Service as a Differentiator
Lumberyards account for the largest share of overall LBM distribution industry revenue with $45 billion, or roughly 30% of the total in 2014. As home building accelerated in 2014, 46% of revenue was from lumber, the largest category but only 29% of the margin, according Principia’s study Lumber and Building Materials Distribution 2015.
Dealers with a heavy focus on lumber generated average gross margins of 16% in 2014. If lumber is excluded from the mix, average gross margin reached 21% for lumberyards based on the averages for all other products typically carried. GMROI averaged 128% for lumberyards but without lumber, GMROI jumps to 163%.
These financial metrics demonstrate the need for lumberyards to balance the product portfolio between lumber and other products, serving both new construction and repair and remodeling to weather the industry cycle. A second takeaway is that if even minor increases in gross margin and/or inventory turns on lumber can be realized, lumberyards can significantly improve their financial performance.
Yet, the most influential attribute in deciding where to purchase building products remains better price, receiving 77% of respondent mentions from builders and contractors recently surveyed by Principia.
Although, home center retailers and online-only retailers offer competitive pricing and convenience, they are unable to deliver the high value-added services that some dealers do. While these services appeal to contractors and builders, approximately one-third of building pros surveyed report that they do not receive any of these services from their dealers.
Shift business away from commodities into specialties.
Some products will always fall into the commodity bucket; however, others might benefit from getting rebranded as specialty items. This strategy is working for the cabinets and countertops category that give buyers simple ways to customize orders and benefit from improved margins.