Craig Webb: The most important thing that I can stress is that building material dealers are frequently the experts and the most reliable sources of information that a distributor or a manufacturer can turn to, to find out what is the relative demand of a product? What kind of prices are people paying? What is the future demand going to be?
If the construction supply industry suffers from anything, I would say one of its greatest problems is the lack of communication from the contractor all the way up the chain to the manufacturer and then back down the chain again.
Lindsay Duran: Welcome to B2B Reimagined. My name is Lindsay Duran, and I'll be your host for this episode. I'm joined today by Craig Webb, President of Webb Analytics. Welcome to the podcast, Craig.
Craig Webb: Thank you very much.
Lindsay Duran: Craig, I'd like to let our audience learn a little bit more about you before we dive into our topic today.What is something that people wouldn't know about you if they only looked at your LinkedIn?
Craig Webb: Mainly that I have spent most of my life as a reporter, an editor in places like The Wall Street Journal and McGraw Hill and United Press International. [00:02:00] I lived in Rome and in Belgium and in New York City and have been here in Washington, DC for quite a while.
I suppose I'm just about the only reporter I know who has covered the White House, the World Cup Soccer tournament and interviewed Colonel Sanders.
Lindsay Duran: That's so fascinating. Tell me how you got into the analytics space, given that background,
Craig Webb: Largely because building material dealers need more information than ever before in order to succeed. And the construction supply space is relatively short of people who are actually trying to collect numbers and get a sense of what's going on. So I have been attempting to do that for the last 16 years. Twelve of those as editor in chief of one of the biggest magazines in the country for people who run lumber yards and construction supply facilities.
And then in the last four, getting even deeper through Webb Analytics and putting out reports on [00:03:00] the size, the state, the style, and the M&A activity all going on in this very turbulent industry.
Lindsay Duran: I think there's certainly much to discuss in the building material space given what we saw with the housing boom in the US and now things slowing down a bit.
So anxious to get your perspective on the market and where it's headed, not only for our listeners, but also selfishly for myself as well with real estate investments. So anxious to hear what you have to say. We're here today specifically to talk about the trends and 2023 outlook in the construction and building materials industry.
And this industry has certainly been in major flux throughout Covid and figures to continue to be fairly volatile in the demand and supply cycles going forward. Let's start with one of the recent big headlines, and that is that rising interest rates are depressing new housing starts in 2023 and really even depressing the [00:04:00] real estate market and sales of existing homes. Are the headlines correct or is there some nuance there?
Craig Webb: Well, there is a slight bit of nuance when it comes to whether you produce these houses or sell them, whether you provide materials for them or sell them. We have more houses under construction at this moment than we've had almost in the history of this country.
Partly that's been caused because we had the big demand for supply. And the second was because we were really, really bad at getting the supply chain to work properly. You know, there are places all over Florida that are still waiting for their windows to come in. So consequently, yes, there is a slowdown coming, but it has not yet come to many in construction supply, either the people doing the providing, the dealing, the selling of the products, but also to a lot of the people who do the installing.
I mean, I've talked to people who build decks [00:05:00] who are pretty much booked up pretty well into the spring of next year.
Lindsay Duran: Well, I can certainly see how that makes sense, especially if people are concerned about the high interest rates and don't want to buy, perhaps they invest in adding onto their home or upgrades.
Are there subsections of residential construction that will see strong demand?
Craig Webb: Yes. An interesting thing about construction and construction supply, I don't think there is any industry in this country that is more geographically diverse than what goes into a house. You know, the stucco in the southwest, the clapboard in other places, the concrete and the brick and block in South Florida.
So consequently, you can have all these different mini trends all going on at the same time. For example, you are correct in that a lot of builders, particularly big builders, are saying that they plan to start fewer homes in 2020. That's going to have an impact on [00:06:00] certain parts of the country where they frankly build a lot of homes.
Florida, Texas, Arizona, California, the Carolinas. That's pretty much, you know, the majority of all the home builds in America. So if you're in Aroostook County, Maine, you really don't care whether there's a boom or a bust in new home construction because you only measure things in start rather than starts.
There are other variations too that happen. Texas is probably going to do well. Even though I said there's going to be a slowdown, they’re still probably going to do well compared with the rest of the country. In South Florida, Florida's still doing very well with all these people leaving other states and they've got the whole rebuilding from Hurricane Ian.
Then you've got other trends going on, such as single family build to rent, which is an alternative where you build a house and you don't sell it. You just hand it off to somebody who becomes the landlord for a whole bunch of single family units. This has been something that you hear about in [00:07:00] Texas and you hear about in Arizona, but I hear it's going on in Omaha, so you could be seeing some trends happening there.
And then of course, repair and remodeling is a whole different game.
Lindsay Duran: Let's talk about the commercial real estate space for a moment in building products for commercial buildings. Are you forecasting high growth, moderate growth, or decline in commercial and infrastructure projects at this?
Craig Webb: Well, the quick answer is moderate growth, but you have to remember that what you are is based in part on what you build.
If you tend to be somebody who's building things out of wood, you're going to be building either low rise office buildings or maybe apartment complexes that are upwards of five stories tall. Or you're maybe building those hotels on the interstates that you see all along the side of the road. If you are building with steel and concrete, likely you are much more into a larger commercial multi-family space, and [00:08:00] so you're a different kind of builder.
Now, what's the future? The future right now for commercial construction tends to be brighter than it is for residential construction. Largely because it takes so long to get the projects to work their way through that the pig is still going through the python. So we've got that. On the residential side, there has been a general belief that multi-family housing is going to fare a little bit better in 2023 than single family construction.
Single families actually believed to go down big production building as much as 10%. In general, maybe a few percentage points, less multi-family, maybe a few points above where we were in 2022.
Lindsay Duran: Interesting. I want to switch gears a little bit. You recently released your Construction Supply 150 report, which folks can find at webb-analytics.com, and that's Webb with two B’s. What are the top learnings from that report that you can share with our audience?
Craig Webb: Well, the first one is that if you sell lumber, you made a lot of money last year. The typical lumber yard that does make a lot of money from selling wood products, their revenues went up 47% on average last year, which was like double what the revenue growth of, let's say the Home Depot or Lowe's specialty dealers did a little bit. Because all building products went up, but they were not as much as lumber yards. So that's what the report generally said for last year. This year it's not going to be anything like that. As an example, there's a company, the biggest full-service lumber yard in the country.
Builders FirstSource made nearly 20 billion last year. They could make as little as 13, 14, 15 billion this year in terms of revenue, and it's largely just because lumber is at a [00:10:00] different price. So that's going to be a factor. The other thing that I think came out of the Construction Supply 150 report that even surprised me was just the tremendous amount of activity that America's building material dealers do in manufacturing components that go into residential construction such as trusses, countertops, custom molding, the hanging of doors, that sort of thing, as well as the subsequent installation of those products. Particularly the complicated things. You don't want an amateur putting a door or a window into your house.
You want somebody who knows what they're doing and building material dealers have gradually been doing more and more of those services. I mean, all told, if you talk to the people who were in the Construction Supply 150 value added products, were about a quarter of their total revenue. So these guys aren't just people who are, [00:11:00] you know, handing you a hammer, they're people who actually know how to use the hammer and frequently are doing the work for you.
Lindsay Duran: That's interesting that you give that example. I recently had a new door installed. I was shocked at just the complexity of the ordering of the door and, and measuring for the door, but certainly a dealer did the installation himself, in fact. So I've seen that trend firsthand. Let's talk a little bit about the pandemic and some of the lasting effects.
What are you observing in terms of remnants of implications on the construction and building products industry?
Craig Webb: Well, the first one was that construction supply, which has traditionally been slow with regard to technology, suddenly had to wake up and do things that they had not done before. The whole concept of BOPIS, which is buy online, pick up in store, requires that you actually be able to buy it online. And there were a lot of smaller [00:12:00] dealers in the United States that even if they had online purchasing set up in their stores, had never turned it on. Well, they had to do that. I remember one lumber yard that sent all their workers home and then discovered there was nobody there to stuff the billing envelopes at the end of the month and lick the envelopes and put stamps on.
So they suddenly had to create online billing presentation, which they had not really gotten into before. So that technological advance is a big thing that happened. Of course, as soon as you can start doing that, then you begin to realize that maybe you can go a little bit beyond your normal service area and sell things in ways that you had not sold them before.
Also, your customer, who is so used to being on Amazon, starts expecting more things from you, such as do you actually have the product in stock? And so that leads to things like warehouse management systems. All of these things are going to last [00:13:00] after the pandemic, along with I believe, much more working from home and much more, assuming that you can have workers who don't necessarily all have to be in the office all the time.
Lindsay Duran: You recently published an article outlining ways to retool your business to thrive despite stagflation. If a recession is indeed coming, what should these companies be doing?
Craig Webb: Well, the biggest thing I would say is that, the top line matters a lot less in stagflation than a recession, than the bottom line.
And so it is in your interest to do every little minimal thing you can that just gets you an extra penny here, an extra dime there to help build up your profit margins and cut your costs whenever possible. Now, certainly knowing how to price your product is definitely one of those things for which if you hadn't thought about it much, you definitely ought to be thinking about now.
Other [00:14:00] ideas that come along are looking at how you deliver your products. Can you do them more efficiently? Also, use metrics that you might not have used before, such as what is the value of the total number of products that you've put on the truck? How many times does the truck go out every day?
Can you make that truck do one more turn than you did before? All of those little marginal things could be the difference between success or failure in a stagflationary environment.
Lindsay Duran: You brought up pricing and I think that's so key because when it's easy to raise price, because costs are going up and it's easy to justify those price increases, often doing so in kind of a peanut butter spread approach across the board, companies are more able to reap those gains. But your customers notice that prices on different commodity items like lumber, for example, are actually falling. It's much harder to maintain those prices at the levels that they [00:15:00] were, get a price increase in certain areas. And so companies really need to be much more what we call surgical in their approach to pricing, whether that's parachuting down on price as costs are declining, thinking about your inventory strategies and getting rid of higher cost inventory that you might have on hand. So a lot of opportunity there for companies to really dial in how they think about pricing and putting the the right tools and processes in place early on before we really get to a stagflationary environment, I think is key.
Craig Webb: This very much jives with both something I've heard recently and something I remember from several years ago, I was just at a conference recently in which one of the major points that was made is that if 2021 and 2022 are years in which availability was what mattered the most. Do you have the product? Do you have a similar product? I need that product. I don't care what it costs, I'll buy [00:16:00] it. If that was the way things were in 2021 and 2022, 2023 is going to be a return to concerns about price and cost. You're going to have customers a lot more often asking, How much does it cost?
Do you have good, better, best options? Can I go down a notch? Do I really need this product, et cetera. And to that extent, I remember an event I went to a bunch of years ago in which a group of building material buyers all were asked to decide whether a slate of products that were set before them should be given A prices, B prices, or C prices.
A being the price competitive; B, where you don't worry as much; C, where it's almost an impulse buy or it's a gotta have it buy. And out of the 15 people in the audience in the group who rated all the products, there was virtually no agreement among the group as to what an A or a B or a C item was. And the people who were [00:17:00] doing this experiment were saying, “Well, this is why you need to go and use technology to help you figure out which products really deserve to be at the most competitive prices and which ones you don't have to worry as much about.”
Lindsay Duran: Indeed, we enjoy playing that game with our customers as well. We do a little game of the prices. Right, and it's funny because people are very overly biased with recency of where they last sold a particular item as to what the price should be.
You know, let's say you have a customer that spends a lot of money with you, perhaps they should get a better discount on a certain item than a customer that just cherry picks or buys once in a while from you. And that doesn't always show up in how people make pricing decisions, which is, I think to your point, why better pricing systems and tools are very important in that way.
Craig, before we close today, do you have any advice or general observations that we haven't [00:18:00] covered yet that you'd like to leave with our listeners?
Craig Webb: Well, I think the most important thing that I can stress is that building material dealers are frequently the experts and the most reliable sources of information that a distributor or a manufacturer can turn to, to find: What is the relative demand of a product? What kind of prices are people paying? What is the future demand going to be? If the construction supply industry suffers from anything, I would say one of its greatest problems is the lack of communication from the contractor up the chain to the manufacturer, and then back down the chain again to the contractor.
Anything that we can do to increase the communications from one group to another is going to allow us to not only produce better, but also plan better, and thus avoid both shortages that cause [00:19:00] prices to go up and too much inventory, which causes prices to go down. We can better calibrate things if we communicate.
Lindsay Duran: I think that's a great point. We've had that same conversation on previous episodes of B2B Reimagined, particularly at the start of Covid. And when we first started seeing inflation about the need to communicate with customers and suppliers more clearly about inventory challenges that you may be having or why prices are going up, so that communication piece as it is in all aspects of life is very key.
Craig, I'd like to thank you again for joining us for this episode, and I hope that you'll come back on the podcast at a later date.
Craig Webb: It was a pleasure. Thank you very much,
Lindsay Duran: And I'd like to thank each of our podcast listeners for being with us today. Be sure to check out the show notes where we have included links to the Webb Analytics newsletter and a recent Zilliant white paper on revenue and margin strategies to combat inflation and a potential [00:20:00] looming recession.
We're committed to your success. If you'd like to talk about how we may be able to help your business, please reach out to us on zilliant.com. Please also take a moment to rate and review the show if you're enjoying it as it helps us to continue to put out great free content. I hope you'll join us on the next episode of B2B Reimagined.
