or if we should seriously consider either acquiring another independent, or if selling is the right strategy? Would love to hear how others view this situation.”

Responses from lumberyards, building material dealers, and specialty dealers/distributors

“We would be more in the acquisition mode than the selling mode.”

“We are always looking to make smart growth moves.”

“The efficiencies that would come from consolidation would never outweigh the joys of being independent. The best part of being independent are the flexibility to be ourselves as a company and the ability to quickly adjust to our team and customers.”

“Staying independent is of extreme importance. We owe it to our customers to remain independent and provide exceptional service.”

“We would make an acquisition if the fit is right.”

“We are acquiring other independents.”

“We should always be looking for opportunities, but we feel pretty secure in the situation we are in as an independent dealer.”

“It’s a tough call to decide which way to go. Business is very good and should continue for all of 2022. But we have to think down the road about what’s coming ahead.”

“We’re always looking to acquire an independent dealer.”

“Independents have a great future. Through alliances with buying groups and trade associations, we can derive many of the advantages of size while enjoying the advantages of being independent. The only major question is succession; we all need to have a plan and the sale to a consolidator makes sense if there are strong people ready to step up managerially and financially to take over.”

“Selling and consolidation seem to be the answer but primarily because fewer people want to do this job. Also, the amount of rules and regulation make it difficult to justify the overhead in a stand-alone situation.”

“I believe that the days of the independent lumber dealers are over; consolidation is the name of the game.”

“Match up with a company that operates mostly as you do. Hopefully can maintain your brand name, but acquire some new knowledge and leverage some buying power.”

“Independent dealers should aim to acquire and grow.”

“I think we can only maintain our quality and standards by remaining small enough to service our customers to their needs. It’s difficult to scale personal attention.”

“It all depends on what you want and where you want to see yourself in the future. It also depends on your market, customer base, and financial outlook. Can you sustain your business on your own? Can you afford to acquire and/or merge with another and be financially stable? Is someone trying to buy your business? Will you be able to sell it and never have to work another day in your life? There are too many variables to consider to give a quick yes or no answer to this.”

“We are independent and have been for almost 50 years. We have recently brought aboard a new employee who we hope will take over the company in a few years. We would like to see the company remain independent, but would not rule out the possibility of consolidating if that option presented itself.”

“Stay strong! I believe there is still a need and huge opportunity for Independents. The larger these companies get, the more arrogant they get.”

“While I am not the owner, I have been assured that there are no plans to sell, nor plans to acquire. We are planning to open our second location early next year.”

“There are so many factors to consider; it depends on your family, capital situation, etc.”

The question is what do you want your future to be? There will always be a place for the independent lumber dealer. The drawback to consolidation is that investment capital requires a return that will result in margin pressure. Capital is available now but will dry up if there are higher returns elsewhere. Size does not equal success. A study of the whole retail marketplace proves this. If you are committed to this industry in the long term, stay independent.”

“As the third generation in the commercial roofing sector, I hope not to sell unless it becomes absolutely necessary. There are a few options to help even the playing field against the big box. Acquiring another independent would be first, and then joining a buying group in your industry. We are part of a roofing and siding group and it has beyond paid for the membership— not only in pricing, but relationships. Hopefully you have children/family in the industry who want to carry on the family tradition of your company like I do for mine. Good luck! Prayers for the right decision for you and your company.”

“I would say it depends on how long you have been doing this job. If the burnout factor comes into play at this point, then 52 years is enough.”

“There is a very good future for independent operations, especially those affiliated with a commodity buying group like LMC. I think independent builders prefer to buy from independent dealers.”

“I wonder what independent yards like ours need to do to survive in the future. I think we will have to be more specialized in niche areas to bring value to builders. Independents can’t compete with the buying power of these large organizations.”

“Likewise, I am curious as to why the recent surge in acquisitions. Several of the yards that sold out are very good reputable yards. Going forward, is it going to be a positive to compete with these larger companies or detrimental due to their large financial backing?”

“Selling is definitely not the right strategy. We don’t need another Ma Bell. Competition is healthy. Large conglomerates do nothing for customer pricing or supply. It may seem like bigger is better for buying power, but bigger also means spreading supply thinner. If an independent is deciding to sell, mostly due to lack of succession, another independent is the better option. The customer service and community connection is better served. We would rather buy an independent than see a community underserved or at the whim of a conglomerate.”

“Generally, if you’re an independent dealer that is successfully delivering value to the market and competing for share against holding companies, then you have a case for remaining independent. In conjunction with that, you need to have an ownership succession plan in place to remain independent and potentially acquire another independent. If you don’t have a leadership team to move your company forward for years ahead and you’re not adequately delivering value to the market while competing for share, your company will be acquired.”

“We firmly believe that this is still a relationship business. If we get treated fair by our suppliers, we feel it is currently the right move to stay independent.”

“We are small enough not to be a bother, so they leave us alone. Margins continue to rise as the giants raise prices. It would not make sense to sell.”

“We think our independent lumberyard has the best opportunity to create a culture in which our employees can thrive. With our continued focus on providing a family-first culture, we will continue to win the competitive battles by providing unprecedented service in the communities we serve.”

“I think the independent dealer can have an advantage over the big guys as long as they have a co-op to back them up. They also will have an advantage in getting and keeping great employees.”

“Our co-op, Do it Best, is all about growing. We are thinking about building a new store. One thought process is that a new, attractive, and efficient store will bring us more money when we go to sell than an old, tired store.”

“Most markets will continue to support well-run, adequately-capitalized, strategically-aggressive, independent operations. If that is you, go for it. If not, it would be smart to consider selling to someone who is better suited to competing in your market.”

“I think both can be good strategies depending on the goal in mind.”

“I’m not an owner, just a mere salesman. However, I would never work for a larger conglomerate. There’s way too much red tape and no attention to personal relationships and service.”

“Selling or buying depends on more than what others are doing. Independents historically cater to a different customer than big boxes or nationwide corporations. Custom builders historically prefer locally-owned and operated suppliers.”

“We are feeling that we will need to sell to a larger small independent.”

“The problem is we are profitable and we have been in business for 100 years in a small town, but we are getting older and don’t want to expand. Selling is an option.”

“Sell and retire.”

“We are currently looking at our options. With current owners past the retirement age, it is prudent to see if there is a good fit out there for our company.”

“This is a great question that many in our industry are talking about. I would like to see independents acquire other independents that do not have exit strategies in place. Just a thought, but our customers still want to buy local and if we were not on allocation with so many products, we could expand our footprint 10-fold!”

“Because of a profitable 2021, now is the time to get a good multiple on the sale price and to avoid being squeezed out.”

“Regardless of the situation it is about bottom-line profitability. That has to be the focus to have either income!”

“Sell to an aggregator.”

“My own personal view is that if your company is big enough to compete and you are not of an age that is forcing retirement, selling is probably not your best strategy. Expansion may be a good option, but only you can decide if the financial risk involved makes sense.”

“I’ve actually started wondering the same thing. Anxious to hear from others.”

“I believe there is a bright future for independents, but I do believe that size matters and that partnering with a strong independent makes a lot of sense. We have a growth strategy of acquiring strong independent building materials suppliers to grow the value of our company. Culture fit is paramount to our strategy. We are a favorable acquirer due to our culture and opportunities we can provide to employees from the seller. There is a need for strong independents that can complete very well with the large consolidators from a market knowledge, flexibility, and nimbleness standpoint. It really comes down to owners’ expectations, energy level, and succession plans.”

“There is still room for independent dealers.”

“We are a small family owned and operated dealer for 60-plus years wrestling with the same questions. We’d like to stay this way but with the speed of how marketing, the internet, products, and all facets of business are changing, it’s difficult keeping pace with the current marketplace.”

“I sold to a multi-store operation. With Menards, Home Depot, RP, and another independent in a 40,000-population county, the squeezing was happening. I was grateful to be out!”

“I am nearing retirement and would like to have an exit plan in place. I have looked at employee co-ops, as well as selling to one of my employees. I would like to think that over the last 118 years we have built up a good reputation with the community and we do a lot of custom work for our customers that would be lost if we sold to a chain. I think there is still a place for the independent yards.”

“We are in the same boat…still a small- town, independent lumberyard. I’m wondering who is going to buy our competition and how that will work out. We would like to acquire another yard or two, but it just hasn’t worked out yet.”

“We are in great shape as an independent, but I do believe it is becoming more difficult and that the trend will continue with the larger dealers buying up the smaller ones.”

“I believe the era of the independent lumberyard is coming to an end.”

“If the price is right…sell!”

“Our firm changed from private to a large chain a few months back. The valuations are so strong now, and earnings are most likely near a peak. If you are considering selling in the next 3-5 years, no time like the present.”

“I feel there is still a strong place for independents in the marketplace. Contractors enjoy choice. One must be competitive and relevant but there is opportunity for independents.”

“As an independent lumber dealer, if the owners are getting up there in age, they need to come up with a strong exit strategy to either sell the business or have one of their managers purchase the business. If the owners have a few more years left in them, then selling does not make real good sense especially if their market area is growing and they have a strong management team under them. But as the saying goes, ‘money talks,’ and if selling makes sense to all involved then by all means don’t let the opportunity go by.”

“Our company is an asset, and all assets are for sale. Understanding the value of the business is the tricky part. The value of a family-owned business consists of more than just a multiple of EBITDA.”

“We are an independent as well and figured the only way to survive is to acquire locations and talent.”

“Selling out to a big corporation, most of the time, destroys the independent company culture. I would not recommend staying if you choose to sell out.”

“Acquisition or die.”

“I do think to thrive most companies in larger markets will need to either acquire other companies or become acquired by a larger organization. It will be difficult for the small company to compete against the larger companies with their buying power, fine-tuned processes and procedures, better benefits, and more opportunity for advancement to attract quality people, etc. If you are in a small market with little competition, then you could stay small much longer and still thrive.”

“Will you make enough if you sell to live off that income? If I were mid- 60s or older with no kids, it would be time to sell. If I had kids, I may choose to make a strategic acquisition. You can’t lose either way, and I believe the independents still do the best job out there.”

“If we had to choose right now, we would rather acquire another company or merge with one, but would not choose to sell to a private equity firm. If one of our peers were to offer a sum that we could not refuse, we would sell.”

“Everything is for sale, so we think we have a price above which we would sell. On acquisitions, we think we would do better putting that energy and capital into our existing operations.”

“We are an independent chain with no plans of changing, but would always listen.”

“We have been approached by a few larger companies the last two years. Being acquired certainly has its benefits, but I think if you can build a strong team you may make out much better doing the acquiring and building your own multi-location company.”

“Today I still believe in being independent. I believe we do a good job competing with the big boys, especially since they seem to focus on the production builders which allows us to stay focused on the true single-family home builder.”

“I believe within a few years there won’t be any more independent yards. This business has changed so much. This is my 62nd year working in this business and I’ve seen everything.”

“Every business and family dynamic is different. Consult a professional, figure out your long-term goals and the best path to success, whether that is growing your business or selling it.”

“I want to remain independent. I know we can compete on quality and service, but if I do not get the support from vendors that I am used to it will be difficult. If vendors align with larger/ nationwide distributors, it will make it difficult to compete. Our strategy is to grow stronger regionally and diversify our product offering.”

“We have been family owned for over 80 years and expect to be for the next 80!”

“We are an independent with three lumberyard locations and a truss plant. We intend to stay independent and are working on a plan to transition to the next generation. In our market,

we are seeing migration to us. Folks are more and more interested in finding expertise at the counter, knowing decision-makers are on site, and supporting locally-owned small businesses. Our products and services constantly evolve, and we feel we can be nimble as an independent. We provide 60 good jobs in our communities and are optimistic about our future.”

“I am keeping an eye on it, but we have seen consolidation waves in the past and a lot of those players are no longer in business.”

“Being independent has many advantages. Be a member of a strong buying group like LMC and you won’t be alone.”

Responses from wholesale distributors, manufacturers, and service providers

“As the ‘roll-ups’ become increasingly bureaucratic, the more nimble independents will survive and prosper. This is history repeating itself!”

“Independents should always be able to outperform the consolidated ‘super markets.’”

“Stay the course and grow your business organically. Stay the path and grow family wealth.”

“This is a very personal and individual issue. If you still enjoy being in the business, then growth is the answer.”

“The company I worked for was recently bought by a corporate giant. The former owners received a huge payday and every employee now wonders whether their job will be eliminated or consolidated for maximum savings.”

“As an independent you can respond and have much quicker decisions to service your customers. The biggest threat isn’t size, it is buying groups and availability of materials, so it is very important you pick partners on all sides and make sure you develop true partnerships.”

“Larger companies offer many nice benefit packages to the employees, and also can relieve stress of an owner wearing multiple hats. Smaller is a more personal and enjoyable family atmosphere. There may be fewer regulations, company politics, and stress in a smaller company.”

“There will always be a place for an entrepreneurial independent LBM dealer. The key is to focus on the future and stay ahead of your competition. A lack of succession planning is what is driving a good deal of the consolidations in our business.”

“I think the answer to this depends on many factors, including your current size, market, strength of your team, capital position, and long-term goals.”

“I have experienced both the positive and negative effects of acquisition and as much as you may benefit monetarily from the sale of your business, you may also look back in a few years and wonder if there were other options. If you have built your business to be a financially strong and respected company, if you have a true deep-seated caring for your employees and customers, be very careful who you let take over. It is common for most of the national/ international LBM holding companies to tell you everything you want to hear. However, after you are gone the level of personal relationships will most often diminish. Both your long-standing employees and customers become little more than a number. If the reason you worked so hard for all these years is for more than just the payout and want to leave any sort of legacy, then consider other options. How about an ESOP opportunity or consolidation between like-minded independent LBM operations within a region? I will hate to see the day when the independent has all but vanished, but it appears to be inevitable. I believe that if you can stay independent, financially strong, and honest to yourself, you have unique advantages over the big box, so called professional LBM dealers. Stay nimble my friends. Or cash out, move away, and enjoy your retirement.”

“The building materials industry is somewhat resistant to economies of scale due to differences in regional preferences. Consolidation has been a challenge for mills and manufacturers, and bigger companies tend to make bigger mistakes. So, there is plenty of room for independents to carve out a competitive niche, if that is their preference, provided they can perform when it comes to service.”

“I believe the value of an independent is going to rise over the next few years. Hold on to what you have. Acquire others if only it makes good financial sense.”

“I am planning to stay independent before selling in 12-15 years. I am also considering acquiring one or two other independents to expand our offerings. If you want to sell in the next few years, selling now would be smart. A buyer’s market is expected in the next 18-24 months.”

“Selling is not an option for us as we want to keep the right to make our own decisions. But, we have a five-year plan for growth that we want to execute. Therefore, selling is not an option.”

“We have been in consolidation phases before, with major breakups following. The difference this time is the silver tsunami of Baby Boomer retirements. It all depends on the individual business situation. Are the owners close to retirement age? Do you have a solid succession plan? Is there passion within your organization for keeping it independent? How is your bench strength? Given the market valuations, there is no better time to sell, unless the answers to the above questions can convince you otherwise. There will continue to be support for independent lumber dealers from suppliers and customers.”

“From a manufacturing/distribution standpoint, I can see the positives, maybe it is to gain more capital to expand and maybe brand recognition. From an independent lumberyard standpoint, I see that many people do not have anyone who wants to take the business over in the family and they are ready to retire but I would rather see them go to another independent. The expertise and local aspect are what makes the independents so great and when you get bought by a large corporation you can lose that. Not always, but sometimes. I do get why some sell when they are ready especially given what they can get these days.”

“Selling makes sense if you want out, and buying makes sense if you can add without hurting your business. There’s strength in numbers. Staying independent can be tough if everyone around you is a chain.”

“I believe the answer to this question has to do with the goals of the owners for their business. Is it important to the owner’s lifestyle to be their own boss and make their own decisions about the direction they take their business? Is earning an optimal level of profitability and/or an optimal level of return on investment more important than any other measurement? Well thought-out and agreed to goals and objectives written on paper are the key to answering this question.”

“If your heart and head are still excited about the business then stay in the game. Analyze your market potential and what kind of customer you are focused on and then look for strategic acquisitions or expansion specific to your analysis and goals. Own your market and be the best at what you do best. Also focus on being the best place to work from a compensation and cultural standpoint so you attract the best talent in your market. It is still a people business.”

“We are a third-generation hardware store with a wholesale lumber division. The wholesale accounts for 80% of our sales. Our owner is approaching retirement and is looking to sell out.”

“A perplexing question—lose independence in favor of corporate guidelines that may not suit local behavioral practices, but swapping the independent battle for corporate security. From my observations local habits will eventually change, especially if the changes can be explained as a future benefit. A good example is lumberyards that supply custom-order lengths opposed to the yards that supply stock lengths only.”

Hundreds of readers share their insights for this every-issue feature. Have a Real Issue? Contact Rick@LBMJournal.com.

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