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Reddit Juggling Forum Overwhelmed by Building Materials Dealers

Posted by Tom Lombardo | Tue, Sep 15, 2015 @ 07:00 AM

As of yesterday the juggling forum on Reddit topped 5,000 members, and while the site doesn't attempt to explain why, the reason will be obvious to any owner or manager of a professional building supply company: you and your competitors are signing up to find business advice you can actually use.

Coming out of a recession can be a lot trickier than surviving it. During the recession you only had one bowling pin, and tossing it from hand to hand didn't even impress your 2-year-old niece. Now you've got six or seven of them flying through the air, and even though you're not sure they're the right ones, you are certain you can't drop any.

woman-juggling.jpgYour contractors are counting on it. You've probably never been in closer cooperation with them than you are now. Pro building materials suppliers suffered a 31.5% decline in revenue between 2007 and 2012 alone, and before it was over the Great Recession wiped out one in five. It will be a while before the industry recovers from that, and in the interim you can probably expect your juggling act to get more complex.

One thing you already know: since specialty pro suppliers were hammered even harder -- one in four custom lumber dealers fell through -- you need to start handling some of their specialty products.

Juggling for Demand

This is where the art of juggling comes into play. Why did shipments of residential windows surge 18% in the Midwest, nearly double the nationwide increase? How come most of the entry doors went to the South?

Only a local dealer can answer questions like those, but there are certain consistencies you can count upon. Ninety-seven percent of the windows were double-paned and nearly all of them had low-E glazing as well. Same for more than half of the doors.

If there's a sure bet in the near-term market, its demand for LEED-certified supplies. Analysts expect demand for windows and doors to expand 11% a year for the next three years, so be sure to guide your contractor to the energy-saving, environmentally correct specialty product his end-user wants.

And yes, it's looking like a three-year expansion may be underway. Halfway through last year industrial revenue had already expanded 3.2% over the year before, and net income margins jumped half a point to 7.3%. Industrial capacity expanded 3%, which would usually cause a dip in capacity utilization, but utilization happily expanded to nearly 80% anyway -- the fifth straight year it gained.

Manufacturers of all stripes have begun to restart their enterprises, and to take one example, metal-framed glass panels for skyscrapers gives us a great snapshot of the problems with which they're contending.

Glass can account for a quarter of a skyscraper's cost, and the shortage of curtain wall has driven their price to record levels, significantly impacting a builder's equation for a given project. Needless to say, this is happening because a great many manufacturers had gone under by 2010, and coming back to life is not as simple as throwing a switch. They make the glass in giant 2,000 degree Fahrenheit tanks, and they they float the molten glass into a form of molten metal before cutting it into custom-sized pieces.

Turn it off, and everything hardens in place. You either jackhammer the glass out of the machinery, or you spend a few hundred million to build a new plant. Either way, there are several skyscrapers in San Francisco, to name one place, that are just standing there waiting for their curtain wall, draining their developer's coffers while everyone waits for the building to switch from eyesore to economic driver.

Juggling for People

On the upside, this has pushed unemployment in the industrial sector down to 4.5%. Anything under 5% puts a serious premium on experienced workers -- especially since there aren't a lot of new workers in queue. The common wisdom is that nowadays people prefer coding to making, and if that's true, then the lack of skilled labor could become a serious problem for building supplies.

Which would make the housing recovery that much harder to deliver. Demand has recovered to pre-recession levels, with previously owned homes (most of the market) now trading at same level as the early 2000s. Even better, that demand is of high quality: foreclosures have dropped to pre-crisis levels.

walk-up.jpgBut housing hasn't been able to contribute as much to overall growth as it usually does -- because of supply constraints. You'll certainly solve part of that problem (more on that below), but there's another part that has everyone scratching their heads: Americans from Millennials to Boomers want to move to the city. Builders used to put up entry-level homes in far-flung suburbs and sell them to young families before they were finished; now that family wants a walk-up or a condo downtown. Which means that “the places where people want to live," as an economist at Goldman Sachs told the Wall Street Journal, "are not that buildable.”

Juggling for Money

Further complicating this situation for your contractor is the Department of Labor's efforts to protect workers from economic exploitation. The days when your client could have a subcontractor working for him full-time throughout the season are numbered. The DOL's definition of "economic independence" is changing as we speak, and many industry analysts fear that the subcontractor may soon need to become an employee.

This may become a moot point because some builders might come to prefer employees; construction faces the same shortage of skilled labor as the manufacturing industry, and so its possible that some contractors may want to lock up their best people and offer profit sharing to be sure they can complete jobs on time.

Others might just feel fear. In April the DOL secured consent judgments from sixteen construction companies in Utah and Arizona who had abruptly dictated that over a thousand of their employees become independents. At first, they dodged federal and state wage and safety laws and saved a fortune in taxes. Then the DOL hit them with $700,000 in back wages and penalties.

Given all these pressures, and the highly skilled juggling required to lift a company from crisis to recovery, it should come as no surprise that between 2014 and 2015 one third of construction companies dropped from being a "low" credit risk to a "moderate" one or worse.

Sixty-seven percent of them kept the great credit they had. But anything that affects one out of three of your clients is bound to be affecting the other two as well.

If we're in a recovery overall, then perhaps we can attribute this to growing pains. Managing cash flow is always difficult, and if your contractor backs himself into a corner where he either pays the skilled labor he must keep on the job, or you, he pays the labor and makes you wait. That's business-as-usual to a certain extent, but as you know it gets a lot worse during the off season.

Which means that the checks you're about to accept as the summer closes down could be at risk. Since you're a survivor and you understand other survivors, your main goal is probably to keep healthy relationships alive through the winter so you and your contractors can hit the spring at a full sprint.

Don't let a returned check trip you up. We have a suite of services specifically designed to help building supply owners and managers mitigate the risk from accepting checks. If you process one in accordance with your Service Agreement and it is returned, you get paid anyway and we deal with the problem.

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Topics: Building Materials

Written by Tom Lombardo