In­no­va­tion in build­ing prod­ucts re­tail­ing

The US Big Box Stores. In­no­va­tion in build­ing prod­ucts re­tail­ing. In­sights for treated tim­ber sup­pli­ers.

Australasian Timber - - NEWS - Gary Con­verse Se­nior vice pres­i­dent, Os­mose, USA

IN­NO­VA­TIONS COME in all sorts of shapes and sizes. In this case it’s the shape of a box and its size is big. We’ve be­come fa­mil­iar in Aus­tralia with what the Amer­i­cans call Big Box stores. On our shores they’re the Bun­nings and Mas­ters. On Amer­i­can shores they’re Home De­pot, Lowe’s and Me­nards.

Apart from the names the other thing that sep­a­rates theirs from ours is size, yep ev­ery­thing is big­ger in the US but with a pop­u­la­tion of around 317 mil­lion peo­ple they need big­ger. In Aus­tralia we’re barely push­ing 26,500 mil­lion peo­ple.

About four years ago in the US a num­ber of com­pa­nies like Home De­pot, came up with the idea that if they could find very, very large empty build­ings and fill them fully of tra­di­tional prod­ucts, like hard­ware, paint, nurs­ery and treated wood etc. and also add dec­o­ra­tive items, kitchen and bath­room, ap­pli­ances, shelv­ing and floor­ing "they would come’. And they did! ""If they could fill up this empty space of this big box as we call it, they could gen­er­ate a new type of busi­ness,” said Gary Con­verse, se­nior vice pres­i­dent of Os­mose in the US.

“It would not only at­tract builders and con­trac­tors to come to the store but home own­ers and do-it-your­selfers.

“Big box re­tail­ers have cer­tainly changed the land­scape of how we sell build­ing ma­te­rial prod­ucts as well as other prod­ucts.

“I’m go­ing to talk a bit about do­ing busi­ness with the boxes.”

In the early days of do­ing busi­ness with the boxes it was a rea­son­ably pleas­ant ex­pe­ri­ence for wood traders.

“You had an old guy like me and you would make the sales call and sit in the of­fice talk about sports ... even­tu­ally you'd get around to get­ting your pro­posal out, they’d look at it say "Yea this looks pretty good you got a deal",shake hands and you’re done,” said Mr Con­verse.

“To­day’s buy­ers are com­pletely dif­fer­ent [they are] younger peo­ple, men and women, highly ed­u­cated, typ­i­cally th­ese peo­ple have ac­count­ing de­grees, MBAs, busi­ness de­grees and sur­pris­ingly a lot of th­ese buy­ers have lit­tle knowl­edge of wood prod­ucts. They couldn't fig­ure a cu­bic me­tre if they had to, but they still have the re­spon­si­bil­ity of man­ag­ing the cat­e­gory and in the case of treated wood, to turn a profit back to the cor­po­ra­tion”

So th­ese buy­ers don’t re­ally know much about the cat­e­gory but ac­cord­ing to Con­verse they are very de­mand­ing. They re­ally put the pres­sure on the treater to do a lot of things that in many cases the treater is not be­ing paid to do, it’s just the cost of do­ing busi­ness with them.

“One ex­am­ple is as a treater I get to come in, in the morn­ing and I’ve got orders for 10 truck­loads of lum­ber,” Mr Con­verse ex­plains. “The buyer is go­ing to ex­pect I’m go­ing to de­liver that lum­ber that af­ter­noon, and cer­tainly no later than the next day.”

That’s a pretty fast turn­around, but not only that, the buyer wants wood that looks good, wood that has a green or en­vi­ron­men­tal en­dorse­ment and one that per­forms bet­ter than ex­pected.

On top of that the Big Box stores are now in­ter­ested in chang­ing the colour of treated wood from a green to a warm nat­u­ral brown. Big, big­ger, big­gest So there’s a lot of pres­sure in the US on wood treaters from the Big Box stores. How­ever, you can’t af­ford to not do busi­ness with them.

In the US the big­gest chain is Home De­pot. It has 2185 stores and a typ­i­cal treated wood in­ven­tory of 300 cu­bic me­tres per store. It is not only one of the largest re­tail­ers in the US, but one of the largest re­tail­ers in the world.

About 90% of Home De­pot’s treated wood is treated with MCA, and the cus­tomer mix is around 20% builder and 80% home­owner. There’s a lot of com­mit­ment to build­ing prod­ucts in the stores.

The sec­ond big­gest player in the US is Lowe’s with 1710 stores, and its typ­i­cal treated wood in­ven­tory is 250 cu­bic me­tres per store. Like Home De­pot it has mainly MCA treated wood, with some CA-C and ACQ. Lowe’s has re­cently in­tro­duced a fam­ily of preser­va­tives that are car­bon based - th­ese are above ground wood with sta­bilis­ers.

“Lowe’s cus­tomers are about 15% builders and 86% home­own­ers. One of the big dif­fer­ences be­tween Lowe’s and Home De­pot is Lowe's is try­ing to fill their stores with more items that at­tract fe­male shop­pers. The store is laid out bet­ter for a fe­male shop­per and has more dec­o­ra­tive prod­ucts.

The third player is Me­nards. They are a smaller Big Box store with only 287 lo­ca­tions, but with a treated in­ven­tory that is the largest of the three with 350 cu­bic me­tres per store. It is mostly MCA treated with a very small per­cent­age of CCA.

The cus­tomer mix is 30% builder and 70% home­owner. They’ve got a big­ger com­mit­ment to the con­trac­tor and trades­man than the other two.

Me­nards is pri­mar­ily lo­cated in the up­per mid west of the US. In the ar­eas where they com­pete with Home De­pot and Lowe’s they are very ag­gres­sive. The dif­fer­ence with Me­nards is they have an out­door drive-through lum­ber area. They are ca­ter­ing more to the con­trac­tor builder ... so they can load up a truck on­site.

The 8000lb go­rilla

“So now that you have bet­ter un­der­stand­ing of the scale of th­ese Big Box stores here’re some ideas on how you have to present wood to make it onto the shelves.

“Each bun­dle of wood has to have a bun­dle plac­ard. The treaters are re­quired to put th­ese on the wood with a bar­code so that when the bun­dle comes into the store the em­ploy­ees can scan it. It tells the em­ploy­ees what it is, so they can’t get it wrong.

“There are also white plas­tic end tags on the end of each board in the bun­dle. The re­tail­ers re­quire all the treaters put th­ese on ev­ery board with a bar­code num­ber. They don’t want to spend money hav­ing their em­ploy­ees put price stick­ers on ev­ery piece of treated wood. That’s the re­spon­si­bil­ity of the wood treat­ment com­pany.

“To give you an idea of scale of the US mar­ket, for 2013 [there was] 7.1 bil­lion board feet or 16.8 cu­bic me­tres of treated wood [this amount is] pro­cessed and sold in the US ev­ery year,” said Mr Con­verse. “It’s a very big mar­ket that the Big Box stores pay a lot of at­ten­tion to.

“If you look at the break­down of com­pa­nies that sell treated wood prod­ucts in the US - 9500 lum­ber yards.

“Home De­pot has 23% of the stores, Lowe’s has 19% and Me­nards has 3%; the rest - 55% - would be non-box stores like in­de­pen­dent lum­ber yards.

“How­ever, if you look at the per­cent­age of sales of treated wood prod­ucts Home De­pot, Lowe’s and Me­nards sell a higher per­cent­age of treated wood prod­ucts than the in­de­pen­dent deal­ers.”

So, 50% of all the treated wood sold in the US is go­ing out of stores in a lum­ber cart from the Big Box stores.

“We have a say­ing, deal­ing with the Big Box stores in the early days was like try­ing to do busi­ness with an 800lb go­rilla - friendly, big, pow­er­ful but back then there were about nine com­pa­nies that were box stores in the United States,” said Mr Con­verse.

“This in­cluded Home De­pot, Lowe’s and Me­nards and it in­cluded five or six other com­pa­nies but they were ei­ther pur­chased by Home De­pot or Lowe’s or ba­si­cally were driven out of busi­ness. “To­day we’re deal­ing with the 8000lb go­rilla” The treated wood buyer at Home De­pot is re­spon­si­ble for pur­chas­ing 400 cu­bic me­tres of wood with a re­tail value north of one bil­lion dol­lars in sales. So there is one pur­chas­ing guy buy­ing more treated wood on the planet than any­body else. That makes him or her a very pow­er­ful buyer, and they rec­og­nize their power.

Trick or treat

Home De­pot and Lowe’s deal with maybe around 15 treaters each, but Me­nards’ buyer does not buy any treated wood from treaters. This is where the busi­ness model is a lit­tle dif­fer­ent. Me­nards owns its own treat­ing plant.

The com­pany has three treat­ing plants. In fact, the largest sin­gle treat­ing plant in the world is in Wis­con­sin and owned by Me­nards. The com­pany also em­ploys this busi­ness model with other prod­ucts.

As is the case in many other busi­nesses all three Big Box stores want to own more than just their name, they want to own the la­bels un­der which they sell prod­ucts. This gives flex­i­bil­ity.

Pri­vate la­bel brand­ing for treated wood cat­e­gories al­lows the re­tailer to con­trol the brand­ing and mar­ket­ing pro­grams. Home De­pot has Weather­shield Pre­mium Wood prod­ucts, Lowe’s has Se­vere Weather Max, Me­nards AC2.

This al­lows Home De­pot and Lowe’s buy­ers to choose dif­fer­ent sup­pli­ers with­out it af­fect­ing the brand­ing. They’ve also done this with prod­ucts other than wood.

“A num­ber of years ago talk­ing to con­sumers who buy lum­ber back in those days, we sold a lum­ber grade we sold as grade num­ber 2 - it has a struc­tural grad­ing,” ex­plained Mr Con­verse.

“Back in those days some of the ma­te­rial would pass the grad­ing re­quire­ments but wouldn’t look very good. We met with the re­tail­ers and the first thing we did was stop hav­ing the wood mills put ink stamps on the wood.

“In the case of the Lowe’s and Home De­pot we went to

sup­pli­ers and said we re­alise we need to have a grade num­ber 2 but we need ap­pear­ance grade or a pretty piece of wood.

“So the mar­ket in­vented a Prime #2 which is ba­si­cally a piece of num­ber 2 wood with less knots and wanes ... so the whole mar­ket has gone pri­mar­ily to this prime #2.

“Prime #2 costs the treater about 25% more in the shorter lengths and about 10% more in the longer lengths.

“This change im­proved the treated wood cat­e­gory for the Big Box stores.

“One mill has taken it up a notch. They de­vel­oped what they called a treater grade of prime #2. The mill is guar­an­tee­ing it will not warp or twist.

“Nei­ther Home De­pot nor Lowe’s can man­age large de­liv­er­ies; they’ve got small fork­lifts that can’t han­dle the big bun­dles of wood. And they also want to stack a whole ar­ray of wood prod­ucts.

“So end tag­ging and bun­dle plac­ards are musts they want and the treater has to use plas­tic strap­ping and cor­ner pro­tec­tors. It’s the treaters that have had to make the in­vest­ment.

“The in­vest­ment is more than just the end tag or plac­ards. You have to hire peo­ple to put the tags on ei­ther by hand or us­ing au­to­matic air equip­ment.

“Th­ese plac­ards and end tags are also packed with in­for­ma­tion and that in­for­ma­tion isn’t al­ways straight­for­ward but it must al­ways be cor­rect to meet con­sumer leg­is­la­tion.”

Ac­cord­ing to Mr Con­verse, tag­ging is some­thing not done lightly in the US; part of it in­cludes a third party in­spec­tion agency that guar­an­tees the qual­ity and stan­dards of the wood.

Then the prod­uct size must be placed over the bar­code just in case the bar­code can’t be read at the cash reg­is­ter. The other thing that is in­cluded is the preser­va­tive used and the end use for the wood, in most cases the con­sumer doesn’t know one preser­va­tive from the next.

“A treater could have 200 dif­fer­ent bar­codes at the treat­ing plant,” said Mr Con­verse. "They are fi­nan­cially re­spon­si­ble for hav­ing the right tag on the right piece of wood.”

Treaters get two-year sup­ply deals, which is a good thing, but good for both treater and Big Box stores. The stores are un­likely to do any­thing good just for the treater -- there has to be some­thing in it for them. Ty­ing up a two-year deal means they have fixed the price, de­liv­er­ies etc they can move on to some­thing else.

“Big Box stores are open mostly 24/7 so treated wood de­liv­er­ies typ­i­cally hap­pen be­tween 10pm and 6am. They don’t want the trucks there dur­ing the main sales hours.

Coloured wood

Big Box stores are now mov­ing to­wards water re­pel­lents and sta­biliser ad­di­tives, colour ad­di­tives and mould in­hibitors at sawmill level. They are also go­ing af­ter the pro con­trac­tor busi­ness to in­crease sales.

One of the things im­pact­ing the wood mar­ket in the US is the plas­tic wood mar­ket.

“If you look at the plas­tic wood mar­ket - ev­ery­thing is brown,” said Mr Con­verse.

“So if you can’t beat them join them. We are tak­ing tra­di­tional green treated wood and turn­ing it into a nat­u­ral brown colour.

“The colour is blended into the wood treat­ment so­lu­tion for a one step treat­ment and we’ve done a lot of ex­po­sure stud­ies, done a lot of fo­cus groups.

“This is re­ally great for the con­sumer. As an ex­am­ple, a wooden fence built with cedar wears down to a grey colour, a cheaper pine treated and coloured fence is cheaper, looks bet­ter than cedar and lasts longer.

“Home De­pot wasn’t con­vinced about coloured wood but they were tempted into putting some in one of their stores over win­ter to see the take up. They mon­i­tored sales and had a 25% in­crease by adding colour. Now there’s lots of plants pro­vid­ing coloured wood mostly in two pri­mary colours – cedar brown and red­wood.

“So, in­no­va­tions have come as a re­sult of the Big Box stores in the US, some re­lated to the prod­uct. How­ever, by and large they have been about the treaters work­ing harder to keep the Big Box store buy­ers on side.”

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