We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of lumber yard businesses. Below is a brief synopsis of the industry.
Description of Business
Establishments engaged primarily in selling lumber to the general public. These establishments may also provide a line of general building materials.
General Industry Information
Businesses categorized as lumberyards typically include operations which specialize in wood sales, however larger warehouse hardware stores which retail other goods can also be included in this category. The bulk of revenues are obtained from customers engaged as professionals in home construction, contract work or other areas of building. Occasionally, lumber sales are made to individuals engaged in “do it yourself” projects.
Lumber dealers typically purchase their inventory from lumber wholesalers in the Pacific Northwest or Southeast regions of the United States. This business can be very cyclical, for many reasons. Access to materials from logging companies can be halted due to environmental reasons. Futures contracts for lumber can be purchased to hedge the risk of rising costs. Demand for lumber products is affected by construction cycles.
Wood-specific retailers numbered approximately 9,200 as of the recent census. As is the case with many industries, massive consolidation and the dominance of few firms has squeezed out many small operators. Leaders include Home Depot, Lowe’s and Menard Inc, which are credited for expansive franchising and advanced inventory systems. Total industry sales during 2002 were approximately $78 billion, or an average of $8.5 million in sales each.
Red Flags and Risks
As noted earlier, it is important to understand two fundamental concepts about this industry. First and foremost, the lumber business fluctuates dramatically, as it is subject to construction cycles, sudden price increases, and drops in the supply of raw materials. Secondly, it can be very difficult for smaller lumberyards to survive with the rapid expansion of the larger warehouse centers. Survival of the smaller lumberyards is often obtained through mergers and by providing specific value-added services to customers. Worker’s compensation expenses can be high for this business, where workers are dealing with large pieces of wood, heavy pallets, and cutting materials.
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