The last several years of economic recovery have been hard on many building material suppliers. Some companies have coped by turning inward, focusing primarily on improving business practices and catching up on necessary technology investments. Rugby exemplifies another option, however, with the company spending the last several years growing by acquisition. Amongst Rugby’s most recent purchases are the Boise, Idaho operations of McKillican American, Inc.; Walden’s Distributing, Inc. in Fort Worth, Texas; and New York-based F. W. Honerkamp Co. Inc. In this interview, Rugby President and CEO, David Hughes discusses the success of his company’s different approach to survival in the wake of the recession and shares his insights into the ongoing industry-wide recovery.
Even as the economy begins to come back, the building materials industry continues to be overdistributed, Hughes explains. This is a major challenge for distributors who struggle to maintain sufficient volume to cover their overhead in a market where usage is substantially below where it was at the peak of the last cycle. But not all the news is bad, he assures us, distributors also have the opportunity to provide a wider range of functions as customers require higher levels of service, particularly in the cabinet industry.
Rugby is uniquely positioned to take advantage of these opportunities because they are a full-line distributor of architectural building products, offering customers “one-stop shopping” for all the products they require. Rugby is also geographically diverse, representing manufacturers in a broad territory of about 30 states. They are a privately-owned, decentralized, branch-based business model, yet boast a strong culture that unifies its 350 employees as one team. Compared to when he purchased the company in December 2009, Hughes says, Rugby is almost three times the size it was, and will do over $200 million in sales in 2014.
Rugby has clearly grown dramatically over the past several years, with 11 acquisitions and 17 operations purchased since 2009. Unlike many of their competitors, who spent the recession focusing internally improving operations, Rugby’s major emphasis has been on product-line, geographic, and talent expansion, with less weight given to internal operations until recently. In 2013, Hughes adds, Rugby shifted its focus to internal investments, upgrading its systems to install DMSi’s Agility at all of its locations.
As Rugby continues to grow by acquisition, Hughes says they look for companies that fit their growth strategy, beginning with a clear product and customer fit. Rugby remains disciplined about the markets and the products it wants to be involved with, which includes interior building products and doors. According to Hughes, Rugby also looks for companies with an established customer following in a particular market; situations with synergy on the supply chain side; and companies with existing management in place. “Rugby is great option for the entrepreneur looking for a solution to a succession problem, or who simply wishes to be able focus on the fun part of this business, serving customers and suppliers,” he points out.
Hughes is equally optimistic about distributor-manufacturer relations, which he says are “excellent” in the architectural building space. “The manufacturers respect the role of the distributor, and distributors respect manufacturers,” he enthuses. “I compare that with more commodity-oriented product categories, where there is a lot of tension in the channel. That is not the case with architectural building products.”
While relationships with manufacturers may remain good, Hughes urges distributors to ensure they are working with their customers as well, particularly in terms of access to capital. “The recession was very hard on our customer base, particularly the smaller companies,” he says. “It’s 2014, and that has not improved as much as we hoped, so I think it is important for us to be supportive of our customers in terms of flexibility and credit. Ultimately, our end users are relying on us for inventory, so we need to be positioned to fulfill those orders quickly. I don’t think that is going to change, and it is certainly an opportunity for distributors who are well stocked.”
All of these factors vary by region, of course, and with Rugby’s national presence Hughes is uniquely positioned to comment on ongoing trends nationwide. “While the commercial sector continues to struggle, and we are not seeing the rebound we expected; the residential sector is improving nicely, especially in Western markets,” he observes. The Northeast remains flat while the Southeast, Southwest, and Northwest are beginning to show signs of life. However, Hughes points out that this is partially due to the fact that the Northeast was not as badly hit by the recession as those other areas. The Midwest, on the other hand, continues to remain soft, having rebounded only marginally. “This all comes with the caveat that you will see different results depending on your customer mix between commercial and residential,” Hughes concludes.