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Finding success in a down market

Gulf Coast Shelter learns that diversity can make all the difference


(Aug. 17) Describing the business model of Gulf Coast Shelter is a little difficult, given that it straddles different industries, channels of distribution and products. But everything sold out of the firm’s 20 warehouses, or brokered by its 21 traders, falls under the rubric of lumber, panels, millwork, flooring or other type of building materials. And despite its growing volume of sales—$74 million in 2008, almost double the previous year—president John Austin seems to have his hand in every transaction.

MIXING IT UP John Austin attributes Gulf Coast Shelter’s sales increase to a mixed customer base.

Austin opened Gulf Coast Shelter in Daphne, Ala., in 2004. The firm’s Portland, Ore.-based parent company, Shelter Products, serves the residential building market through a network of 50 distribution centers throughout the United States. “The Southeast is a perfect strategic location, but [Shelter Products] knew there was a need to have guys on the ground down here, to sell directly to contractors,” Austin said. So Gulf Coast Shelter was set up as a subsidiary, and Austin was free to pursue whatever business he could find. He began hiring traders and leasing warehouse space in other cities.

Sales for the first full year, 2005, were $15.2 million. The following year, 2006, revenues grew to $23.6 million. In 2007, it was $40.4 million.

By that point, Gulf Coast had moved well beyond its contracts with domestic sawmills. “Laminate flooring was a hot-selling item, and the Chinese were a leading producer,” recalled Austin. “Our customers were asking for it at a price we couldn’t achieve, so we went over to get it in China.”

Gulf Coast still imports flooring from China—two of his buyers were in Shanghai in July—along with ceramic tile and plywood panels called “Tigerply.” He sells to flooring stores, independent lumberyards and home centers. Most of his customers buy because they like the price.

“We bring in these granite-topped bathroom vanities from China, fully assembled, at a really low cost that allows the independent lumberyard to compete with the big boxes,” Austin said. Although he prefers to sell in full truckloads, Gulf Coast’s inventory capacity and product mix has grown to the point where “we can always put some stainless steel sinks or other things from the warehouse on the truck,” he said.

As housing starts began dropping off in 2008, Gulf Coast started looking for other sources of revenue. One of its most lucrative niches has been crane mats for natural gas pipelines. Used for laying pipes or digging trenches, the hardwood platforms are manufactured by the thousands at a Gulf Coast facility in Laurel, Miss.

“Diversification has made us more resistant to market swings,” Austin said. “And it’s given us a larger customer base to work from.”

But in some ways, Gulf Coast is taking the same customer base and working it differently. Surplus buying and selling now makes up 30% of the company’s revenues, a sharp increase since the beginning of the downturn. Austin has been dealing with mills and manufacturers that need to unload excess inventory and independent lumberyards looking for opportunistic buys. Sometimes it’s several hundred roofing tiles that happen to be the wrong color for an apartment complex. Other times, it’s a complete liquidation or a company having temporary cash flow problems.

Austin also oversees salvage work. “After Hurricane Katrina, we excavated 165 truckloads of lumber out of a BlueLinx yard in 22 days. We worked day and night. All that stuff would have gone into the landfill,” he recalled.

Austin admits that swimming between the channels of distribution can be tricky. He’s taken Gulf Coast Shelter from a one-step model to a 50/50 mix between one- and two-step. Austin still sells building materials to large framing contractors, but the guy who builds 25 homes a year is best left to the local dealer, he said.

In times like this, adapting to the market is a matter of survival, according to Austin.

“You see all these big lumberyards going down because they’re locked into one type of customer—the one that builds homes and neighborhoods,” Austin said. “The smaller mom-and-pop lumberyards are thriving, and these are my customers too,” he said.

It’s going to be tough to double sales again in 2009, Austin admitted. But that didn’t put a stop to the company’s expansion project at the crane mat manufacturing plant and distribution center, where Gulf Coast just open ed an 8,000-sq.-ft. trading floor. A firm believer in the synergy of teamwork, Austin installed seven traders in the new Laurel office at the end of July.

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