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Nervous About Future Threats? Good. Now, Get Ready to Fight Back

Dangers, both imminent and en route, are getting a lot of attention in construction supply this fall. Amazon looks as big and dangerous as Godzilla. Advocates of factory-built housing appear ready to cut dealers out of the supply chain. And new technology brings into question the value of your value proposition.

What to do? Here's what I suggest.

First, refine your radar. We all know e-commerce is a threat to dealers who don't offer the same service, but now there's research from The Farnsworth Group that provides a far more detailed look into how consumers of different generations are shopping online and what product types are most likely to get scrutinized on the web before they consider coming to you. For instance, 70% of survey takers said they research major appliances online before purchase, but only 46% do the same for roofing, insulation, and drywall. And 37% of millennials but just 7% of baby boomers use their phone to compare in-store prices with other options.

Farnsworth also looked at the effectiveness of ads. Again, age matters, such as the 21-point difference in the percentage of millennials (29%) who look at Facebook ads compared with baby boomers' 8%. Such data can help you build cost-effective operations.

Second, explore new services. Do it Best used the LBM luncheon at its Fall Market to suggest dealers look into offering installed sales, and it plans to organize discussions at February's Winter Market for members who have truss and other component facilities. I've reported previously about the biggest dealers' aggressive plans to expand their component and millwork capacity; since January 2018, dealers have acquired or opened 30 truss, millwork and components plants.

Such ventures could make you uncomfortable, but what's going on now isn't exactly a new experience. David Snyder, senior vice president for the supply chain at Builders FirstSource, noted during the NLBMDA's ProDealer Summit that disruptive forces have been coming on for decades, so new would-be disruptors like Katerra aren't a surprise. "I don't know exactly what the Katerra model will do," he said. "But I've seen disruption before, and I think it helps reframe our strategy and value proposition."

Franklin Building Supply president Levi Smith, who appeared with Snyder at the NLBMDA panel, agreed that dealers will need to refine their business model because changing times will dictate it. He noted that, for decades, Nike sold its shoes through dealers. Now you can buy direct from Nike, choosing such variations as the thread, eyelet, and shoe color. "If you're an athletics store today, you're concerned," Smith said. "The sporting goods store may remain, but there's a question as to whether it'll still sell shoes."

Which brings us to suggestion No. 3: Don't Panic. Do Study. Modular construction, factory-built components, and Katerra-like systems currently account for just a smidgen of all residential and commercial construction today. Their shares will grow, but odds are that most of the increase will be in multifamily, student, and senior living housing plus mid-rise commercial high-rises. Change will come more slowly to tract builders of single-family detached homes, and it will arrive last to the custom home builders that are independent dealers' prime customers.

On the other hand, it's likely that some concepts will seep into the single-family construction industry even if builders don't embrace offsite construction wholesale. Expect wall panels and precut framing to rise in popularity. More and more tract builders will try out BIM (building information modeling) systems. And the more you learn about industrialized wood-based construction, odds are good that you'll see new opportunities arise. For instance, even if you don't sell the mass timber that's going into an office building, you might make money renting space in your yard to hold the panels until they are needed, and then from delivering those panels to the jobsite.

Finally, ask yourself again: What makes us special? Coming up with an answer matters more than ever because of how Amazon seems so determined to stop relying on others and become a shipping company as well as a store.

"While Amazon can make people fearful, they can’t do everything--and the logistics universe is wide, deep, and vast," wrote Tim Higham, CEO of trucking software company Ascend TMS, in response to a Freightwaves article that had investors urging logistics companies to specialize. "... At the end of the day, those logistics companies that can provide an overall package of great service, great technology, competitive pricing, and can do it while building profits, will succeed in building nice businesses."

"You can take BFS out of the supply chain tomorrow," Snyder declared. "But you can't take out what we do."

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