BUSINESS ASSESSMENT AND OUTLOOK FROM PRINCIPIA Lumber and Building Materials Distribution 2015 Build Your Own Business Case A dynamic Market Model and Forecast Tool is included, in addition to the base report. This interactive tool allows for what if scenario-building market projections, and is a powerful business planning resource. More details inside The gold standard for information and insights in the building products industry
Lumber and Building Materials Distribution 2015 Lumber and building materials (LBM) distribution, a $120 billion industry, is part of the larger building products industry in North America. Channel participants handle a range of products from basic materials of construction to highly branded manufactured goods. The industry holds substantial potential for profitable growth over the medium- and long-term based on improvements in remodeling and commercial spending, increases in U.S. population size and age, existing housing stock profile, and favorable lending markets. Attractive Market Fundamentals Recovery in new residential construction is now mid-cycle and is strengthening due to low mortgage costs, and renewed demand for new housing driven by changing demographic trends. Remodeling expenditures are also improving, helped by the aging housing stock and provide balance to the overall growth in the home construction market. A greater demand for housing and remodeling projects, combined with concentration among distribution s customer base, contribute to the expected growth and profitability in LBM distribution. Market Share Capture LBM distribution companies are adding complementary product lines to leverage cross-selling opportunities with existing customer relationships. Distributors and dealers are also looking to out of category products to reach customers in brand new areas that are not traditional LBM markets. Value-Added An increasingly larger segment of LBM distribution has manufacturing capabilities including roof trusses, wall panels and stair production, with installation service available. In addition, value-added services such as direct takeoffs from building plans, quick-turn jobsite deliveries and advice on project design are offered, and merchandising including product showrooms and vignettes are a growing trend among more progressive distributors and pro dealers to reach builders and the trades, as well as property owners. Expanded Margin Opportunities Distributors and dealers are carefully reviewing which products represent the best margin opportunities and how to support these products with current and prospective customers. Working capital requirements are also an industry-wide issue as suppliers and distribution manage uneven demand. Just-in-time inventory and lower turns has forced even more diligence balance sheet management in this upper part of the supply chain. 2
Concentrated Builder Demand Over the past two decades, a significant increase occurred in the concentration of production among homebuilders. This consolidation trend in homebuilding has also helped to drive consolidation among pro dealers, primarily in order to meet the service needs and margin pressures from large builders. Focus on the custom builder and remodeling contractor has been an offset for many small- to mid-sized distributors and dealers where product knowledge and personalized service is more valued. Continued Box Channel Competition The home improvement center channel has taken more direct aim at the pro dealer segment by focusing on builders and the trades with services aimed at the builder and contractor. Home installation programs offered by the box retailers have also spurred sales through the box stores that were historically serviced from the independent dealer or specialty distributor. The result is an increase in share for this channel in virtually every LBM product category. Shortened Supply Chain Building product manufacturers have driven shortening of the supply chain with different tactics. Several suppliers in different product categories have either bypassed wholesalers going directly to pro dealers or even further directly to builders or contractors in an effort to shorten lead times, lower logistics costs and capture more margin. Other suppliers have ventured down channel into company-owned distribution in an effort to get closer to the customer and at the same time capture more margin dollars. Understanding the value chain for each product category and where the margins are captured is critical for continued success. Increased Industry Consolidation The rate of consolidation in LBM distribution has increased over the last few years, driven primarily by large pro dealers and retailers looking to broaden their portfolios, gain access to attractive regional markets, and acquire specialty services. This trend is expected to continue due to changing competitive and market dynamics. LBM distribution continues to support attractive M&A valuations reflecting solid long-term fundamentals. The current low cost capital available and high returns in this part of the cycle are driving interest from strategic participants, serial acquirers and private equity. Channel Coverage Building products manufacturer direct Wholesale distribution to pro dealers / lumber yards specialty 1-step retail Specialty 1-step distributors Pro dealers / lumberyards Big box retailers Home improvement centers* Specialty retailers* Masonry yards Products Under Scope Bricks and masonry* Cabinets and countertops* Decking Dimensional lumber Engineered lumber Entry / exterior doors Exterior trim Fasteners* Flashing and tapes* Insulation Interior doors* Millwork, molding and stairs* Panels (plywood, OSB, under flooring, sheathing, sub roofing) Railing Roofing Siding Trusses Wallboard and ceilings Weather barriers and wraps Windows *New for 2015 edition 3
Table of Contents 1. Executive Summary Executive summary of the current market size, trends and developments, keys for future success and outlook in LBM distribution 2. Market Overview Current 2014 demand for building products volume and value broken down by: Channel Review Product Review Geographic Region and Division Distribution Channel Trends Gross Margin Value Chain Analysis broken by Channel Product Geography Financial Metrics Revenue growth Revenues (total and per firm and per branch averages) Gross margins Inventory turns Gross margin return on investment (GMROI) 3. Leading Channel Participants broken down by Channel type National vs. regional vs. local Products carried 4. Builder and Contractor Rationale for buying decisions Relationship with dealer Specific brand of product Availability of products in dealer inventory Price Jobsite delivery Location of dealer Dealer value-added services and expertise Dealer-offered warranties Dealer loyalty or rebate program Dealer credit terms Overall product mix of dealer Ease of ordering with dealer Design services Product specialists Jobsite training or instruction Education on new products or technology Job lead assistance or generation Product fabrication or end preparation 5. Industry Trends and Developments Shifting channel roles across customer base Key building product manufacturer, wholesaler and distributor alliances Product and supplier trends impacting the channel Purchasing and supply chain management Revenue / margin impact from private label branding Operations and logistics initiatives Sales, marketing and merchandising initiatives Technology role for sales and inventory management Mergers & acquisition activities and buyer / seller motivations 4
6. Forecast and Business Assessment Size of opportunity by channel and by product Changing customer requirements Changing industry structure Implication of size and scale on the Effectiveness of roll-up strategies Role of cooperatives in sharing best practices and pooling of purchasing power Ability to create value in each distribution channel Value creation from new categories, services and operational efficiencies Critical path to serve the opportunities Challenges to the industry Forecast volume and value and margin to 2017 broken down by Channel Product Geographic region and division 5
About the Program The program will draw upon primary research from over 1,000 value chain participant interviews. An overall view of LBM distribution will be provided based on detailed profiles of the revenue and margin flow of each product category through all channels of distribution. Subscription Features LBM Distribution 2015 is an invaluable program providing all industry participants a 360-degree view of the business. The foundation of each subscription is a written report detailing the key metrics for the industry, broken down by product category, channel to market and overall industry margins. All key issues impacting the current and projected state of the industry will be detailed with individual figures and graphics. In addition, subscriptions will include the following unique elements: Voice of Customer Survey: Understand Critical Market Success Factors Voice of Customer feedback will be captured directly from interviews with contractors, builders, distributors, dealers, retailers and leading building product producers and other relevant trade sources. The results of the interviews will be portrayed in graphical and tabular form to provide insights on the current and projected future state of the market. Comparisons will be depicted among the different types of industry participants, building product categories and geographic regions. Subscribers will be able to zero in on the issues most pertinent to their business. LBM Distribution Database: Identify Key Distribution Relationships The LBM distribution industry is a complex web of interrelationships. Subscribers will have access to a database of over 20,000 North American distribution outlets. The searchable database will enable users to assess key building product manufacturer relationships with wholesalers, lumberyards and specialty one-steppers. Leading channel participants in each product category will also be detailed. Overall, this valuable resource will break down LBM distribution along the following parameters: Distributor name Location (city, state) Channel type Product categories Major suppliers Market Model and Forecast Tool: Create Your Own Forecasting Scenarios A key feature for subscribers is the LBM distribution market model and forecast tool. The interactive market model tool enables subscribers to evaluate the market through whatever lens they choose. The market model and forecast tool is based on Principia s proprietary process used to develop industry forecasts and demand assessments. Key variable data include base year assumptions; forecast year-over-year GDP growth; population growth; market trends and other related metrics. This analytical and planning tool will enable clients to construct their own what-if scenarios of future demand and growth to develop their go-to-market strategies. 6
This powerful new web-based tool is designed around best practices of data visualization and usability. The online platform enables users to login from any desktop or mobile device to access all of the data from the report, with the added ability to instantly customize the data views with their own information. Use the tool to: Quickly analyze, visualize and share data Create rich analyses & interactive dashboards with intuitive drag and drop functionality Filter, drill down and combine multiple views of data with a few clicks Instantly update with your own data & generate custom reports Inside the Principia Market Model and Forecast Tool Information from different sources is compiled and analyzed to create demand forecasts based on a wide range of scenario assumptions, including your own. Modify Your Own Forecast The Principia Market Model and Forecast Tool lets you insert your own assumptions and what-if scenarios. 7
Using the Report This report will serve as an important baseline analysis for forecasting and business planning purposes by existing and new industry participants. Using 2014 as the baseline, the report will analyze the drivers and trends of the LBM distribution industry by region, distribution channel, market segment and product, and will provide forecasts covering the next three years. Total revenue and margin pools at each level within supply chain Changing market conditions likely to impact distribution channels Channel strategy evaluation for building products manufacturers Market share review for leading product brands on national / regional level Voice of Customer feedback on major product and service trends Strategic insights into opportunities within LBM distribution Why Subscribe? The report will serve as an essential reference for executives responsible for business planning and forecasting at all companies currently involved in or seeking to participate in the LBM distribution industry in North America. The report will be invaluable tool to:: Evaluate current / potential channel partners or suppliers Develop action plans to build market share at any level of participation Optimize channels and customers to drive higher margins Expand business in high growth products and regions 8
Scope The report focuses on the LBM distribution chain, from manufacturer to dealer sell-through to builders / contractors. Geographical scope is North America (US & Canada). Regional Access Regional access to the market model and channel database is available for executives involved in business planning within the LBM distribution industry. These reports deliver market data and trend information at a region or division level based on U.S. Census Bureau segmentation. If your company is a regional manufacturer, distributor, or dealer, you can now have access to the information that fits your needs and budget. Program Timing The report will launch in Q1 2015 and be completed in the second quarter of 2015. We are prepared to discuss the findings to meet your individual information needs. All subscribers to the full program are offered a private presentation by the Principia project team with an open discussion about the report, and to address any company-specific issues. The consultation is included in the subscription price. Charter Member Subscription A limited number of charter subscriptions are available to companies that purchase the report(s) prior to launching the research. Charter subscription benefits include a significant price discount and input into the program design and study research. The charter subscription rate is $15,000. For more information on how to become a charter subscriber, contact Dawn Habgood at +1-610-400-1076. Non-Charter Member Subscription The non-charter member subscription price is $20,000. To Subscribe Call or email for subscription details about the LBM Distribution 2015 program. 9
Lumber and Building Materials Distribution 2015 Subscription Agreement This agreement is between Principia Consulting, LLC, and (Client). Client agrees to subscribe to this multi-client, Lumber and Building Materials Distribution 2015. Client agrees to maintain the report as company confidential for a period of three years from the signature date herein. Client will not reproduce in part or in whole the report by any means, will refrain from oral or written publication of any information presented in the report, and will take every precaution to prevent the disclosure of information in the report to any third party. Principia Consulting, LLC, will not provide the information contained in this report, in whole or in part, to any party that is not a subscriber to the program except for limited use for marketing purposes. Client agrees to subscribe to this report for price noted in this agreement (payable in US currency). Principia Consulting, LLC, will provide an electronic copy of the report for limited distribution upon completion and after the receipt of payment. Principia Consulting, LLC, will invoice Client for the full amount of the subscription fee. All invoices are due upon receipt. To confirm your acceptance of this proposal, please have an authorized employee sign and return a copy to Principia Consulting, LLC. Once signed by both parties, this document shall constitute a legal binding agreement between both parties. Subscription Price Charter Member $15,000 Non-Charter Member $20,000 Total Price (as agreed between Client and Principia) Immediate 2% discount for credit card purchase Cardholder Credit card number Signature Exp. date VISA & MC Security # AMEX Security # AGREED AND ACCEPTED Principia Consulting, LLC Signature Name Title Date Company Signature Name Title Date E-mail BILL TO Name Title Company Address SHIP TO Name Title Company Address City City State ZIP State ZIP E-mail E-mail Phone Phone 101 Lindenwood Drive Suite 225 Malvern, PA 19355 Fax: 484-252-2118 principiaconsulting.com E-mail: info@principiaconsulting.com
Principia Principia helps building materials companies grow profitably by providing business insights driven from broad and deep industry research to develop strategic implementation plans. For information on our custom consulting services, visit principiaconsulting.com 101 Lindenwood Drive Suite 225 Malvern, PA 19355 Main: 610-363-7815 Fax: 484-252-2118 principiaconsulting.com E-mail: info@principiaconsulting.com