“If I can make it there, I’ll make it anywhere,” goes a line from the famous song celebrating New York City’s grandeur. Those lyrics apply equally well to this story, though in an entirely different context.
Anyone who could make a go of it economically in the state of Michigan these past few years almost certainly could make it anywhere else. We’ve all felt the impact of the Great Recession, but residents of Michigan know what it’s like to collide with an NFL linebacker.
Unemployment in the state reached a peak of 14.6% in July 2009, and still stood in double-digits at 10.3% as of March 2011. In 2010, construction employment was down a catastrophic 41% from its 2001 peak, and in 2009 housing starts reached their lowest level since the data started being recorded in 1959. Builders who had been constructing thousands of units each year have seen those totals reduced to the low hundreds. The state’s once dominant auto industry has made headlines due to bankruptcy filings by two of the “Big Three.”
Amid it all, Major/Lozuaway & Associates demonstrated resourcefulness in adjusting its markets and business practices to survive. The worst seems to be over. President Dave Sheehy reports that sales turned upward in 2010 and indications are pointing to another increase this year.
A key mergerThe agency as it exists today dates to a 2006 merger between two longstanding Michigan rep firms, Major Sales and Dave Lozuaway & Associates. Major Sales came into being in 1976, with a history even before that when it was known as the Robert M. Blair Co. and later BKA Sales. Ralph Kazmierski and former partner Norm Abbott bought out Bob Blair and renamed the agency Major Sales “because we felt we were a major agency representing major manufacturers,” said Kazmierski, now a principal with the merged company.
The Lozuaway portion of the business dates to a 1982 founding by namesake Dave Lozuaway, who retired from the business in 1994 and passed away in May 2010. Ownership transitioned via an ESOP that was completed in 2001. Five principals now share ownership: Sheehy, Kazmierski, Secretary/Treasurer Wayne Phillpotts, and sales reps Dave Nyholm and Mike Ostrowski.
All of those principals speak with reverence about the late founder, Dave Lozuaway. “Although he wouldn’t admit it, right from the beginning he orchestrated the future for us,” said Phillpotts. “Dave was a great teacher. He would lead you, but not tell you what to do, because everyone has a different personality and approach to accounts. He would say this is what needs to be done, but how you accomplish it is on your own.”
ESOPs are notoriously difficult to pull off. I asked them how theirs went, and was met with a bunch of loud exhales. “It took a year longer than the plan, but it worked thanks to every lucky break in the book,” said Sheehy, whose tenure with the agency dates to its founding in 1982. “We were on a huge growth spurt and the stock market was going crazy at the time.”
“We overpaid, but basically we were buying a job,” offered Phillpotts, who joined Lozuaway in 1989.
The merger with Major Sales occurred in the nick of time. The agency had moved into a new facility in 2005, and along with that added expense was faced with a tired market laced with lost customers from distributor consolidation. “The economies of scale from the merger really saved us,” said Sheehy. “It doubled the size of the company while overhead shrank.”
“It enabled us to put more people on the street, especially with the secondary market, which I like to involve myself with,” said Kazmierski. Another industry veteran, Ron Gray, came over with him from Major Sales and covers the northernmost sections of the state.
“Manufacturers are requiring more of us nowadays,” said Phillpotts. “Besides our traditional distributors, we’re now working with contractors, builders, municipalities, architects and engineers. We needed to grow to be able to service all these markets.”
The agency now employs 11 individuals full-time, seven of whom provide boots in the street calling on all the aforementioned clientele. Nyholm, Ostrowski, Dave Natusch and Ron Gray spend almost all their time on the road. Even the administrative principals - Sheehy, Kazmierski and Phillpotts - estimate they spend at least 85% of their time in the field. Three inside staffers - Maureen Smithingell, Linda Lovejoy, and Mary Guilbault - provide all the essential customer and vendor services. “It’s nice to have people inside who can solve problems, and they are excellent,” Kazmierski volunteered. Loretta Butler, who has been with Lozuaway since 1982 and once held an ownership position, has since retired but still works part-time to handle the agency’s accounting. Eric Schmidt takes charge of the agency’s small warehouse operation to round out the staff.
The agency also gains great mileage from the freelance services of Ben Humphrey, an industry veteran of more than 60 years and former owner of Duro Supply in Bay City, MI, where he brags, “I was Dave Lozuaway’s best customer.” Humphrey knows just about anyone worth knowing in Michigan’s construction industry, and has helped write many job specs.
Theirs is a team selling business, with territory and account crossovers hinged to relationships and who’s best positioned to call on someone at any given time. Compensation is via salary and profit sharing rather than commissions, so it makes no difference who generates a sale or writes the order.
Though not gigantic by modern rep standards, Major/Lozuaway’s principals say only a handful of PHCP rep firms in Michigan are any bigger. The market’s tradition is such that most rep firms pretty much stay within the state’s boundaries. Major/Lozuaway’s territory includes the state’s Lower Peninsula for most lines, with about a third of its lines extending their coverage to the Upper Peninsula as well.
A key indicator of rep success is the quality and longevity of its lines. A glance at its line card will strike envy in many independent rep firms around the country. Some of Lozuaway’s stalwarts, such as Bemis and Mansfield, go back to the early ’80s. The merger brought aboard InSinkErator, which Major Sales had repped since 1978, and Aqua Glass, circa 1980.
Adjusting to the downturnMajor/Lozuaway didn’t come away unscathed in the Great Recession. Agency employment is down by four full-timers since the company was reconstituted in its 2006 merger. But they hung on better than most. Michigan’s economic collapse led the agency to focus on business segments it had either ignored or merely dabbled in previously.
In particular, Sheehy reported spending a lot of time focusing on products related to energy and water conservation, along with assisted living facilities catering to aging baby boomers. “I believe energy and baby boomers are going to be a huge category that is just going to run us over in the next few years,” Sheehy told me.
With home building in the doldrums, other opportunities opened up with apartment management firms. “Traditionally that had been a distinctly channelized market. Now other companies are challenging the leaders,” Phillpotts observed.
He pointed out that a lot of Major/Lozuaway’s efforts during the downturn benefited from government money via 2009’s American Recovery and Reinvestment Act. Much of that money has since dried up, so the key is being nimble.
“We have found a lot of niche markets to focus on. For instance, for awhile there was a big push for Made-In-America products, which we rode for a short time with blitz marketing of our distributors and contractors. We keep looking for the next niche. A lot of it has to do with flexibility. We try to get into markets as opportunities arise and exit as they close. We’ve also diversified from our traditional plumbing base into municipality products and HVAC,” said Phillpotts.
One that is still rolling is the energy performance market dominated by companies such as Siemens, Johnson Controls and Honeywell. Although mostly perceived as manufacturers, those companies also have performance contracting divisions that sell energy efficiency, water conservation and water treatment solutions to private and public facilities. Major/Lozuaway counts them as customers and helps them write specifications for sizable municipal and commercial jobs.
Relationships matter mostStrategic acumen will take a rep firm only so far. Its sails respond mostly to a gale force of relationships, and that is Major/Lozuaway’s main stock in trade.
“We’ve maintained relationships with big and small customers, so if we lose a big guy we still have some distribution to fall back on,” said Phillpotts. “Some of the small independents we call on may not even seem to make sense, because even 100% commitment to one of our lines may only represent a couple of thousand dollars in sales a year. We still work to maintain those relationships, however.”
“Sometimes those little guys come up with nice big jobs,” Kazmierski added.
The people they call their “guys” include not only the people who own and manage the supply houses, but everyone who works there. Major/Lozuaway’s sales team makes it a point to cultivate relationships with counter salespeople, truck drivers and warehouse workers.
“We go in supply houses through the back door,” said Kazmierski. “The people we call on constantly move up and may become the purchasing agent down the road. We’ve been here for thirty-plus years and are in it for the long haul. Also, these guys move around, so a relationship built with someone at ABC Supply may carry over to a new job at XYZ Supply.”
“The counter guy is the first one to call and ask for help when someone comes in with a problem,” Dave Natusch observed. “It really comes back to bite you if you don’t return that phone call.”
“When you really think about it, counter guys have more face time with customers than anyone else,” Sheehy added.
“One of the worst things about this downturn is that we lost some good friends we have dealt with for many years,” Phillpotts commented. “Plus, we’ve lost others to consolidation, where decisions are now made by people outside of Michigan we don’t have relationships with.”
Training and troubleshooting play a big role in their relationship building. “We all participate,” said Kazmierski. “That has helped us build relationships with contractors, who see us not just as salesmen but as someone there to help them.”
“Unfortunately, Michigan doesn’t have CEU requirements, and it’s easier to get attendance where they do,” said Phillpotts. “So we’re driven to find the audience and it’s sometimes tough to get a big group of people. But training is extremely important when you get into higher tech products for water treatment and high-efficiency water heaters.”
Certification for Gastite installation is mandatory, however, and for that line “we’ve certified thousands of contractors over the better part of a decade,” Ron Gray asserted. “It falls under the Michigan Mechanical Code, and we have had anywhere from one contractor to 60 in a class.”
Challenges metAsked to identify their biggest challenges, the Major/Lozuaway team recited pretty much the same litany you hear from all reps nowadays. “Time management is the biggest challenge for me,” said Sheehy. “A lot of times you just want to go out and sell but you’re not able to because there are so many other requirements put on you by the manufacturers.”
“It’s not only coming from manufacturers,” Phillpotts added. “Wholesalers have all diminished their staffing, so we find ourselves more engaged with the secondary market providing technical information, job specs and other things that used to be handled by wholesaler salesmen. We even have to call on homeowners when issues arise with warranties, and everything seems to have a lifetime warranty these days.”
Sheehy brought up the age-old complaint that “I don’t think some manufacturers understand our costs. They look at a 1% commission cut as a 1% savings from their perspective. But for us, on a 5% commission line it amounts to a 20% pay cut.”
That off his chest, Sheehy remarked, “I like everything about this business, including the challenges. I especially cherish the relationships with customers and our manufacturers.”
“Even with our competitors,” Phillpotts chimed in. “Ralph (Kazmierski) was one of our competitors for many years, but we always got along and enjoyed one another’s company.”
This agency and its predecessors are strong supporters of the AIM/R national organization for our industry’s independent reps. Dave Sheehy carries the organization’s coveted CPMR (Certified Professional Manufacturers Representative) designation - “an absolutely fabulous program.” Traditionally they have sent multiple staffers to AIM/R’s annual conference, which is rich in educational value, although in recent years they’ve cut back in deference to the lousy economy.
“One of the things we’ve learned at these meetings is how highly electronic many of the AIM/R members have become,” said Phillpotts. “It inspires us to shore up that side of our business. A lot of manufacturers are putting catalogs and spec sheets online and embracing EDI, while we still have some customers handwriting POs. We’ve got to get those guys more engaged in the electronic world, because our manufacturers are going there whether we like it or not.”
Invited to posit some final remarks, Sheehy said, “Reps are not going away. Our value is higher than ever.”