Go-ops vs. Wholesalers The battle for dealers' lumber dollars

IirOR CO-OPS, it's the final frontier l' of growth - the undiscovered country of LBM. Since most every independent dealer already belongs to at least one buying group, the bulk buying-motivated co-ops realize that increased sales will come not from gaining more members but from gaining more business from existing members. Lumber seems to be that not-yet-fully-tapped resource.

LBM (Lumber & Building Mal€rials) is now the fastest growing segment for almost every co-op. Eager to promote their benefits of low prices through block buying and rebates, coops are steadily encroaching on the territory of the lumber wholesaler. Wholesalers are not only fmstrated to lose business in products they helped to introduce to the mafket but also skeptical that co-ops really offer a better deal and wry that an undercapitalized co-op could leave mernbers holding the bag. So, as one independent wholesaler understated, "that's why most wholesalen don't care too mrch for the co-ops."

Ace Hardware's LBM Division is one of its fastest growlng businesses. Since 1988, LBM deparment sales have tripled; its staff has grown from l0 to 40. Ace's market share of its dealers' LBM business grows every year.

"Ace LBM operates as a stand alone department, when it comes to covering its overhead," said Wayne Wiggleton. "The hardware dealers afe not subsidizing the cost of the LBM deparEent. Nor are tbey sharing in the sepamte LBM dividend rhat goes back to each LBM dealer based on that dealer's participation in LBM purchases each year. Because ofthis, the LBM department has a very low

overhead,

and its profits go back to the dealers who use it. The Ace LBM traders are an extension of the Ace dealer's buying staff. They are not commission salespeople, and are in runy ways a consultant for the dealer, advising them when to btry."

A big push is creating regional pool buying programs, so members can achieve truckload pricing on pallet quantities. *Pooling of truckloads has been going on in an informal basis for years," Wiggleton said. "It is getting more formalized as we create regional offices and the focus of the service areas becomes smaller. Our traders use a fax system to let dealen know when it's time to buy. ln addition, a regional block buy session is held every yeat at the LBM show to combine the dealers' buyng powa for their first quarter needs."

HWI makes rronthly product offerings, with items varying from region to region based upon seasonality, HWI circular advertising and competitors' advertising for that area and month. Each offering includes about eight to 15 "bulky" truckloadpriced items which members can buy in pallet quantities.

Items are $ipped to IIWI's reload

Story at a Glance Co-ops increasing

LBM sales, programs wholesalets warn of dangers of coops' under-capltalization, reliance on commodities.

centers and delivered to the members using dimensional lumber as filler. Due to the program's dependence on special pricing, members are required to sign confidentiality agreements before participating in the program.

As retailers place more of their lumber orders through co-ops, independent wholesalers' sales - especially of commodities - suffer. But these products weren't always commodities.

"Co-ops can't sell anything," charged one Southern wholesaler. "Thirty years ago somebody down here tried to sell spruce framing for the first time. It took some real work to get people to try it. But once the sale was made, then came an onslaughtofpeople to carry it. There w:N no selling to it. In the same way, the co-op comes along, rakes all the chips off the table and says, 'Thank you v€ry much."'

He added, "When a mill has a product that's on the specialty end, it can't say to a cG.op, 'Put this on the market.' A co-op can't affmd to sell. It doesn't have a sales force. It can't provide service if there's a problem in the field. We're going to be selling the product. The co-ops become a conduit. They price it."

Retailers who blindly send all their orders to the co-op migbt be getting fooled, wholesalers contend. "These dealers are being brainwashed," the wholesaler said, bitterly. "A co-op sucks a lot of money out of retailers because co-ops have to buy in bulk.