Olsztynski Editorial: A 25-Year Industry Memoir
May 22, 1977 marked my first day of work for Supply House Times magazine, then owned by Horton Publishing Co. It was the beginning of a gratifying career and profound appreciation for the PHCP industry and the people who make it go. The occasion seems to warrant a few observations about the most dominant people, trends and ideas that have shaped the industry's landscape over the last quarter-century.
As outspoken as he was brilliant, Charlie had a knack for making enemies as well as friends. Having spent a dozen years working for him until his death in 1989, I learned how uncomfortable it could be to invoke his wrath. Yet, no employer was more generous and committed to the people around him. For every tirade, he treated his employees to 10 acts of uncommon kindness. He was the best boss I've ever had.
Charlie had a master's degree from Northwestern University's renowned Medill School of Journalism. Yet, he was thrilled to be associated with the unpretentious blue-collar world of plumbing. He was less impressed with journalism degrees than common sense, and drummed into the heads of his staff never to forget they were part of the plumbing industry more than the publishing industry. I've carried that admonition with me for 25 years.
Wholesalers complained about manufacturers selling direct to retail stores. This controversy seems quaint in retrospect. The home center industry of that era was just beginning to consolidate. Many home centers were still owner-operated, single-location stores that as often as not bought from plumbing wholesalers. Retail chains were regional rather than nationwide organizations. Home Depot didn't even exist until the early 1980s and would take awhile to teach the industry what real buying clout is all about.
Many wholesalers in those days also took a dim view of independent reps who maintained warehouses. They saw this as usurping the wholesaler's role and were always accusing the reps of selling direct to their customers. This rarely happened - reps had much more to lose than gain by doing so - but suspicion was widespread. Most of the time when Supply House Times covered stories about stocking reps, the principals did not want us to photograph their warehouses or sometimes even mention them.
Contractors had their own gripes about both manufacturers and wholesalers selling to DIY outlets. However, then as now, the loudest yelling was aimed at wholesalers who sold to consumers via city counters and showrooms. Virtually every wholesaler that did so maintained a pricing gap between consumer and trade sales, but this did little to mollify contractors. In the commercial construction realm, voices were just starting to get raised about manufacturers selling HVAC equipment direct to owners or GCs.
It seems that what most often passes for controversy in this industry concerns who sells what to whom. Over the years I've been nagged dozens of times by either contractors or wholesalers to editorialize against channel transgressions.
I've mostly avoided the subject because I've never viewed selling through alternative channels as a moral issue. This is America. Businesses have a right to market themselves any way they wish within the boundaries of law. If you don't like a vendor's sales practices, you have every right to take your business elsewhere. If all the complainers did so, the companies that do adhere strictly to traditional trade channels would rule the marketplace rather than exist as exceptions to the rule.
Besides, the "traditional" channel of PHCP distribution was never as sacred as legend holds it to be. So widespread was direct selling more than a century ago, both contractors and wholesalers banded together into trade associations for the main purpose of putting a stop to "unauthorized" sales. The FTC was formed in the 19-teens and put some teeth into the antitrust laws that had been enacted several decades earlier, which landed some industry leaders in jail. The groups have since evolved into PHCC, MCAA and ASA, all of which long ago gave up the mission to put a lock on vendors. Yet, even in the pre-FTC era when restraint of trade was something of a national sport throughout the business world, they never succeeded in limited sales to the traditional channel. The marketplace always seems to triumph over cartels. Just ask OPEC.
The griping is still around, but it's more like a background hiss as opposed to the revving motorcycle of 25 years ago. One can get dizzy trying to keep track of who sells what to whom in today's world. People in the PHCP industry mostly have learned to accept the inevitable.
Charlie retracted most of what he said by the early 1980s, although he never fully embraced buying groups. He didn't like their secretive ways and saw their main purpose as a form of extortion, which is how most vendors felt back then. It was hard to find one that had anything good to say about any of the buying groups in their early days.
A few still feel that way, but most vendors today are happy to do business with buying groups. Many see them as a welcome counterbalance to the national chains that otherwise might become dictatorial with their buying power. Consolidation at both the PHCP manufacturing and wholesaler levels began accelerating around the time of Charlie's death. He was always a champion of the little guy, and failed to see that the buying groups represented a chance at salvation rather than a threat to smaller manufacturers and independent wholesalers.
Charlie also failed to appreciate that the buying groups were about more than collective purchasing. Buying clout was what brought them together, but some soon began functioning as effective peer groups. Non-competing participants could let their hair down and share best practices information. Many wholesalers treasure that aspect of membership even more than the rebates.
Mergers and acquisitions at both the manufacturer and wholesaler end are particularly troublesome to rep firms and the trade associations. Reps are having to reinvent themselves from primarily sales organizations to offering an array of marketing and technical services. I write this after returning from this year's AIM/R Conference in Key Largo, Fla., where this industry's trade association for industry reps put on a dazzling display of education and professionalism. Rep firms are merging left and right, and becoming bigger and better than ever at what they do.
ASA is trying its best to meet the challenge as well. In both public remarks and private conversation, this year's president, Jack Hester, has been zealous in carrying the message of technology as the potential salvation for the wholesaler channel. Wholesalers still have an important role to play in this industry's supply chain, but to survive will have to continue to cut costs out of both buying and selling transactions.
Despite the challenges, independent wholesalers seem to be holding their own in their respective markets. In local markets contractors still prefer to buy from smaller supply houses if the cost penalty is not too great. Moreover, wholesaler acquisitions definitely have slowed down in recent years as the giants focus on digesting their new affiliates. Maybe it's also because most of the wholesalers inclined to sell have already done so, and the market is down to hard-core independents.
Perhaps the most dramatic change over the last 25 years has been the steady increase in the retail market over the last quarter-century. Plumbing manufacturers used to look at retail as an adjunct business to trade sales. For many, the tail now wags the dog.
What's really interesting is that the retail industry has peaked with the DIY market, which is now in decline as our population ages. Home Depot and Lowe's are targeting trade sales as the growth market of the future. So far, I think they've been more successful attracting general builders and remodelers to their stores than pipe trades contractors. Plumbing wholesalers can win this battle for the hearts and minds of trade customers, as long as they don't take for granted that they "own" this market by birthright.
Another thing I've noticed is conversations with manufacturers and wholesalers no longer are quite so dominated by talk of the construction economy. Twenty-five years ago fortunes in this industry used to rise and fall with housing starts, but not nearly so much anymore. Remodeling and repair markets are now even more important for most residential product categories. My early years in the industry were characterized by wild boom and bust swings in construction. Housing starts in 1977-78 topped 2 million units a year, then dropped to under a million in the 1981-82 recession. Office building boomed during the early 1980s to the point of reaching a glut that virtually shut down that market from about the late-'80s to mid-'90s.
In contrast, the construction economy has been good to great in most parts of the country since then. It has leveled off from its peak in the exuberant '90s, but most markets are still pretty strong. Even when not, the remodeling and repair business tends to take up the slack.
The exception, of course, has been the manufacturing sector. Industrial PVF companies have taken it on the chin these past few years. In my opinion, the cutthroat pricing and squabbling over steel imports would be largely resolved if the industrial economy improves.
Master distributors have come a long way in the last 25 years. They were around when I first arrived on the scene, but have since grown into a full-fledged 4th tier of distribution in the industrial PVF market. The rise of Your Other Warehouse was a key development, and as stunning as an uppercut to the chin when Home Depot bought YOW last year. It remains to be seen how much of its wholesaler business YOW can hang on to, or whether it will evolve into primarily a retail feeder. If so, other plumbing wholesalers are ready to pick up the slack selling to other wholesalers.
In all those travels, what sticks in my mind are not the glamour spots like Hawaii or any of the great cities of this land. My most memorable excursions have been to out-of-the-way places such as Ashland, Ohio; Friedensburg, Pa.; Salina, Kan.; Kosciusko, Miss.; and most memorably, Fort Yukon, Alaska.
Personal travel may well have taken me to the glamour spots and big cities eventually. But if not for magazine assignments, it's unlikely I ever would have visited so many obscure communities and mingled with unforgettable citizens from rural and small town America who are so much a part of what makes this nation great. That's been one of the richest experiences of my life.
It also has served to remind me, year after year, of how integral this industry of ours is to America. PHCP supply is a business that penetrates every nook and cranny of this great nation. It has brought sanitation, health, safety, comfort and convenience to even the poorest of this country's masses. What a privilege it has been to use my talents to help chronicle this legacy.