Looking Back to Look Forward

08/21/2023

As the saying goes, those who do not remember the past are doomed to repeat it. Our industry learned some tough lessons over the last 20 years that forever altered how we operate today.

In 2003, our industry was on top of the world. The U.S. was closing in on 2 million housing starts annually. Inflation was somewhat in check, lumber was easy and inexpensive to purchase, the labor force was plentiful, independently owned companies were the norm in LBM, and technology was becoming standard in our operating platforms.

Fast forward to 2023, and the landscape has changed drastically. The Great Recession of 2007-2009 altered various states of our existence. The first indicators of the recession appeared in late 2006, and the ripple effect lasted through 2012. Lines of credit were sharply reduced or closed, AR became a desert, cash flow became non-existent, and many independent lumber companies closed their doors.

Before the recession, banks were our industry’s primary funding source. 20 years later, holding companies drive acquisitions, absorb independent operations quickly, and are backed by private equity. Banks have taken a back seat to how we fund our operations, providing less than 40% of LBM company funding today.

Lumber has undergone its own metamorphosis. A large part of dimensional lumber is imported from Canada, mainly from British Columbia and Saskatchewan, and most homes in the United States have been built with it since the U.S. government closed logging operations on federal land in 1993. The export of building materials overseas continues to impact the supply chain. British Columbia fought a pine beetle infestation beginning in 2006, and extreme forest fires continue to plague the west, decimating timber harvests.

While the housing market continued to recover after the Great Recession, our inability to produce enough building materials to support the recovery has played havoc with supply. Mills closed, never to reopen. The upward spike in demand during the pandemic set the stage for one of the most volatile commodity markets in history, and although prices have moderated, our nation still faces supply issues.

Inflationary pressures, land costs, regulatory increases, and building materials have hit home affordability hard. Housing costs have risen exponentially. According to the U.S. Bureau of Labor Statistics, the average price of a home in the United States in 2003 was $258,000. Today, the average cost is $429,000.

Technology has also had an enormous effect on our industry. In 2003, less than 7% of the world was online, and Apple wouldn’t launch its first-generations iPhone until 2007. Now, over half of the world’s population has access to the internet. The rise of social media and e-commerce began, and 96% of Americans now make purchases online.

The labor force has undergone a generational transition in the last 20 years. Boomers have retired or are preparing to, Generation X is aging, and Millennials are now the most significant segment of the labor force. The newer generations have very different expectations of their careers, and leadership styles are evolving to connect with those new workers. Today’s younger generations expect their employers to invest in them personally and professionally, and career pathing is critical. The culture of the company, along with community involvement, is high on the list of priorities, and the demands on employers to provide mental health resources have become more prevalent.

Looking back to look forward gives us guidance for future direction. Investing in technology, ensuring your company’s operating capital is solid, succession planning, and employee development programs are priorities.

In the environment of accelerating change, the most essential tool a company can develop for future success is to become organizationally agile. The ability to react quickly to rapidly changing market conditions ensures forward momentum and success for future state.