Building Material Supply
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Industry Overview
The building material supply industry in the US includes 50,000 companies with combined annual sales of $250 billion. Large companies include Home Depot and Lowe's. Some independently owned stores belong to wholesale cooperatives like Ace Hardware and True Value, that buy materials in bulk, and resell them to members. Despite consolidation at the top, the industry remains fragmented. A large individual store has annual revenue of $10 million.
Competitive Landscape
The industry is driven mainly by residential real estate construction and renovation. Large chains have expanded rapidly in recent years by focusing on the home improvement market, with contractor sales as a sideline. Smaller companies, often family-owned lumberyards, can compete effectively by catering to contractors (for whom price is less important than other services), through a wider range of specialty products and services, and by serving areas unattractive to the big box stores because of limited customer concentration.
Products, Operations & Technology
Building materials are sold primarily through two distribution channels: wholesale supply outlets and retail outlets like home stores, hardware stores, and lumberyards. The two major types of customers are the Do-It-Yourself (DIY) customer, and the small or midsized construction contractor. (Large contractors often buy directly from manufacturers.)
Products include everything involved in building a house: lumber, hardware, paint, plumbing and electrical products, tools, floor coverings, wallpaper, and lawn and garden products. In addition to selling products, many companies sell installation services (so-called "installed sales") using their own or outside contractors.
The items sold in largest volume by most companies are lumber and plywood panels--commodity products with relatively low margins. Some companies sell only lumber, but most also carry an assortment of higher-margin goods. Inventory management is a major operating concern for most retailers, including stocking the right products, pricing, re-ordering, and tracking sales. A typical Home Depot store carries 40,000 items. Big chains buy many products directly from large suppliers like Georgia-Pacific and Louisiana-Pacific, while smaller companies buy from a large number of regional distributors. Lowe's buys products from 7,000 vendors. Chains with many retail outlets often operate their own distribution centers. Some big homebuilders, like Centex and Pulte, are large enough to have their own supply operations.