SIC 5211
LUMBER AND OTHER BUILDING MATERIALS DEALERS



This industry consists of establishments engaged in selling primarily lumber or lumber and a general line of building materials to the general public. While these establishments may sell primarily to construction contractors, they are known as retail in the trade. The lumber that they sell may include rough and dressed lumber, flooring, molding, doors, sashes, frames, and other mill-work. The building materials may include roofing, siding, shingles, wallboard, paint, brick, tile, cement, sand, gravel, and other building materials and supplies. Hardware is often an important line sold by retail lumber and building materials dealers. Establishments that do not sell to the general public and those that are known in the trade as wholesale are classified in the Lumber and Other Construction Materials industries.

NAICS Code(s)

444110 (Home Centers)

421310 (Lumber, Plywood, Millwork, and Wood Panel Wholesalers)

444190 (Other Building Material Dealers)

Industry Snapshot

According to the National Retail Hardware Association (NRHA), which takes into account hardware stores, home centers, and retail-oriented lumberyards, industry revenues totaled $186.9 billion in 2001. Hardware stores accounted for $23.5 billion; home centers, $112.7 billion; and lumberyards, $50.6 billion. The NRHA predicted that the industry would reach $246.5 billion by 2006.

Since 1997 the industry's top 25 chains have grown from 3,600 stores and total revenues of $58.1 billion to 4,400 stores and $95.9 billion in 2001, representing an annual compound growth rate of 13.3 percent for sales and 5.3 percent in number of stores.

The lumber and building materials industry is dominated by do-it-yourself (DIY) giant Home Depot, Inc., which markets its goods both to DIYers and contractors. Lowe's, Inc. has gained ground on Home Depot by investing heavily in friendly, well-lighted, well-stocked stores and exceptional customer service. A new focus for all home improvement stores is drawing in the growing number of women who are making home improvement decisions and spending an increasing amount of time on DIY projects.

Organization and Structure

There are several types of establishments that fall into the retail lumber and building materials category. The largest categories, by far, are lumberyards, home centers, and warehouse home centers.

Lumberyards, whether as single establishments or parts of a chain, rely heavily on the industry's traditional customer base of contractors, builders, remodelers, and other professionals. Most of their business, anywhere from two-thirds to three-quarters, comes directly from the sale of lumber and building material. Most of these businesses average annual sales of about $3.8 million per unit. Sutherland Lumber, Grossman's, and 84 Lumber fall into this category.

Home centers, which often sell hardware as well as lumber and building materials, generally occupy about 30,000 to 35,000 square feet. Due to their size, they greatly outsell the smaller lumberyards. Many of these sales are to do-it-yourselfers, as well as professionals. Hechinger, Lowe's Companies, and Payless Cashways are home centers.

By contrast, warehouse home centers have an average of over 100,000 square feet of floor space. They boast a wide selection of merchandise at lower prices, although they offer fewer frills than the smaller stores. Home Depot, Builder's Square, and HQ (Home Quarters) are warehouse home centers. At the end of 1999, annual sales reported by the U.S. Department of Commerce included totals from both home centers and warehouse home centers. The sales per unit averaged almost $13 million annually.

Competition has driven many retailers to find new ways of attracting customers. Many outlets offer custom bath and kitchen design and installation, home decorating merchandise, garden centers, and "how to" classes. Some, such as Lowe's, have moved into even more diverse areas, for example, electronics, appliances, and home office equipment, accessories, and software.

Establishments in this industry purchased lumber from wholesalers or direct from factories and mills. Most of the lumber and wood products come from the Pacific Northwest and the Southeast. Other building materials, such as paints, cement, hardware, and related supplies were usually purchased through wholesalers, specialty distributors, or direct from the manufacturer. Some larger chains carried their own labels on products they sold through contractual agreement with manufacturers. Larger stores also worked with manufacturers in training employees about particular product lines.

The industry is represented in federal government policy-making processes by the National Lumber and Building Materials Dealers Association (NLBMDA.) The NLBMDA also provides educational and informational programs to meet industry needs. Some 6,800 retail lumber and building materials dealers, in all 50 states, belong to the Association. The NLBMDA also publishes the Building Materials Retailer, a monthly four-color magazine, and maintains a site on the World Wide Web.

Background and Development

Wholesale establishments selling lumber and building materials appeared in America in the early 1900s. By the 1920s small retail operations began to develop. As the population increased, the industry followed suit. When the Great Depression hit the United States, the industry was adversely affected until public works projects gave it the boost it so desperately needed. During World War II, when home sales were down, the industry suffered another blow. However, the post war period brought tremendous growth for establishments in the industry as suburban America grew during the 1950s and 1960s.

As building increased, so did the number of retail lumber and building materials outlets. At this time many companies expanded into chain stores, and manufacturers began to enter the retail market. A recession in the 1970s caused a temporary decrease in new home construction that put the industry's rapid growth on hold. However, an active real estate market and an increase of home renovations in the 1980s gave the industry's sagging sales a much-needed boost.

Between 1990 and 1993 expenditures in residential repairs and improvement in the United States continued to rise from $39 billion to $41 billion, an increase of 2.5 percent. Overall prices for lumber and building materials increased less than one percent between 1989 and 1991.

Environmentalism had a serious impact on the lumber industry in the early 1990s, which, in turn, impacted those in the retail lumber business. In June 1990, the northern spotted owl was listed as an endangered species by the U.S. Fish and Wildlife Service (FWS). As a result, about 9 million acres of timberland in the Pacific Northwest were declared off-limits to the logging industry. In addition, the ruling targeted the areas where much of the country's old-growth trees are located. These trees are a vital part of the industry's livelihood. The lumber industry estimated that the nation's availability of lumber was significantly reduced, forcing over 200 mill closings and the loss of roughly 30,000 industry-related jobs. This shift also drove up the price of wholesale lumber, which in turn drove up the price of lumber for lumber retailers and consumers.

President Bill Clinton, introduced what he called a "forest plan" in July of 1993. The plan was created as a way to accommodate the logging industry and maintain enough old-growth forest to satisfy the demands of environmentalists trying to keep the spotted owl from extinction. After input from both sides, a revised plan was approved by the federal district court in December 1994. The plan allowed some logging on 693,000 of the roughly 1.5 million acres of land in national forests that contain old-growth trees.

The spotted owl controversy continued into the mid-1990s, and the government continued to take steps to help the industry. Restrictions were loosened on private landowners who agreed to use logging methods that were less damaging to the owls' habitat. Restrictions were also loosened on nonfederal lands in Washington State and northern California. In 1995, President Clinton signed a bill that called for 4.1 billion board feet salvage timber sales over the following two and a half years, including 300 million to 400 million board feet of "green timber," which had been previously deemed off limits. Also included was timber that had been burned in recent wildfires.

Despite the controversy in the early 1990s over the spotted owl and its habitat, the retail lumber and building materials industry continued to expand creating fierce competition between smaller, independent stores and chains and the much larger home centers, or "big box" outfits as they are called in the industry. As the big box outlets sprung up all over America, many smaller chains were forced into store closings and even bankruptcy. Some of the smaller outfits merged in order to compete, while others decided to ride out the storm and hoped they could maintain their customer base with more efficient, personalized service.

The year 1995 was rough for retail lumber and building materials retailers. Consumers were spending less, housing starts were down by 10 percent, and lumber prices were down by 20 percent. Over 200 new stores entered the competition. There was only a 1.8 percent increase in industry sales as opposed to an 11.8 percent increase in 1994. Many companies changed their focus from the general public, back to contractors. In 1995 mixed retailers, those who sell to both markets, had a 0.6 percent drop in sales, while the top 250 companies who focused on industry professionals had a 4.1 percent increase. Competition between big box outlets and smaller chains and independents intensified into the late 1990s. The title of an August 1996 article in Chain Store Age, "Home Improvement Retailing: Get Tough Time," summed up the industry's climate.

In 1996, there was an increase in industry sales of 6.7 percent, due in part to gains in single-unit housing starts, increased spending on maintenance, and a rise in the price of lumber. Industry leaders predicted that 1997 would be a good year for retailers who specialized in lumber and building materials, with an estimated increase of 6 to 6.5 percent.

The industry grew dramatically in the 1990s, due largely to the great popularity and growth of giant home improvement retailers—almost 59,000 establishments in 1997. Retail lumber and building materials outlets accounted for a large chunk of the $215 billion home improvement industry. Since its birth at the beginning of the twentieth century, the industry had grown and changed dramatically. At the start of the twenty-first century, companies across the United States strategized to find ways to keep and increase their share of this very competitive market.

In 1997 the NLBMDA was lobbying Congress for a cut in the capital gains tax, which would create a demand for building materials by encouraging construction, rehabilitation, and other investments. It also lobbied for permanent legislation to allow the salvaging of dead and dying timber and supported full funding of the timber sale and road building program of the U.S. forest service. Another hot issue was the tariff on Canadian lumber. According to an article by NLBMDA chairman, F. Carl Tindell, "We are the ones who have taken the brunt of the United States tariff on lumber imports from Canada. Every time the price of Canadian lumber increases, the price of its American counterpart follows suit, creating unpredictable price fluctuations." He then added that lumber dealers and home builders were expected to "sacrifice so that these select producers might profit."

As in all sectors of the U.S. economy, consolidation within the industry was endemic. Over 40 percent of all retail sales were attributable to this sector's top 500 businesses. With 6,918 locations, combined annual sales reached $89.2 billion.

Current Conditions

Despite the weak economy of the early 2000s, the home improvement industry bucked the trend toward downscaling, reporting healthy growth through 2002. Lowe's, Inc. was the biggest winner as the company strengthened its market position, gaining ground on its top rival, industry-leader Home Depot, Inc. For its part, Home Depot took several blows to its stock value during 2002 as Wall Street stepped back from the do-it-yourself (DIY) giant. Along with Lowe's, smaller, independent DIY and home improvement stores also faired well during 2002. The industry benefited from the nesting instincts that characterized the American psyche after the terrorist attacks of September 11, 2001. Fewer people were taking vacations, and more were settling into the comforts of home, which generated more interest in home improvement projects.

Although home improvement stores are holding their own during the economic recession, they are focusing on core products and shying away from major changes. Hardware, tools, lawn and garden, plumbing, electrical, and paint account for 90 percent of all sales. Since 1990 lumber and home improvement stores had increased sales in these core categories, whereas sales of lumber and building materials had declined. For example, in 2002, lumber sales accounted for 32 percent lumberyard sales, down from 38 percent in 1990. Likewise, lumber sales at home centers declined to 20 percent, down from 25 percent, over the same time period.

Shedding their macho-man image, home improvement centers are working hard to make their stores and products more appealing to women shoppers. According to a study conducted by Lowe's, women influence 80 percent of all home-improvement buying decisions. By 2003, both Lowe's and Home Depot were reporting that 50 percent of their customer base was female. Home decorating and painting led the list of projects favored by women so stores stocked up on designer paints and inviting, in-store home decorating centers. According to Home Depot, 65 percent of the participants in its DIY workshops are women.

Industry Leaders

The Home Depot, Inc. is the world's largest home improvement chain and the second largest retailer (behind Wal-Mart). In 2003 it operated nearly 1,500 Home Depot stores in the United States and Canada and employed approximately 280,000 people. The company successfully combined the economics of a warehouse store with high-level customer service usually reserved for smaller outfits. The average Home Depot store had more than 130,000 square feet of floor space and carried 40,000 to 50,000 products, including home improvement materials, building supplies, and lawn and garden supplies. The company's 50 EXPO Design Center stores showcase bath, kitchen, and lighting fixtures. In 2002 the company reported a net income of $3.66 billion on revenues of $58.2 billion.

Lowe's, Inc., which grew rapidly during the 1990s and early 2000s, operated about 850 stores in 45 states, with most stores in the Southeast, and employed about 153,000 people. Most of Lowe's stores are found in small towns where they can easily offer better prices and a larger selection than smaller outlets. Lowe's strategy for the new millennium focused on expanding operations into the Midwest and West. The firm was able to greatly support that goal by adding about 40 stores in the West by purchasing the Eagle Hardware and Garden chain of retail outlets. The company sells mostly building commodities and millwork, home decorating and lighting, structural lumber, garden supplies and kitchen, bathroom, and laundry fixtures. Lowe's also maintains an 18-percent market share of household appliances. In 2002 Lowe's reported revenues of $26.5 billion, generating $1.47 billion in net income.

Founded in 1972 and headquartered in Eau Claire, Wisconsin, Menard, Inc. ranks as the third largest home improvement retailer. Its 170 outlets, largely located in the northern region of the Midwest, feature a full complement of products similar to that of its competitors, Lowe's and Home Depot. Menard, however, operated a manufacturing facility to maintain competitive retail pricing and increase net profits. The company is owned by John Menard, the firm's founder, president, and CEO. It had 9,200 employees and annual sales of $5.3 billion.

Other industry leaders are 84 Lumber Company and TruServe. With revenues of $2.18 billion in 2002, 84 Lumber primarily serves professional builders, which accounts for about 75 percent of sales. With 430 locations, 84 Lumber employed about 5,800 people. The company created a market niche for itself as a no frills, low-cost retailer of basic building commodities and one-on-one personal service. TruServe operates 6,800 retail outlets, including its flagship True Value hardware stores. In 2002 the company reported a net income of $21.2 million on revenues of $2.18 billion, and it employed 3,200.

Workforce

In 2001 the retail lumber and building materials industry employed nearly 664,000 people in the United States. The average annual wage in the industry was $27,230. One third of the total workforce was employed as retail sales associates, with a mean annual income of $24,550. All sales-related positions accounted for over 54 percent of the workforce. Transportation and freight-related positions totaled 18 percent of the workforce; office and administrative positions, 14 percent; and management occupations, 4 percent. Many of the industry's employees held part-time positions.

Sales associates were usually trained to work with the products as well as in customer service. As the need for salespeople with rising levels of industry knowledge has increased, retailers have had to rethink the way they hire and pay their salespeople. Retailers realized that a well-informed sales staff was key to winning and keeping customers.

America and the World

Companies in this industry no longer limit their retail outlets to the United States and Canada. Some expansion into Mexico has taken place, although the Mexican economy has not created a favorable environment for further store openings. As of 1999, Home Depot had opened three stores in Chile, marking its entrance into international markets. The stores were developed jointly with Falabella, which is the largest retail department store in Chile.

Research and Technology

The use of technology in the industry is continually increasing. In a 1996 survey of 303 retailers undertaken by the National Lumber and Building Material Dealers Association, nearly 100 percent of the retailers responded that they had incorporated the use of personal computers in their business. PCs are used in inventory, invoicing, point of sale, payroll, and accounting. The most important use for computers, however, focused on computerized inventory control; by permitting timely sales input, firms ensured that inventories remained at levels commensurate with consumer demand. Pricing was kept extremely competitive and profit margins were optimized. Most of the larger companies, such as Home Depot, Lowe's, and 84 Lumber, have extensive home pages on the Internet.

Further Reading

2003 Market Measure: The Industry's Market Report. National Retail Hardware Association, November 2002. Available from http://www.nrha.org .

Anderson, Linnea. "Retail and Wholesale Industry." Industry Group Snapshots. Austin, TX: Hoover's Inc., 2000. Available from http://www.hoovers.com .

"Company Information." North Wilkesboro, NC: Lowe"s Companies, Inc., 2000. Available from http://www.lowes.com .

——. Atlanta, GA: The Home Depot, Inc., 2000. Available from http://www.homedepot.com .

"Facts." 84 PA: 84 Lumber Company, 2000. Available from http://www.84lumber.com .

Home Depot Company Information, 10 March 2000. Available from http://www.homedepot.com .

Hoover's Company Profiles. Hoover's Inc., 2003. Available from http://www.hoovers.com .

Howell, Debbie. "Tackles Home Projects Single-Handedly." DSN Retailing Today, 16 December 2002, 24.

"Lowe's Continues to Gain on Home Depot Empire." Electrical Wholesaling, 1 March 2003.

"New Studies Forecast Sales Growth for Industry Categories." Do-It-Yourself Retailing, November 2002, 77.

Price, Lysa. "What about Home Depot?" Money, 1 May 2002,120.

Rennie, Philip. "Bricks Withstand Ill Wind." Business Review, 6 March 2003, 17.

"Retail D-I-Y Market Profile." Do-It-Yourself Retailing, November 2002, 30-32.

Revell, Janice. "Can Home Depot Get Its Groove Back?" Fortune, 3 February 2003, 110+.

"Slumping Sales Have Home Depot Looking to Transform Itself." Do-It-Yourself Retailing, April 2003, 16.

Tratensek, Dan M. "Market Outlook: Home Improvement Industry Moves Ahead in Spite of Nation's Economic Woe." Do-It-Yourself Retailing, November 2002, 28.

Upbin, Bruce. "Merchant Princes" Forbes, 20 January 2003, 52.

U.S. Department of Labor, Bureau of Labor Statistics. 2001 National Industry-Specific Occupational Employment and Wage Estimates, 2001. Available from http://www.bls.gov .

Zaczkiewicz, Arthur. "Analysts: Bumpy Road Ahead for Home Depot." HFN, 13 January 2003, 188.



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