In some windowless room in Orlando, Fla., during the International Builders Show earlier this month, NAHB officials wooed lumber producers from Russia, Sweden, and Latin America, hoping to cement deals to import their wood products.
The courting sessions are a sign that home builders are finally frustrated enough with the decades-long fractious U.S. softwood lumber trade relationship with Canada and a new, unsatisfactory trade pact to aggressively look elsewhere to help fill their wood product needs.
The final straw that sent the NAHB aggressively looking for lumber in new regions was the adoption of a new U.S./Canada Softwood Lumber Trade Agreement that took effect last fall. While the deal removes tariffs on lumber from Canada, it includes export taxes between 5 percent and 15 percent that kick in if the price of lumber falls (see "The U.S./Canada Softwood Lumber Trade Pact," on page 45).
"The bottom line is the agreement is set up with a dual approach, which will result in either price spikes or supply drops in terms of lumber importation from Canada," says Jerry Howard, executive vice president and CEO of the NAHB. The association also seeks to keep a consistent supply of lumber available to its members at an affordable price. "The Canadian agreement is anathema to both of those concepts," Howard notes.
So last September at its Salt Lake City board meeting, the NAHB adopted a resolution to work with the government and industries of other countries to increase lumber imports to the United States The resolution also encourages the use of alternative building materials. Already, the NAHB's policy is to urge the U.S. government to open up additional lands for logging.
So Howard and a NAHB contingent took off for Sweden, Russia, and Chile, where they found strong interest from governments. Much to his surprise, Howard learned that the distances, all requiring sea journeys, are no barrier. "I was shocked, frankly, at how little a concern that is," he says. "I found out, through my journeys that one of the biggest clients [Sweden] has is Japan and the same for the Russians, who are developing Pacific ports in Siberia."
There are other potential barriers to the lumber trade with those countries. Market-related issues need to be addressed, Howard says. Lumber producers would like to be assured they could get consistent pricing and export amounts. Establishing a consistent lumber grading system is also an issue.
"These are challenging, but nothing that we believe can't be addressed and ironed out," Howard says. "Our goal, ultimately, would be to have something hammered out so when the building season begins next spring, our members will not have to face concerns about lumber inconsistency of supply and price."
The Home Depot's Chinese Clone
The Home Depot buys Chinese version of itself to gain a foothold in the burgeoning market.
If it weren't for the Chinese characters printed on the orange banners hanging from the aisles, you'd think you were in your local The Home Depot. Same warehouse look–concrete floors with merchandise stocked to the roof–and the same color orange on the signs and employee aprons. Even the name printed on the orange signs is in English–The Home Way–is close enough to cause one to do a double take.
So The Home Way must have seemed like the perfect fit when The Home Depot started looking for an acquisition that would give it a foothold in the swelling Chinese home improvement market. By last December, after receiving the Chinese government's formal approval, The Home Depot signed an agreement to purchase the 12-store chain with 3,000 employees in six cities. The terms were not disclosed.
For The Home Way founders, the acquisition provides deep pockets to expand the company fast to take advantage of an estimated $50 billion market that has been growing at a compounded rate of 20 percent a year. That huge market now is fragmented, with only four or five major home improvement players, says Paula Drake, The Home Depot's spokeswoman. The Home Way was No. 4 at the time of the acquisition.
"The leadership team is going to stay in place," Drake says. "We are going to have an awful lot of learning to do ? to make sure we stay in touch with what the Chinese consumer needs and to expand in a way that makes sense."
The Home Depot already has a basic understanding of the Chinese market. It has sourced products from China for at least a decade and has had sourcing offices in China since 2002, says Drake. At this point, the retailer obtains somewhere between 10 percent and 12 percent of its products from China. In 2004, the company opened a business development office in China as well to develop insights and evaluate market strategies.
The Home Depot is not only interested in buying products from China, but it also has plans to find a home for U.S.-made goods in the People's Republic. Owning The Home Way stores will give the company a testing ground to market such goods.
"Every consumer survey you see now says that Chinese consumers want access to products made in [the United States]," says Drake. "That's going to be one of our goals, to bring some of the things, like say Behr paint, and make it available in the stores there."
By buying an existing operation in China, The Home Depot is following the same pattern of international expansion that has worked in both Canada and Mexico. It entered the Canadian market in 1994 and the Mexican market in 2001 through a combination of acquisitions and organic growth. It now holds the No. 1 position in both markets.
Home Building in China
In China, buying a new home is a little bit like purchasing a do-it-yourself house kit. In big cities, you often buy an empty box of an apartment and then add the contents yourself, from flooring to plumbing. The following list are what typical Chinese home buyers must do after they get the mortgage:
- Select a contractor to design, decorate, and complete finishing services.
- Work with the contractor to develop the plan.
- Buy the materials through the contractor, in conjunction with the contractor or yourself.
- Agree to the finishing schedule and pricing.
- Schedule two to three months on average for the work to be completed.
- Sign off on the finished work.
Source: The Home Depot
Snapshot: The Home Way
- Founded: 1996, as the first big-box home improvement retail chain in China
- Chairman and CEO: Du Sha
- Headquarters: Tianjin, China's third largest city, 85 miles southeast of Beijing
- Number of employees: 3,000
- Number of stores: 12 in six cities (Tianjin–5, Beijing–2, Xi'an–2, Qingdao–1, Shenyang–1, Zhengzhou–1)
- Average store size: 90,000 square feet
- Services offered: Delivery, installation, design, and remodeling
Source: The Home Depot
Hot on Heels
Lowe's Follows The Home Depot South of the Border
Lowe's Cos. plans to open three to five stores in Monterrey, Mexico, in 2009, investing $18 to $20 million per store. "For several years, we have been evaluating opportunities to serve consumers in vibrant home improvement markets outside the
United States," explains Robert A. Niblock, Lowe's chairman and CEO. "With homeownership rates in the market growing at a rapid pace, we see Monterrey as a tremendous opportunity to offer Lowe's products and services to homeowners and commercial customers." Francisco Fernandez, the vice president of Lowe's?Mexico, leads the company's Mexico expansion.
By this fall, Lowe's also expects to open six to 19 stores, north of the border, in the Toronto area.
Stock Building Supply receives industry honor.
Five years ago, Stock Building Supply executives watched its home builder customers rapidly consolidate and realized it needed to change, too. "As a supplier, we needed to have a structure in the marketplace to be able to service the evolving production builder–to handle the supply and delivery of their materials," says Jim Kirkland, Stock's vice president of sales.
"Stock has shown the true meaning of partnership since we began working together," says Don Horton, chairman of the board for D.R. Horton. "They have consistently increased their share of our business by providing quality products and delivering excellent service."
Materials and code requirements for home construction vary dramatically from market to market. Stock prides itself with providing individualized services to match Horton's needs in its many markets.
Through its partnership with Horton, and many of the other top 20 home builders, Stock recognizes that companies are now tightly focused on details and specifics of costs, efficiencies, and quality assurance.
"Over the last three years, we have been privy to the impact J.D. Power [and Associates] has had on the builders as a whole," says Sean Smith, Stock's director of national accounts. "In the past, we might have gotten more generic feedback like, 'you guys need to do things better.' Today it's more like, 'Our J.D. Power scores in this product category need to be improved. Let's develop a focus group and work together on how to improve that process."
–Lisa Marquis Jackson
New Links in the Supply Chain
Silver Line building products executive leaves family business
Kenneth Silverman, president and CEO of Andersen Corp.'s subsidiary Silver Line Building Products Corp., is leaving the company his family founded to pursue a new business venture in private equity and real estate development. Andersen bought the largest vinyl window manufacturer in North America in June 2006.
"I joined my family's business 33 years ago with a dream for it to become the largest window manufacturer in the country," says Silverman. "My decision ensures the next step in the growth of Silver Line, and the best path for continued growth has been taken by becoming part of Andersen. I was able to accomplish my goal."
Randy Iles, currently executive vice president at Silver Line, will succeed Silverman. Iles joined the company in July 2006 from Kimball International, where he served as corporate vice president and general manager. He spent 11 years at Pella Corp. in a variety of leadership roles, including president and COO of Pella's entry systems division. Iles also spent 16 years with Armstrong World Industries in a variety of marketing, national sales, and general management roles.
Larry D. Stone is Lowe's Cos. new president and COO. The 37-year Lowe's veteran was president of merchandising/marketing and has held almost every leadership position within store operations, merchandising, and store environment. In his new role, Stone will be responsible for store operations, merchandising, marketing, logistics and distribution, merchandising and store support, and Lowe's Canadian operations.
Nick Canter was appointed executive vice president of merchandising. He will also have responsibility for global sourcing and store environment. Canter served most recently as executive vice president of store operations.
Michael K. Brown, a 23-year Lowe's veteran, has been promoted to executive vice president of store operations, with responsibility for all Lowe's stores nationwide and the company's specialty sales initiatives.
Dennis R. Knowles has replaced Brown as senior vice president of store operations for Lowe's South Central division.
Other promotions and changes within the company's merchandising operations include: Michael K. Menser, senior vice president of product development and global sourcing and president of Lowe's global sourcing subsidiary, LG Sourcing; Patricia M. Price, senior vice president and general merchandising manger for outdoor living; and Clinton T. Davis, senior vice president and general merchandising manager for hardlines. Theresa A. Anderson will assume responsibility for home décor, and John L. Kasberger will assume responsibility for kitchen and bath.
New Timberlake Sales Leadership
Mark Barnhart was promoted to general manager of Timberlake Cabinet Co.'s Mid-Atlantic region, responsible for sales and operations leadership. Barnhart originally joined Timberlake's parent company, American Woodmark, in 1990 as a field supervisor in Orlando, Fla.
Bonsal American Move
Bonsal American promoted Jeff Lax to general manager of its pavement coatings division, responsible for coordinating marketing strategy for both the commercial and retail segments. He will also continue to serve as vice president of development for the company.