Lumber Retailing in the Sixties Survival of the Merchandiser

By JOHN C. PFEIFFER

Monogement Consultont, McKinsey & Co, Son Froncisco

Jack Pfeifter is wel/ known to many West Coasf lumbermen, having spoken this spring fo members of the Lumbermen's Associafion of Northern Ca/ifornia af lheir Yosernife convention and, more recently, before fhe convenlion of the Nafiona/American Who/esa/e Lumber Associalion held in San Francisco in mid-June.

Mr. Pfeifter is wel/ gua/ified lo speak on fhe subject of Lumber Refailing. He is associaled with the San Francisco office of McKinsey & Company, national rnanagernent consulting firm, which has done a substanlial amount of work in the field of Iumber merchandising for the Nalional Lumber Manufacfurers Associafion and for many of fhe nafion's larger lumber concerns.

T UMBER RtrTAILING l-ras been one of America's most I-r 1s5ps6fed retail business endeavors. The local lumber dealer traditionally has been a community leader and a businessmar-r of obvious success. An important reason for this success was his formerly secure position as the supplier of wood products in his community. But times have changed.

Lumber retailing certainly is still a respected business, but the customer is no longer willing to pay a premium to do business in the time-tested manner. If the retailer's prices are too high, the customer is perfectly willing to go around him. If his service no longer meets the customer's needs, the customer is unwilling to be penalized to satisfy traditional ways of doing business. Important changes in the lumber dealer's position are occurring. The purpose of this article is to describe the reasons for these changes and suggest some of the courses of action that are open to those retail dealers still flexible enough to meet the changes in their business and capitalize on them.

THE LUMBER INDUSTRY'S RECENT UPHEAVAL

Virtuallv everv maior industrv in tl.re United States has undergoni subsfantiai change iince \Arorlcl \Arar II. The changes affecting the lumber industry were a little slower in coming, but appear to be making up for their slowness by th'eir potential magnitude. These changes appear to be particularly dramatic as they affect the retail level of the industry. The retailers all over the country are under severe pressures. Their customers are changing, their product line is becoming so broad that many are in danger of losing control of their business, and the traditional channels of distribution are breaking down as a result of the strains being placed on them. You may have a few additional problems to add to the list. First, let us consider those iust enumerated.

(a) Tfre Customers Are Changing

Both the contractor-builder and the shoulder trade customers of the retail lumber dealer are changing. Their product needs are changing. Their service needs are changing. Their very nature is different'

McKinsey's San Francisco ofrice and Jack Pfeiffer have worked exfensively in the field for severa/ Weslern associafions and /arge Wesl Coast concerns. Many of the commenfs in fhis arfic/e are the resu/t of a current study of the lumber industry within the pasf year.

The California Lumber Merchant be/ieves fhaf fhis is a particularly propilious time for presenfing fhis "specia/ to CLM." Primarily, of course, because if is such a searching appraisal of lumber retailing, foday and in fhe years lo corne. Buf also because ils pub/icafion fittingly marks our birthday! Yes, we are 39 years o/d-and on our way to becoming 40 years young. fo paraphrase Mr. Pfeifrer's c/osing remarks, pub/ishing a iournal for the lumber refai/ers offers, in the years ahead, even greafer cha/lenge and opportunity-if one keeps his vision c/ear and his courage high. We infend to do iusf fhat.-Ihe Editor.

The contractor, who traditionally accounted for the largest share of the averag'e lumber dealer's business, has undergone a thoroughgoing change. The craftsman has given *ay to the financier. This financier is now. responsible for over half of the new home construction being built in this country today, and the outlook is for his share to increase even more in the future, The financier-builder buys in a manner similar to industrial purchasers. He demands fabricated pieces and assemblies, not merely randorn-length commodity lumber. He has far less need for the traditional retail services than the craftsman-builder- F{e can often buv directly from a manufacturer or wholesaler if he cannot obiain the-product, service, and price requirements from a retail dealer. He is a tough customer who makes ltis buying decision based on all his special needs being met at -thJ lowest possible Price.

The shouldei trade citstomer is also substantially different from years g'one by. In the first phget he- is a.much more important customer to most retail lumber dealers than in the past. As the contractor has gone aforrr$d the retailer, or opened his own retail establishment, the portion of the retailer's business accounted for by'the shoulder trade has become correspondingly greater. The shoulder trade customer now demands more highly specialized products and services. The do-it yourselfer wants a more highly finished product than in the past. He wants items sufrficientlv fabricated and finished so that he may use them with a minimum of skill. He is also becoming more price conscious. To top off the changing nature of the shoulder trade customers, an increasing proportion are females and demand a more attractive shopping place than tl-re old-fashioned lumber yard. Undoubtedly the ladies will play an increasing part in shaping the form of lumber retailing in the future. Their impact has been felt in many other quarters and I see no reason u'hy the lumber business should be an exception.

(b) The Product Line Is Broader

In addition to witnessing substantial change in customer characteristics, the retail lumber dealer also is under increasing pressure to handle a broader product line. He must handle the usual commodity lumber items, a whole series of commodity and specialty plywood items, a variety of manufactured panel products, dry-mix concrete, paint, hardware, tools, bicycles, trampolines, and swimming pools. Not to mention charcoal.

The retail lumber dealer is becoming a building materials dealer. In the process, he requires broader product knowledge, greater price sensitivity, and more merchandising knou'-how. Whether the retailer lumber dealer successfully can make the transition to a building materials dealer and still serve all possible cLtstomer classes is questionable. In my opinion, few dealers can expect to serve all possible customers with a full line of building materials and still remain competitive lvith the more specialized dealers.

(c) The Distribution Channels Are Breaking Down

To climax the changes that are putting the lumber dealer under stress, we see more and more examples of the traditional channels of distribution breaking down and the retail lumber dealer being bypassed. The accompanying charts show what is happening. The traditional channels of distribution are portrayed as a clean, orderly process with each function within the channel serving its particular purpose. The traditional pattern of distribution never rvas this orderlv, but certainly in the past, the channels of distribution were much more so than now. The second box in the exhibit represents current distribution patterns. Confusion reigns supreme. Everyone is in the act. No holds are barred. No customer group is reserved for any part of the distribution channel.

Everyone hopes the present state of confusion will pass. One possibility is shown in the third box in the exhibit. This is what I believe will happen in the future. As indicated, each function in the channel of distribution will serve a fairly specialized distribution requirement with a minimum of bypassing and short-circuiting. This will be an ideal situation, however, and will never achieve such a completely pure form. It represents an ideal to strive for, but all parties to today's problems must participate in their solution. This includes the lumber dealer. His shortcomings have in many cases created the need to circumvent the traditional channels of distribution. The real challenge ahead for the retail lumber dealer is to become a better businessman, or in other words, a true merchandiser so that he can provide for the end-user customers'needs most effectively and reduce the temptation, or the need, to go around him.

Emergence Of The Specialist

To bring about profitable, orderly marketing in the lumber industry requires that the retail dealer perform his appropriate distiibution functions far better ii the future than he has in the past. As in so many other walks of life, this probably will require a much greater degree of speciali- zation. The retail lumber dealer must borrow from the food supermarket, the department store, and even the discount house, in his quest toward becoming a better merchandiser. He will need to determine what classes of customers he can serve best and then tailor his business approach and practices toward meeting those customers' product and service requirements most effectively.

There appear to be four different kinds of lumber retailer specialists that will emerge and form tl-re nucleus of the

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