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2008 Health Care Conference: Frontiers of Health Care

Wednesday, November 12, 2008, 8:00 a.m. - 11:30 a.m., Hyatt Vineyard Creek Hotel & Spa, Santa Rosa

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84 Lumber closes in tough market for construction

SANTA ROSA – 84 Lumber Co. closed its 29-year-old homebuilding supply store in Santa Rosa, its only one in the North Bay, largely because of a sharp falloff in home construction recently.

Late last month, the Pennsylvania-based company shuttered the 10-employee store as part of 10 closings nationwide, including two in Sacramento, according to spokesman Jeff Nobers.

“In that market, housing starts have been down from quite a while and particularly in the last six months,” he said.

84 Lumber opened the Santa Rosa store, one of its first on the West Coast, in March 1979. Its 2.3-acre site at the southwest corner of Stony Point Road and Highway 12 has 40,000 square feet of buildings, making it one of the company’s smallest locations. New stores sit on at least 10 acres and could be as large as 20 acres.

The company looks to open stores where more than 3,000 homes are built annually in a 25-mile radius, according to Mr. Nobers. After opening, building activity should remain at a rate of 2,000 to 2,500 home starts a year. If not, the company consolidates stores and moves to growing markets.

Sometimes 84 Lumber leaves a market during an economic slump and returns when homebuilding returns. If the company were to return to the North Bay, it would be with a larger store, Mr. Nobers said.

Housing starts in Sonoma County have slowed. The total residential building permit value for the county was $368.2 million last year, a 40 percent decrease from $616.4 million in 2005, according to the Construction Industry Research Board.

The slowdown in homebuilding nationwide has hit home-improvement stores as well. The retailer-backed Home Improvement Research Institute estimates all home-improvement sales, including home electronics, decreased 2 percent last year, the first decline since 1991, and will dip by 1.5 percent this year because of mortgage-market issues and slow consumer spending.

Increases in sales are projected to return in 2009.

Lumber suppliers have been hit by not only the slowdown in homebuilding but also the lowest lumber prices in 35 years because of oversupply, according to Randy Destruel, CEO of Santa Rosa’s Mead Clark Lumber.

“Our industry has been in a recession since the beginning of 2006,” he said. “I started doing this work in 1972, and we’re paying 1972 prices for lumber. It’s tough to make money when material costs are so low and fuel and other costs are so high.”

The two trends together have pulled down Mead Clark revenue sharply from $110 million in 2005 to $64 million last year and a projected $48 million this year, according to Mr. Destruel. The company has had to lay off 60 employees in the past year and a half to survive.

Eighty-five percent of Mead Clark revenue comes from contractors, now split evenly between builders and remodelers, and most of the rest comes from retail sales.

Sales to remodelers have dipped slightly but have remained strong, as have sales from Mead Clark’s door and window shops. Permit volume for remodeling in Sonoma County was $71 million last year, a dip of 20.6 percent from $89.5 million in 2005.

Another source for revenue is the wholesale lumber division specializing in Forest Stewardship Council-certified products often called for on green-building projects, but that venture is only in its second year.

“I hope it ends soon,” Mr. Destruel said, reminiscing about an acquaintance who had to close a 100-year-old yard in the Sacramento area recently. “It’s a very tough market.”