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High lumber prices can actually be good for business

By / July 16, 2018

With the cost of lumber rising due to the tariffs on Canadian softwoods, every lumber dealer you talk to is spending more for inventory. Yet any dealer who doesn’t see that as a positive situation may need to rethink how he’s doing business.

I get that prices are high, and that it takes more credit to bring in inventory. But as in most every business, that extra cost is handed down to the end user. Even though prices on lumber are higher, our economy is strong. I bet anyone complaining that the price of inventory is high isn’t also saying there’s no demand for the lumber. In fact, it’s just the opposite. And even if customers gripe about the price, they’re still buying product.

Here at The Deck Store, we’ve always marked up our materials based on a percentage of our costs. We’ve done that throughout the status of the softwood lumber negotiations. If you keep an eye on the market, you can adjust your prices accordingly. And we don’t wait until the new material comes in to raise our price. We raise our price to the market. It’s like a gas station. When the gas prices go up, they don’t pump the cheaper stuff out of the tanks, they raise the price on it all. That way, when the times get soft and we have to lower prices, then the margins have a better chance of averaging out.

Perhaps an unintended consequence of the rising lumber prices is the recent surge we’ve seen in composite sales. When I complete an estimate on deck materials, I quote the customer two sets of numbers: one for lumber, and another for composites. Recently I’ve been hearing from more customers that since there’s less of a difference between wood and composite prices, they’re going to order composites. We already know that if a customer wants to build a cedar deck, after just a few years of having to maintain it, they’re at the cost of a composite deck. As the gap in costs got closer recently, we’re seeing record sales on our composites. I never believed that would happen prior to this year.

Another benefit is that U.S. producers of southern yellow pine are getting more of a fair cost for their materials. When a foreign country can import something at a lower cost than we can produce it, that, in my opinion, drives down local economies. I see tariffs as a good change. Almost everyone I’ve talked to in this industry sees the tariffs as a positive thing. I’ve heard some griping about inventory levels at the manufacturers, but that hasn’t affected us. Others have mentioned credit lines, but that hasn’t affected us either. All in all, we’re seeing record numbers and a record year. Thanks to our strong economy, the tariff has been good for our small business. I haven’t seen a downside.

I bet anyone complaining that the price of inventory is high isn’t also saying there’s no demand for the lumber. In fact, it’s just the opposite. And even if customers gripe about the price, they’re still buying product.

This isn’t the same as what happened in 2007 and 2008, when we all paid a lot for our lumber and then the value of the product dropped. Then, we couldn’t get rid of the stuff for what we paid for it. Today, we’re seeing the opposite. We’re in a situation in which the value of lumber is so high that any lumber we have on hand is worth just that much more.

It has been a fun time the last couple years for dealers who saw this coming. We stocked up, we bought a lot of lumber early on. Now our suppliers recognize that and have promised us we won’t get cut out on inventory.

I can’t believe any independent dealer is not excited about this market right now. Yes, lumber prices are up, but so are sales and so are profits.

Bob Heidenreich

Bob Heidenreich, owner of The Deck Store, in Apple Valley, Minn., has been selling decking and home improvement projects for 30 years. Follow Bob on Twitter: @TheDeckStore.