Go-oFS YS. Wholesalers

(Continued lrom prafuus Pge )

Co-ops have got a monster to feed called Overhead and Dealer Rebates. All they want to do is drive uP the r€venue. And dealers buY ino it If I didn't have to go bid for jobs, if I didn't have o sell Producls, if I was working on somebody else's cash and lnew that I was going to 8et aU their orders, I could work a whole lot cbeaper, too. I'd just hirre a couple of guys to take orders."

"It might be argued that retailers believe there is srength in nutrlbers," said Nick Kent, execttive v.p., North American Wholesale Lumber Association. 'Retailers may s€e their combined buying power as a weapon against the giants. While this may be a compelling argument on the surface, particularly for a retailer who believes his fortunes lie in trading commodity items on razor-thin margins, cooperatives cannot possibly stock the variety of lumber products and sPecialtY items needed by their retailer members. This is where lumber wholesalers shine and belp tbeir retailer customers to develoP Profitable niches that set them apart from the 'boxes."'

That's where indePendent wholesalers come in. "When dealing with lumber wholesalers, value-added services such as providing market information and expediting last minute orders are just a Pbone call awaY," Kent explained. "The lumber whole' saler is in constant ouch with market activities, trends and prices, both in the marketplace and the mills. What's more, the one-stop shoPPing and back-to-back bulk buytng advantages the lumber wholesaler provides allow for a brsader selection of products and species, including hard-to- find specialty items. Mixed shipmens are -available from reloads, as well as special packaging, reman, pattern work, pressure and dip treating and custom kiln drying. coopentives csnnot prcvide this kind of variety and flexibillty. It all trans' lates directly to improved customer servicc and greater profits for the r€lail€rs."

"For the well-financed wholesaler' we soe a definite need in the martet' place," said Milan Stoyanov, Forest City Trading Group, Inc., Portlirnd, Or. "Our prime customer is tbe independent retail lumberyard and lumber disributing yrds. We do the mqiority of our business in back-to-back ffde$, but with a sizable anount of our business from invenlories. Our custome$ rely on us for fast s€trvice, terms of payment and market information. We are the lhk between the producer and the independent conrac' tor yard."

Many wholesalers, forced ino sPecialization to survive, see the fight against the retail warehouse gianB as a looing baule for tbe dealer. The coops, they clain, are a sedative, since about everyone belongs to a co-op now, negating the advantage. Rather than send all his money off !o a co-op' another wholesaler suggested, the dealer 'hight be beuer off spreading his money and his connections around. IfI was an independentdealer, I wouldn't go compete on studs and franing. I'd be a niche rtist and operate where the others can't. Not grinding in the commodities. I'd make the entry level in a particular area so high, they won't want to even fool around

Cotter & Co.

LBM Div. Established: 1976 Oftices: Chicago, ll. Reloads: 6

Total No. of Members: 7,300

% in LBM program:30%

1993 LBM Sales: $300,000,000

Annual LBM Div. gmwth: 16% might "sanction" particular wholesalers who invoice the member retail' er through the co-op so the dealer gets "credit" for the prnchase. While actual savings may be negligible, if the dealer is geting a rebate he perceives a savings. honically, despite the animosity, many inde: pendent wholesalers sell to or through the ao-ops. The coop itself might be the customer or it

Often tbe products are ones usually not slocked in the co-op's disribution bouse. ServiStr buys from independent wbolesalers about 209o of the time, sirrce'trdet conditions dictate tbat wholesalers have talcen a position that gives tbem a pricing advantage oocasionally," said spokesman Bernie Day.

While wholesalers hold inventory, co-ops bave to avoid overbead. Ace has established good relationships with a number of independent whole' salen. "This has allowed Ace to use these vendon' reloads to talrc advantage of market swings without risking a gleat amount of the dealer's money in inventory. While Ace does have some inventory in reloads, it is not set up for use the way an indePendent wholesaler operates a reload. It is sricily for spocial buys," said Ace's Wiggleton.

Hardware Corp.

HWI uses selected wholesalers such as Georgia-Pacific to handle less-than-truckloads of lumber items due to delivery limitations. "'We deliver from our distribution centers in vans that best handle millwork and hard- 4: -ttt,

LBM Div. Established: 1986 LBM Offices: Beaverton, 0r.;Albany, N.Y.; Peachtree City, Ga.; Oak Brcok,ll. Retail Support Centers: 14 Reloads: Use 13 Public reloads

Total No. of Membens:5,000 o/o in LBM prcgram:40olo

1993 LBM Sales: $377,000,000 explained Ray Treen. "We then set up buying arrangements with wholesalers for products that require flatbeds."

Wholesalers benefit from large volume orders, admittedly at lower margins, and receivable protection. The co-ops don't like to invite in members who can't PaY their bills. Wholesalers also figure that if they don't work with the co-ops, their competitor will.

"Some wholesalers have found the apparent credit strength of co-ops to be beneficial," NAWLA's Kent noted. "The lumber wholesaler is able to sell to members of the co-op who on their own would not be credit worthy. The rub comes when wholesalers rcalize that the co-op itself often has very little capitalization. This provides little protection 0o the wholesaler when there is a potential that several weak independent retailers late on payment could literally take the co-op down."

The scenario doesn't seem that farfetched following the collapse of Central Builders Supply, Sturgis, Mi., Builders Co-op, [nc., Marietta, Ga., and Reserve Supply Corp., Chicago, Il., all within a year of each other. CBS gave few warning signs before declaring bankruptcy in June 1992. The co-op continued to drive up sales - to more than $300 regardless of the co-op's financial well being. Such a policy puts the coop and its creditors at risk. We strongly recorrmend that anyone considering participating in or extending credit to a co-op investigate whether such a policy exists and, if so, proceed with due caution. We further suggest that all members of and suppliers to co-ops demand copies of annual signed audits of the co-ops with which rhey deal. Special attention should be given to the bad debt reserves, which are typically minuscule when compared to the exposure.

Hardware Wholesalers Inc.

LBM Dv. Established: Early 1950s

Main Offices: Fort Wayne, ln.

LBM Offices: Woodbum, Or.

Distribution Centers: 6

Reloads:24

Total No. of Members:3,317 o/o in LBM program:50€0%

Servistar Corp.

LBM Div. Established: 1971

Offices: Buder, Pa.; Eugene, Or.

Distdbulion Centers:7

Reloads: Multiple

Total No. of Members:3,800

% in LBM prognam:40olo

1993 LBM Sales: $725,000,000

Annual LBM Div. grcwh:207o million annually - despite net worth of about $1.8 million and minimal protection against bad debt" according to credit rating agency reports. When dealers who had run up a huge tab with the co-op went under, CBS' house of cards collapsed. Wholesalers and manufacturers were stuck with sixftgne receivables and CBS members with potential liability.

Yet many dealers who owe CBS have the money. They just won't pay. Perhaps they figure why pay a bankrupt company? A bankrupt co-op is so busy fighting off the people suing it that it doesn't have the resources to pursue legal action against the people that owe it money.

"It is certainly reasonable to be wary of co-ops' credit worthiness in general," Kent wamed. "In the case of many co-ops with which we have become faniliar, it is mandated by policy that the menbers of a co-op receive periodic cash dividends,

"Co-ops and buying groups that are solely devoted to LBM products and who do not have capital investments in trucks and warehouses could run into problems such as those the departed co-ops faced," continued Ace's Wiggleton. "However, co-ops such as Ace have $2 billion in total sales behind them. And while the LBM department pays its own way in overhead, it is still allowed the cost advantages in expenses that a $2 billion company commands, along with the security of knowing this will keep its credit worthiness secure."

1993 LBM Sales: $ 678,500,000

Annual LBM Div. growtr:20olo

A thinly-capitadrzed cGop composed of many small, independent dealers does not have the resources to absorb any significant defaults. Furthermore, all mop members shorld be fully aware of the financial assessment provisions of their co-op agrcements."

Co-ops attempt to watch credit exposure by doling out stock rebates in addition to cash and by being selective in choosing members. Yet even the coops admit there could be more failures. Buying groups could fail, said Bob Carson, Allied Building Stores, Monroe, La, "if they are motivated to generate profit at their level more so than the dealer level. The profit motivation of the buying group and the lack of adequate legal recourse to collect from dealers has led to these failures. All groups have different standards for admission. If the buying group is motivated by the numben game, dealer cotmt and sales volume, they may be lenient on the admission standards. It is necessary to have dealers legally committed to paying their bill and who monitm the process daily. Management of accounts receivable and legal f@ourse can viroally elininate the risk."

Larry Wendling, Cotter & Co. (True Value):

Adds

"Buying gtoups are usually undercapitalized and it can be a nnjor concern. Do not, however, confuse Cotter & Co. with a buying group. We are a very strong, sound, closedcorporate wholesaler."

In order for either co-op or wholesaler to survive, "it will become increasingly important to provide value-added services along with each sale," NAWLA's Kent said. "Whether this means providing credit, prompt service, special product mixes or assistance in locating hard-to-find items, rehilers will - and shouldbecome more discriminating as to which companies they choose as their 'parfiietrs' in the supply line."

The successful independent wholesalers will be the most specialized and best able to form solid partnerships witl manufacturers. They have to strike exclusive deals that in a particular area they'll make the first sale and the last. After they do all the work, a co-op or competing wholesaler can't come in and carry the product.

And the successful co-ops? While the strongest could go on into perpetuity, the under-capitalized co-op might be in for some rough going. 'Maybe not today, in relatively good times, when the interest rate is 5-6Vo," smiled one wholesaler. "But just wait until things are tougher."

TIO CONSUMERS consider envil/ronmentally safe products important enough to pay morc for the,m?

Wbile some retailers are not convinced the answer is "Yes," pollsters tum up positive statistics:

/ 83% prefer to buy environmentally safe products - Getstman & Myers

/ About two out of tbree would switch to a brand beter for the environmentResource Integrated Systems

/ 63% are more likely to purchase a product because of green claims than thee years ago - Yankelovicb Clarcy

Shulman

/ 6l% went out of tbeir way to buy products labeled environmentally sound - Angus Reid

/ 72% recall labels witb environmental claims - Roper Orguization

A two-year Roper Starch Worldwide study of environmental ads determined consumers also want to lnow "What's in it for me."

"Be specific about the product's benefits in tems of the consumer and

Story at a Glance

Why retailers should use "greon marketing" ways to judge environmentally friendly products sales tips.