January, 2007

Innocents Abroad

Dealers are looking beyond the United States for alternative brands. That’s good for the entire channel.

By Greg Brooks

Seems like the “C” word is on everybody’s lips these days. A few weeks ago, I spoke with yet another dealer who’s headed for China to source new suppliers. “We don’t know what we’ll find,” he said. “But we know that if we don’t do it now, we’re going to be behind the curve.”

The co-ops are going, the chains are going, and now even independents are going abroad in search of alternative product lines—and China isn’t the only “C” word on their lips.

Last November, I took a group of American dealers and distributors to Toronto to attend Construct Canada, that country’s equivalent to the International Builders’ Show. I invited 25 executives on behalf of the Canadian government; 23 accepted almost on the spot.

Imports are nothing new in commodities—Canadian lumber, Chilean millwork, and Taiwanese fasteners have been commonplace for years. But dealers are also starting to look beyond the United States for so-called “branded” products: doors, windows, and cabinets, for example.

It isn’t the same as a Makita or a James Hardie coming here and building a brand, either. Frequently, the manufacturer’s name remains all but unknown to builders and their clients; marketplace acceptance depends entirely on local dealers and distributors. Ever heard of Gienow Windows? They’re going into million-dollar-plus homes in Aspen, Vail, and resort towns all over the Colorado Rockies.

So what’s behind the drive to go global? As alliances gel among megabuilders, pro dealer chains, and some leading manufacturers, independent dealers are increasingly concerned that they are—or soon will be—the odd man out in the channel. No one but the manufacturer really knows whether the playing field is level between co-ops and chains, so dealers tend to believe it isn’t.

Nor is skepticism limited to dealers. The latest round of builder buying co-ops such as CBUSA is evidence that independent builders also feel the need for more clout in the competition against Pulte and D. R. Horton.

Whether those concerns are legitimate is another question. One executive, formerly a regional exec with a national pro dealer chain, recently told me his former employer has little or no advantage over an independent in cost of goods, but rebates are a closely-guarded corporate secret he was never privy to.

How much it matters is yet another question. The financial statements of publicly held dealers such as Builders FirstSource or BMHC—or, for that matter, Home Depot—don’t look much different from those of well-run independents. If there is cause for concern, it has more to do with availability than price.

Nevertheless, the perception of inequality is there. While no one’s talking about plans to dump their leading brands, they are moving quietly to establish relationships with secondary suppliers. And that’s not a bad thing at all.

Dealers who rely too heavily on manufacturers’ brands to close sales often lose sight of the power of their own brand, and eventually become only order-takers. When that happens, it’s not only a disservice to the manufacturers those dealers represent, the shift makes dealers vulnerable.

Manufacturers who do all the heavy lifting often lose sight of the value of aggressive distribution, and that makes them vulnerable. They tend to overestimate the influence of their brand, which makes it easier for competitors—or even their own dissatisfied dealers—to undermine them.

A little globalization is just what the doctor ordered. It forces dealers and distributors to flex their marketing muscles and helps manufacturers separate strong distributors from weak ones. In the end, it’ll bring the best players at all levels around to a basic fact that seems to have been lost in the euphoria of a 13-year housing boom: The entire channel is the brand.