The State of LBM Today Lets Talk About Winning

Craig Webb, Editor, ProSales LACN Annual Meeting

Oct. 21, 2011Rancho Mirage, CA

Winning the Right Way

A Legacy of Achievement

California Buyers Featured This Year Even More Achievement

Hela Pela, Bruce Bauer Lumber, San Francisco

Merritt Goodyear, Trinity Lumber, Weaverville

Hanley Wood

October 24, 2011

PROSALES presentation 1

Why Fritz Lang Moved to California

Cal Techs Solar Decathlon Entry

35 Years of Reporting

Roads Scholar

..... . . .. ... ... . . . ... .. . .. .. .. . .... . . .. .. . . . .. ... ..... ..... .. .. . .. . . . . . . . .. ... . .. .. .. . . . . . . . .. ... .. . ........ ... . . . . ..... . . .... . . . .. ...
48 states visited since joining ProSales in Sept. 06

Todays Agenda
What Weve Become

Whats New With Dealers

A Hit Parade of Past Recessions

Favorite New Ideas

Dealers Seal the Deal

Hanley Wood

October 24, 2011

PROSALES presentation 2

Hanley Wood

October 24, 2011

PROSALES presentation 3

Painful Medicine for the Economy

The Builder Sales Call

Cause and Effect

Red States, Blue States

Current Jobless Rates by County
Source: Moodys Analytics via HWMI

Minor Gains
Source: Moodys Analytics via HWMI

Lemonade from Lemons

Current

End 2012

Hanley Wood

October 24, 2011

PROSALES presentation 4

Renters Still Say They Want To Buy

So Why Arent They in the Market?

Source: Hanley Wood Housing 360 Survey of 3,000 Americans, September 2011

Source: Hanley Wood Housing 360 Survey of 3,000 Americans, September 2011

Most Recent Growth Is in Multifamily

U.S. Housing Starts
(Thousands of units) 2,300 2,100 1,900 1,700 1,500 1,300 1,100 900 700 500 300
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Not Quite a Laughing Matter Here

Annual Starts: 2005: 2,068,000 2006: 1,801,000 2007: 1,355,000 2008: 905,500 2009: 554,000 2010: 586,900

658,000

425,000

2006

2007 Single-Family

2008

2009 Multi

2010

2011 Frank & Ernest, 1/27/11

Source: US Census Bureau

Youre 23% of the Country

Too Much of a Muchness

California foreclosures REO Sales = Overhang

Source: Hanley Wood Housing 360 Survey of 3,000 Americans, September 2011

Source: Hanley Wood Market Intelligence, September 2011

Hanley Wood

October 24, 2011

PROSALES presentation 5

Distressed Housing in California

No Million-Starts Year til 2015

2,068
2,000

1,801
1,500

Housing Starts, 2005-2010 actual and 2011-2015 forecast, (000s)

1,355 803 671 554 587 587 961 1,080

1,000

905

Sales of distressed properties figured in 44.4% of all home sales in CA last month. (Nationally, its 30%) 19.5% of all September CA sales were short sales. 23.8% of all sales were REOs. --Source: California Assn. of Realtors

500

0 2005 2006 2007 2008 2009 Spring 2010 Now 2011 2012 2013 2014 2015

Source: Hanley Wood Market Intelligence, March vs. September 2011

Top 10 Builders Market Share

2010 Share: 24.75%

Top 100 Builders Market Share

43.6% 34.5% 35.7% 36.7% 41.2% 43.4% 38.7% 36.7%

34.4% 32.6% 33.3%

Source: Builder magazine

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Builder magazine

Dont Expect Help From These Guys

Your Own Special Challenges

Hanley Wood

October 24, 2011

PROSALES presentation 6

Mr. Homebuilder Is Feeling Besieged

Whats a Banker To Do?

Fannie/Freddie lending limits have been shrunk Mortgage interest deduction is under attack Government tools to jump-start economy lose favor 20% mortgage down payment could become the rule 30-year mortgage could become extinct Banks are both kingpins and pawns in the recovery

Many C&D Loans Are R.I.P.

Volume and percentage of past-due C&D loans, 6/30/11

How Will exStudents Ever Buy a Home?

Source: FDIC

What Needs To Change?

The of the Problem

Source: Hanley Wood Housing 360 Survey of 3,000 Americans, September 2011

Hanley Wood

October 24, 2011

PROSALES presentation 7

Reality Check
We dont view this as going to end anytime soon, so we have to survive in the market as it is. Thats how weve designed our business. Have your business plan based on the reality of the marketplace, so that youre not in some fantasy world. --Ron Mason, President, A.C. Houston Lumber, Las Vegas

2. Whats Happening With Dealers

Flags Have Fallen in Every State

LBM Facility Closures, Jan. 2008-Present: Near 1,625

Are Some Big Dealers Awaiting the Grim Reaper?

Source: ProSales research

Wood sculpture atop the tower of the former Masonic Lodge, Mendocino, CA

This Just In

Meanwhile, Over at ProBuild

Rumors floating that the company is approaching former owners of yards it acquired re possibility those former owners will buy back facilities they had leased to ProBuild. If not, could a Ch. 11 filing (and canceled leases) be next? Since June, ProBuild has: Reorganized into 3 divisions, cutting (potentially) several hundred jobs. Lost its CEO, pres of ops, EVP of specialty products, chief marketer. Just closed 12 branches.

3Q net loss improved to $11.6mln from $20.5mln in 3Q10. YTD net loss: $48.3mln (2010: -$69.8mln) Net sales rose 20% to $217.2mln. Gross margin: 20.5% in 3Q (was 19.7% in 3Q10) SG&A as share of revenue: 22.3% (was 26.4%) Cash burn for all 2011: $50mln to $55mln Goodwill accounts for 28.4% of company assets.

Hanley Wood

October 24, 2011

PROSALES presentation 8

Its Not Your Typical LBM Company

Red and Blue Redux

Current Jobless Rates by County
Source: Moodys Analytics via HWMI

Relatively Good Here

1. Oil Patch (TX, OK, LA, ND) 2. Ag-Dependent Areas 3. Dealers Serving Upscale Areas 4. Disciplined Dealers With Solid Financials
Encore Flooring & Building Products, Springdale, AR

Shifting Focus
Kimal Lumber, Nokomis, FL, changed its name to Kimal Lumber & Hardware. It added more than 2,200 new SKUs.

New Flags Have Been Planted

LBM Facility Openings, Jan. 2008-Present: Over 330

Discipline

Linton Tibbetts

Source: ProSales research

Hanley Wood

October 24, 2011

PROSALES presentation 9

Old Values, Still Relevant

An Issue To Watch: Design Values

Why not fight for justifiable profit? Where your margins are producing only 3% net before taxes, if you add 1% to your average selling price you will increase your net profits by one-third! If you can add 6% you are getting up toward the profit goal that is adequate to sustain prosperity in your business, in this industry, and in our country.

Pursue Home Buyers, Not Builders

Bringing Customers to Your Clients

Pursue Architects, Too

TW Perrys All About the Home show, Montgomery County, MD

Hanley Wood

October 24, 2011

PROSALES presentation 10

Does He Remind You of Your OSRs?

The Secret of His Success

Step Up Your Prospecting

Ruth Kellick-Grubbs says: On average, it takes 14 attempts to make contact. Successful sales reps today target 40+ calls per week. Keep a list of 10 to 15 active prospects at all times. Practice your voice-mail messages and actual conversations.

Prospect Prior to Building Permits

Sample OSR Profile

Average Sales by OSR: GM$ by OSR: Quote Value by OSR: # Penetration Meetings: # Penetration Sales: # of Prospect Contacts: # of Conversions: $ 276,045 $ 75,160 Target $250,000 $ 67,500 $750,000 15 2 42 1 Diff 110% 111% 101% 136% 60% 87% 133%

Analyze Your Sales Better

$ 754,959 20 1 36 1

Source: Ruth Kellick-Grubbs, Effective Sales Strategies for Todays Market, ProSales white paper, September 2011

Hanley Wood

October 24, 2011

PROSALES presentation 11

Cloud Cover

Discover Newer Ways of Talking

Remodelers Want You Wired

What are the top three things that independent lumber and building material dealers (i.e., NOT the big-box chains) could do to improve the sale of building materials to remodelers?

Younger Remodelers Are Different

Offer broader range of products Facilitate online ordering Before- and after-hours pickup Deliver in smaller quantities Shorten lead times Make sales reps more available Improve materials ordering process

26% 25% 19% 16% 16% 11% 9%

Source: ProSales/Farnsworth Group survey of remodelers, January 2011

A Tablet To Take for All LBM Headaches

Competitive Challenges
Lowes is rolling out a website upgrade this month that will Store customers purchasing details Provide a site to get warranty info and installation guides Help customers envision how a wall color or flooring product will look. Remind them when its time to get new filters and such.

Hanley Wood

October 24, 2011

PROSALES presentation 12

E-Mail Newsletters

Provide New Promo Opportunities

Don Abel Building Supply, Juneau, AK

Don Abel Building Supply, Juneau, AK

Twitter

Follow Dunn Lumber, Get This Reply

Dunn Lumber, Seattle

Doubling Up: Its Economic

But Also an Ethnic/Social Trend

Source: Census Bureau

49 million Americansabout one in sixlived in 2008 in a HH with at least two adult generations. In 1980, 28 million did. The number of multigenerational HHs grew by 500K in 2010 alone. Pew Research Center

Hanley Wood

October 24, 2011

PROSALES presentation 13

California, Nevada by the Numbers

California
Total: 37,253,956 +10% 40% 6% -5% -1% Total: White: Black: Hispanic: Asian: Nat.Amer.: Multirace: Other: Whites: Blacks: Hispanics: Asians: Nat.Amer. Multrace: Other:

Whos Likely To Want McMansions

Household Type One person Two people Three people Four people Five or more people Renter Occupied Native Citizen 28.0% 35.0% 15.4% 12.9% 8.7% 22.8% Non.-U.S. Citizen 15.1% 20.8% 20.3% 21.1% 22.7% 59.7%

Nevada
2,770,551 +35% 54% +12% 8% +58% 27% +82% 7% +116% 1% +10% 3% +61% 1% +91%
Source: U.S. Census Bureau

38% +28% 13% +31% 0% 3% -9% +7%

1% +22%

Source: U.S. Census Bureau, September 2011

Reach Out to Remodelers

Old Houses Need Repairs

Average Age of U.S. Housing Stock

2005 2013

34 years 37 years

(oldest in U.S. history) (projected)

Source: Harvard Joint Center for Housing Studies

Age Breakdown of U.S. Housing Stock 2000s

Before 1960

33%
1960s

8%
1990s

13%
1980s 1970s

12% 20%

13%
Source: Freedonia, 2009

Growth Rates of 6% to 9%
Hanley Wood Market Intelligence Remodeling Index

Better Outlook Than for New Homes

Homeowner improvements, 4Q moving totals, $blns

Source: Harvard JCHS

Hanley Wood

October 24, 2011

PROSALES presentation 14

Qualities That Remodelers Value

Timely Delivery Having Products in Stock Knowledgeable Sales Reps Product Selection Loyalty and/or Past Relationship Price Special-Order Capabilities Return Policy After-Sales Support Nationally Recognized Brand Credit Policy Can Communicate Electronically Learning Opportunities E-Commerce Capabilities 8.98 8.87 8.78 8.58 8.57 8.44 8.25 8.19 7.92 7.35 6.82 6.68 6.47 5.76 Vital

Help Them Be Better Businessmen

Difference Makers

Source: ProSales Survey of Remodelers, Dec. 2010

Fewer than 15% of all remodelers know the cost of being in business. 90% will eventually fail even if profitable. Every one of them reinvents the wheel. Remodeling consultant Shawn McCadden

Help Them Be Better Businessmen

What They Want
Tech know-how Product info Customer service Design trends Employee skills Advertising help Low prices
Source: Shawn McCadden

What Architects Are Hearing

% respondents reporting popularity of room increasing minus % reporting decreasing popularity 2Q11

Need
* Biz management * Leadership skills * Financial mgt help * Sales/mktg training * Biz planning/budgeting * Industry awareness
Au pair/in-law suites Hobby/Game Room -9% 2% 2011 2010 Mud room 2% 2% 17% 26% Outside living Home office 41% 43% 34%

54%

Source: AIA Survey

Silver Streak

Golden Aged in the Golden State

Expected numbers of 65+ people in CA thru 2050
14,000,000

65-69
12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2010

70-74

75-79

80-84

85+

2020

2030

2040

2050

Source: Harvard Joint Center for Housing Studies

Source: California Dept. of Finance

Hanley Wood

October 24, 2011

PROSALES presentation 15

Boomers Retirement Housing Plans

Older Folks Spend More

Among homeowners aged 50+, about 60% plan to stay permanently in their current home after retirement and another 18% will stay for at least part of their retirement.
Source: Hanley Wood Housing 360 Survey, Summer 2011 Source: Hanley Wood Housing 360 Survey, Summer 2011

and Hire Others To Do the Work

Universal Design Will Grow

Source: Hanley Wood Housing 360 Survey, Summer 2011

Kitchen Design, Takoma Park, MD

Source: Washington Post, 9/23/11

Market More Creatively Watch Your Customers as They Shop

The Annual Running of the Dachshunds in Kearny, NE

The Mill Yard, Arcata, CA

Hanley Wood

October 24, 2011

PROSALES presentation 16

Sell Condiments With Your Deck

Mix Social Media With an Old Idea

Voyageur Lumber, Ely, MN

Stine Lumber, Sulphur, LA

Brush Up Your Shakespeare Go Green by Going Local

Miamis Shell Lumber Hosted a Production of Romeo & Juliet

Mountain Lumber, Boone, NC

4. Dealers Seal the Deal What Dealers Really Sell: Knowledge

Russell Do-it Center Alexander City, AL

Hanley Wood

October 24, 2011

PROSALES presentation 17

Face It: Some Builders Could Use Help

Builders Worst Nightmare

HGTVs Holmes Inspection attacks lousy building practices.

Canadas Avenging Angel

Coming Attraction: Savvier Customers

Four Recent Surveys

Info Sources for Kitchen/Bath Jobs

Q: How useful are each of these sources to you?
Scale of 1 to 5, where 1 is not influential at all and 5 is very influential.
dealers/distributors/retailers web sites: manufacturers magazines: trade industry peers web sites: trade magazines subcontractors web sites: industry associations magazines: consumer manufacturers sales reps trade shows
3.83 3.74 3.65 3.44 3.35 3.33 3.08 2.99 2.97 2.92

Hanley Wood

October 24, 2011

PROSALES presentation 18

Info Sources for Kitchen/Bath Jobs

Q: How useful are each of these sources to you?
Scale of 1 to 5, where 1 is not influential at all and 5 is very influential.
dealers/distributors/retai web sites: manufacturers industry peers magazines: trade subcontractors manufacturers sales reps web sites: industry web sites: trade trade shows magazines: consumer 3.41 3.40 3.31 3.24 3.87 3.73

Product Info Sources for Remodelers

The Internet 42%

My LBM Suppliers

34%

Magazines and Catalogs

12%

Colleagues and Coworkers

3.20 3.18

9%

Trade Shows
3.02 2.97

4%

Source: ProSales/Farnsworth Group survey of remodelers, January 2011

Not So Good With Architects Yet

Youre the Guys Who Seal the Deal

A spring 2009 ProSales survey of dealers found: Nearly 63% get asked daily about quality and performance of specific products. Another 27% are asked at least weekly. 44% said that, at more than three-quarters of their encounters with clients, they recommend particular brands. Another 42% more suggest products at half to three-quarters of all their meetings.
Lyndhurst (OH) Lumber

Source: Survey for Hanley Wood, Summer 2011

Smile!

Learn From History

Hanley Wood

October 24, 2011

PROSALES presentation 19

Its All About How You See Things

Thank You!

Craig Webb cwebb@hanleywood.com One Thomas Circle, NW Washington, DC 20005 (202) 736-3307

Hanley Wood

October 24, 2011

PROSALES presentation 20