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distribution of lumber and building materials? Is the news good or is the industry chronically ill? This is what I see:

(l) Traditional home centers are history. This is not a prediction, but a done deal in Southern Califomia and in other metro areas across the country. The 25,000-50,000 sq. ft. home center will not survive the onslaught of warehouse stores. In less than l0 years we have lost six well financed home center chains with over 125 stores to the Home Brothers ( Home Depot and HomeBase).

(2) The gross margin percentage at the retail level has fallen and it is not coming back. Why? Gross margin at those defunct home centers was about 357o. At Fome Brothers, it's about 28Vo. Unless you offer dramatically superior service or quality, you muit be close on price tb get the business.

(3) Independents doing substantial business with the professional will focus more tightly on this segment and move away from d-i-y. This is a reversal of what took place in the '70s and eady '80s when independent lumberyards were able to tum to tle d-i-y customer because faditional home centers offered only token resistance. Now those home centers have been replac€d by Home Brothers who have locations, selectioir, pricei and financial resource_s to capture a high percentage of the d-i-y seg- ment. Contractor-oriented dealers who want to sirvive must and will work hard to defend their niche.

We have endured economic decline for three years but good news is starting to emerge. We're not on the verge of prosperity - 1994 is not going to be like the late '80s. But we have identified one of our underlying problems - high real estate prices.

Looking ahead, I'm most excited about FiberBond. Its grglvth witl be even greater than we've experienced in OSB. We're just beginning. Initial acceptance of underlayment indicates the flooring business has been waiting for an alternative to lauan plywood. We're well equipped to meet fu0rre demands of supply, perforrrance and environmental sensitivity. FiberBond structural exterior sheathing, with the advantage of a fire rating, has just entered the narketplace, and our interior fiber gypsum panels hav_e found a niche wherever superior strength is needed. Nature Guard cellulose insulation, fiber-cement roof shakes, a whole family of products made using our most plentiful resources - old newspapers, residues of other manufacturing processes and renewable plantation wood - mean futue opportunity for customers.

When our new hish friends sent us off recently with the familiar blessing, "nay the wind be always at yorir baclg" I was reminded of New York Knicks coach Pat Rilev's remark to a group of builders last year: "Winners don't wait for the wind at their backs, but cherish the challenge of wind in their faces."

Since 1989, residential real estate prices are down about 25Vo and commercial and industrial prices in some instances have dropped close to 50Vo. If we iue to strrt job growth again, it is imperative that our real estate prices be competitive with other U.S. mefo areas. Why should a business pay more to locate here than in Seattle or Denver or Dallas? And have to pay its worken more because of housing costs? Businesses will not settle where real estate isn't competitive.

What does this mean to those of us in the lumber and building mat€rial business? The bad news is the real estate in our businesses isn't worth what it was five years ago. Thc good news is lower real es0ate prices will mirke it possible for the building industry to provide houses thaf the majority of the people can afford and that's where we come in. We provide the sticks that make it happen.