Setbacks strengthen centu

fT WASN'T always easy to get to Ithis point. but this month Builders Supply Co. of Petersburg, Va., is celebrating its l00th anniversary, separating itself as one of the area's oldest continuously operated business.

Certainly, the lumber and building material dealer endured its share of setbacks over the last century. Just last fall, fire destroyed the company's

Desite hardships-

maybe even because of them-Builders Supply is heading full steam ahead into its next century of business.

warehouse, located adjacent to its headquarters in Petersburg. In the 1980s the business was hit by a devastating flood, with water at least six feet deep in the lumber yard. And, in 1993 it was shook by the tornado that struck and leveled parts of Old Towne Petersburg.

Despite these hardships-maybe because of them-Builders Supply is heading full steam ahead into its next century of business. It is currently making plans to rebuild its warehouse, and working toward continuing to increase sales, particularly during today's strong home buyers market.

"This is an exciting time for us right now," said chairman John H. Vanlandingham, Jr. "Our centennial anniversary gives us an opportunity to look back over the years and see how much we've grown, yet it also sets the stage for preparing for the next hundred years."

Experience has been a key to the company's success. "No matter what the question, we can find the answer," said his son, president James P. Vanlandinsham. "The seven mem- bers of our board have a combined 234 years of service. When I came here 28 years ago, there was a ton of experience, from the salesmen to the mill men. They were strong mentors. They've gone on and suddenly you realize that you're the mentor."

To foster that loyalty, the company is now 1007o employee owned. As of last year, under an Employee Stock Ownership Plan, the company's 70 employees now own all of the company's stock. It took 15 years to accomplish the feat, but in 20O2 the employees finally were able to purchase the last of the stock options from the

VanLandinghams.

"People are more interested in a business when they have a stake in it," James VanLandingham. "When you're talking to that fellow driving a truck, you are talking to an owner."

His father added, "In the past, all of the company's profits have gone into buying the stock. Now that money can go toward building improvements, equipment and other things that will keep us strong and growing."

Builders Supply sells lumber, builders' hardware, roofing materials and engineered wood products, as well as manufactures roof trusses.

ANUFACTURERS aren't the only ones depressed about too much supply depressing prices. Wholesale distributors consider oversupply their "biggest business concern," according to a recent North American Wholesale Lumber Association survey of members.

Most obviously, when profit margins and operating costs remain the same, lower prices mean lower profits. Three percent of, say, $300 per thousand bd. ft. is less than 3Vo of $4OO per thousand bd. ft.

Oversupply may also allow retailers to cut wholesalers completely out of the sales process. J. Dietrich Bondurant, Bondurant Lumber Wholesale & Export, Flomaton, Al., said, "The primary service of a wholesaler is to locate a product that a customer needs at price that the customer can afford. When there is an oversupply, the customer can easily find the product he needs at a price he likes without the help of the wholesaler."

"Too much product for the manufacturer begs for big cuts in price for large quantity sales," elaborated Rick Inskeep, Wood Right Lumber Co., Troy, N.C. "To balance a manufacturer's inventory, big quantity buys go to the mega-wholesaler/user creating another quasi-mill secondary market. The small- to mid-size wholesaler has no chance to participate in this round of sales/dumping. Huge sales organizations then control the market, and the remainder of wholesalers must niche themselves out of the commodity product market or choose not to compete. User/wholesalers (value added) can opt to use product, or sell off product as needed-even using future hedging/forward pricing to enhance or protect a position in the cashside."

In addition, when prices are depressed to bare minimums with no fluctuation, there's precious little room for wholesalers to "get in between." According to Dale Bernard, George Kellett & Sons, Metairie, La., "An oversupply situation usually results in a flat market which limits a wholesalers' ability to profit from the spread between the market itself and the level at which he can buy or sell. It also reduces mill lead times reducing a dealer's need for a wholesaler's prompt wood usually sold at higher margins."

CrediUlnterest

As another distributor explained lumber wholesaling: "It's like the stock market. Nobody's making money unless it's moving."

"Most sellers have no remorse increasing price," said Carlos Kinsey, Lumber Source, Daniels, W.V. "However, decreasing prices to meet competition is much more difficult. Most sellers prefer to hold their turf and/or continue to look for new customers."

Falling prices most seriously harm wholesalers locked into long-term contracts. According to Paul Bellenger Jr., Paul P. Bellenger Lumber Co., Jackson, Ms., "Many wholesalers contract with mills to take a given amount of a certain grade, size, or working to be assured of supply. These wholesalers are expected to honor the contract and take the lumber at the contract price regardless of true market prices. Likewise, the mill is expected to honor the contract if prices go up. These contracts are commonly entered into on a quarterly basis and unless the contract prices are fixed to an index figure such as Random Lengths or Crows, they can only be cancelled by an 'act of God,' that is, fire or flood."

Consequently, Bellenger first sells the lumber, then buys it to fill the order. "We sleep better that way, but lose out on a rising market," he explained.

Speculators are at increased risk. "It makes it difficult to hedge if products are too readily available," explained Dick Kennison, Kennison Forest Products, Sulphur, La. "If price isn't moving, there's no advantage in large wholesalers buying huge volumes of wood. A modest-sized wholesaler like me can compete back-to-back. It levels the playing field."

Binks Campbell, Horseshoe Wood, Temple, Tx., said, "For those who do stock some material, they have the problem of having inventory at a cost above the market. And for them as well as those who only sell based on firm orders, the dollar margin is reduced. Everyone gets more aggressive as to the accounts they call on, which can lead to potential credit problems."

Yet, oversupply also allows retailers to pressure their suppliers to have more stock on hand. "With today's fast paced economy, based on instant access by cell phone, fax and e-mail, we have also come to expect instant delivery, too," said dealer Paul Harper, Hughes Supply, Tampa, Fl. "We're not willing to wait weeks and weeks to get material anymore. This forces mills and wholesalers to keep more inventory on hand to meet quick delivery demands. In today's world, it's often the guy with the quickest delivery that gets the order. This helps me keep less inventory on hand and that helps keep my costs down. It also gives me more of a choice on who to buy from and gives me a better position in the bargaining arena that is so much a part of purchasing lumber. It's the old Catch 22-you can't sell if you don't have it and if you have too much of it, you can't sell it."

Widespread availability of product removes the urgency to buy. "Without the strong impetus of scarcity it is more difficult to get the buyer to take an offering no matter what the price," explained John Naglich, Heritage Wholesale, Evans, Ga. "The buyer feels no real need to act promptly since there is plenty of product and that should only lead to lower prices later. Oversupply not only effects price, but also the buyer's timing of purchase and the ability of the wholesaler to find added value for himself."

David Kay, Forest Products, Inc., Statesville, N.C., finds the situation the same in hardwoods as in softwoods. "If you have too much product on the market, the prices fall and our suppliers seem to double or triple their phone calls trying to dump products on the market," Kay said. "When this occurs, most customers just sit and wait until they feel that the price has bottomed out. Then customers go on a buying spree and prices eventually go back up."

Producers' desperation to unload product also results in too many wholesalers all selling the same thing, making it easier for dealers to shop on price. Yet, all wholesalers are not created equal, insisted Charles F. Wilson, Wilson Lumber Co., Memphis, Tn. "The problem at this time is there are too many self-proclaimed wholesalers who think one can sell lumber successfully with only a telephone, fax machine, or e-mail and a college B.A. diploma," he charged. "They can not identify one species from another and in most cases do not know the end use of the ultimate product."

any wholesalers who say oversupply is not an issue-such as Albert Forest Products, Cedar Mountain, N.C.--deal in specialty products not commodities.

Or they may be exporters-like Timber Valley Forest Products, Suwanee, Ga.-that carry minimal inventory.

Timber Valley's Mel Lundberg said, "For us, (oversupply) gives us more options and keeps the export market open for U.S. goods."

Imports, conversely, have been increasing from Asia, South America, New Zealand and Europe. "Specialty items coming in from South America has been our biggest problem," admitted Mark Austell, Austell Forest Products, Reform, Al. "It is hard to compete with their economy."

Others lay blame north of the border. "There is far too much production coming from Canada," said Bo Bell, Wyatt Bell & Co., Paducah, Ky. "Until that is resolved by whatever means possible, the price will continue to erode and that leaves no margin for profits. I have been in this business for 35 years and never remember overproduction continuing for such an extended period of time. I don't know of another industry that would continue (Canada's) policy of overproduction in the face of the economic environment we are in."

Jack Aden, Rawles-Aden Building Products, Petersburg, Va., disagreed: "We are, and forever shall be, in a world economy. All of us in North America have benefitted as consumers from this fact. Lower priced products of every stripe, including lumber, have flooded this country, hurting our manufacturing sector to be sure, but keeping our inflation rate in the U.S. at a rate which spawns consumer spending. We have to take the good with the not so good, while we recognize and respect our ability to access products easily from all over the globe. I strongly believe in controlling what one can control, and letting markets be free. Just ask the Coalition for Fair Lumber Imports how well the 27.3Vo tariff on softwood lumber imported from our best friend and trading partner to the north has functioned to reach their goals of artificially higher commodity lumber prices."

The problem, most wholesalers agree, is a real one. One apparently without an immediate solution.