Perseverance pays off for Lumbermen's Inc.
The recession didn’t knock the lumber out of Lumbermen’s Inc. It was never really there in the first place.
But the recession did sorely test this $100 million, employee-owned, Grand Rapids-based distributor of building materials in Michigan, Indiana and Ohio. Lumbermen’s has managed to survive in a state where the residential construction industry has been shrinking year after year for the past five years or so — when some of its major competitors did not survive.
“I honestly think we’ve seen the bottom,” said Roger Vanderheide, in reference to the state of the residential construction industry in Michigan.
Vanderheide, who has been with Lumbermen’s since 1983 and its president/CEO since 1998, has been watching the industry closely for years, and since 2005, he said, “It hasn’t been fun.”
Now, at last, he said he has seen consistent good news each month since November.
Despite what his company and the industry have just been through, “I choose to try to focus on the positive side,” said the Grandville native.
But first, an explanation of why Lumbermen’s has been called that since it was founded in 1955 — even though the company has never sold lumber. It’s because it has always served lumber companies, supplying them with the other building materials they traditionally offer in addition to lumber.
Lumbermen’s distributes residential shingles, roofing, insulation, sheathing, drywall, kitchen cabinets, plastic laminate for countertops, exterior doors, composite decking and trim. The company also offers services, said Vanderheide. For example, it has 10 crews installing countertops on behalf of dealers throughout the Midwest.
Vanderheide, who attended Calvin College and what was then Ferris State College, earned a B.S. in accounting and became a CPA. His first job was with Arthur Andersen & Co’s. Grand Rapids office from 1978 to 1983.
That was an interesting time to begin a career as an accountant: The recession of 1981-1982 was America’s most severe economic setback since the Great Depression, not to be matched until the Great Recession of 2008-2009.
Vanderheide said he considers himself lucky to have worked in the Grand Rapids office as opposed to a larger office in a city like Chicago or Detroit where he would have been “pigeon-holed” in one type of business sector. In the local office, he was assigned to many different types of accounts, giving him valuable perspective across various industries.
In 1983, a friend and business associate of Vanderheide’s tipped him off that Lumbermen’s was looking for a controller/treasurer. He landed the job and subsequently worked closely with Hank Bouma, one of the three brothers who founded the company.
“He taught me the importance of perseverance and being a leader, and communicating with and caring for your employees,” said Vanderheide.
Perseverance “is what we had to do the last five years,” said Vanderheide.
Residential construction, in general, has been so low that many builders have left the state or found other occupations, and Vanderheide. He estimates that his company has “lost probably seven key competitors in the course of the last few years.”
Last year, for example, the T.W. Hager Lumber Co., based in Wyoming, suddenly closed its doors in June. It had served the Midwest building industry since 1928.
More recently, North Pacific Group Inc., one of America's largest distributors of building materials, was ordered by a judge in January to be taken over by a court-appointed receiver. The $1 billion company, based in Oregon, allegedly defaulted on $42 million in debt and, despite efforts to sell, could not find a buyer for its business.
Company: Lumbermen’s Inc.
Survival has not been easy. Lumbermen’s, which had 280 employees before the recession, now has 230. Cutting every cost possible is “what you do to survive,” said Vanderheide.
“It’s a surprise anybody (in the construction industry) survives,” he added.
The “absolute low” for Lumbermen’s was last August and September, he said.
Along with new housing (both single family and multi-family), other markets that are very important to Lumbermen’s sales are remodeling and, surprisingly, office furniture manufacturing. Although Lumbermen’s does not sell lumber, it does distribute particleboard used in table tops made by the office furniture companies. Vanderheide said he has heard estimates that indicate office furniture sales were down 30 percent in 2009.
When home sales plummeted, major remodeling projects were seen as the route many homeowners would take instead of putting their homes on the market. But then unemployment increased dramatically in Michigan, which frightened consumers, and at the same time, much of the bank credit dried up in the aftermath of the worldwide banking industry crisis. The low point was probably around Memorial Day last year, Vanderheide said.
“There went the home improvement projects,” said Vanderheide.
Vanderheide likes to study annual statistics on residential construction compiled by the federal government. He has a report from the Real Estate Center at Texas A&M University on annual single-family building permits issued in Michigan from 1980 through 2008, with the data compiled by the U.S. Bureau of Census.
The report shows that slightly more than 18,000 permits were issued in 1980. During 1982 — which was a severe recession year with major inflation and interest rates of 14 and 15 percent — the number dropped to 8,288. In 1983, after the recovery, it was back up to more than 15,000 and increased almost every year after that, up to a high of 45,881 in 2004. Even during the brief dip during the recession year of 2001, it was still more than 40,000. The annual average over those years was more than 30,000 permits issued per year.
According to data from the U.S. Census of 2000, there are an estimated 2.6 persons per household. Based on that and the overall population increase in Michigan since 1980 (about 740,000), about 296,000 new homes would have been sufficient for that increase in population.
“We actually built 883,000,” said Vanderheide. “We were seriously overbuilding.”
The housing boom peaked in 2004 in Michigan. It then dropped 18 percent during 2005, then by 34 percent, 39 percent and 41 percent, respectively, in 2006, 2007 and 2008. Fewer than 9,000 permits were issued in 2008.
Over the last year or so, Vanderheide and his fellow employees at Lumbermen’s watched competitors going under and saw their own sales hurting. He said he mentioned to his co-workers several times that “I think we’re taking market share. (But) it just doesn’t feel good.”
The overall banking crisis was “bigger than most people understood,” he said. The solidity and long track record of Lumbermen’s has enabled it to keep its access to credit at several major banks, but he said in his talks with bankers over the last year or so, the bankers were very concerned.
“When the bankers are scared, I’m scared,” he said.
Now he’s just cautious, but optimistic — and with good reason. The good news — knock on wood — began with November.
Vanderheide’s stats on housing permits in Michigan show that from January through October 2009, the rate of permits issued dropped each month, compared to the same month in 2008, by rates ranging from 16 percent to more than 60 percent.
Suddenly, November showed a year-to-year increase of more than 36 percent. December was even better: 45 percent.
As he anticipated the January results, Vanderheide said he was afraid to hope for still more improvement. He said his hope was that the numbers “just don’t lose any ground.”
In January 2009, 270 permits were issued in Michigan. In January of 2010, it was 490 — an increase of 81 percent.
“We’re starting to see some of the money loosening up,” he said. Builders and drywall companies are “starting to see business they haven’t seen in a while.” A friend of his, a real estate agent, told him that seven new homes are going up in a Cascade Township development, and only one of the seven is a “spec” house.
Vanderheide said he has experienced two major recessions in his life, that of 1981-1982, and the one that is now — apparently — coming to an end.
“I hope I don’t see another one,” said Vanderheide.