Dan Starr Outlines How Do it Best is Driving Growth With Proven Solutions

During his President’s Address to members Sunday evening during Do it Best’s Fall Market in Indianapolis, President and CEO Dan Starr outlined a number of initiatives the co-op has been involved in to drive growth with proven solutions.

Starr started with a financial review, noting that the fiscal year that just ended was a very good year. “We set records in every category of sales. Warehouse sales were up 3 percent, going up against a record year last year. Directs were up 11 percent. Lumber was up 5 percent. In total, our sales increased 7 percent to close the year at a record just over $5.5 billion. All of that activity led to a very strong bottom line,” he said, adding that the $129 million rebate that was to be distributed to members that evening is their second-highest rebate ever.

Looking at total sales from 2014 through 2022, you have to account for volatility in LBM pricing, particularly these last two years, Starr said. “Those of you who work in that space know what lumber and other commodity pricing has done. It’s important to note that our units in lumber have gone up every single year, but higher pricing has certainly been a factor there. So, when we budgeted for 2023 it appears we’re not budgeting for growth, but we’re actually budgeting for higher sales in every category. For lumber, that’s higher unit sales with an expectation that pricing will moderate,” he said.

Favorable results in total and hardlines sales is really the result of two things: Execution on our plan for the future and our response to the opportunity of the present, Starr noted.  “Regardless of the size of the business, everyone in this room faces the same challenge every year: We have limited resources of money and people. And in the midst of that resource constraint, we must respond to the demands of the business today. At the same time, we also have to work today to prepare for an uncertain tomorrow.”

Starr asked retailer-members to think back to January 2020, just before COVID really hit the U.S. “In the months that followed, we had an immediate impact on worker safety and business continuity. And then within just a few months, we all experienced a massive surge in demand. And rather than just a temporary spike, it was sustained over many months so that it completely splintered the supply chain for most of the U.S. economy. not just home improvement. All that was followed, really over the last 12 months, by rapidly rising costs and an inflation rate we haven’t seen in 40 years,” he stated.

The co-op’s plan for the future back in January 2020 had many goals, Starr noted, but the focus of all planning really came down to just a couple broad priorities:

• Continue to invest heavily in member growth and support initiatives; and
• Invest heavily in systems and infrastructure needed to support that growth.

He continued, “During our 2021 fiscal year, we made progress on our goals. We continued to see tremendous member growth. We also made strides on infrastructure investment. But we shifted more of our resources to meeting the demands of that surge in business. As a result, 2021 drove extreme profitability. We were able to capture profit that year before a lot of the transportation, carrier, fuel, ocean freight and port-related costs really took hold. As a result, member rebates also surged by nearly 35 percent over the prior year’s rebate, which was itself a record high. Then in 2022, those costs ramped up quickly and impacted our bottom line.”

Starr said it was important to share that operating expenses and product costs did not affect profitability in 2022. “Our team worked very hard throughout the year to control expenses. Simply put, sales exceeded budget while operating expenses came in under budget. All year long, we kept up with increased product costs. When prices increased, we made sure to keep those current, which I know everyone in this room has felt,” he said.

Do it Best budgeted and planned for a lot of things that they saw coming, which meant planning to buy a whole lot more and a whole lot farther out. “We planned on having significantly higher levels of inventory to be ready for the spring of ’22. Factoring into our planning was the knowledge that many others were also increasing their inventory levels, so there was a bit of a mad rush for products. And lead times were extended, particularly with products coming from overseas. For example, instead of working on a five-month lead time for globally sourced items we had a lead time of up to 12 to 15 months. In most cases we were ordering product more than a full year in advance,” Starr pointed out.

He added, “One outcome resulting from increased inventory levels and extended lead times is that your cash moves into inventory. That happened for us and we view that as a temporary outcome. As we continue to sell through that inventory, we’re seeing cash steadily increase. Again, a top priority for us has been keeping you in stock. while making good inventory decisions and investments.”

He noted that the c-op came out of the period from 2014 through 2016 with a commitment that they really needed to invest more into the development of Do it Best in a couple of key areas.

One is in the enterprise platform of the organization. One of the key initiatives, especially for this year, is investing in a brand-new warehouse management system (WMS), he noted. “It’s already been deployed in our Dixon and Waco warehouses. Two more warehouses will go live this calendar year and we’ll deploy in all remaining warehouses by next fall. That’s an aggressive schedule. And it’s a significant investment. But all of that is absolutely necessary in order to meet that continued increasing demand that we have for product through distribution,” Starr said.

“In addition to that investment in WMS, we’re also working on a brand-new distributed order management system. That will be a member facing system that will have benefits for you, including greater flexibility on how you order from Do it Best. That will also deploy by next fall. Then, in addition to both of those, we are transitioning to a brand-new core financial system. It’s an Oracle-based system that will run the entire financial backbone of the organization, which will be deployed, again, by next fall,” Starr stated.

Another investment related to increased demand and future growth is a significant facility expansion at Do it Best’s Woodburn warehouse. “This had already been in the planning stages but we accelerated the project to support demand. Beginning this fall, we will be increasing the total cube space by 50 percent. And we’ll continue to evaluate warehouse capacity in other locations,” he said.

Starr pointed out that a lot of the investments they have made have been based on growth planning, specifically directed toward existing and new member growth. “Those investments include increased flexibility with the use and access to preference stock, enhanced loan programs, and stronger discounts and dating on store projects. We’ve also had very, very strong new member growth for at least the last five years—another strong trend. As a matter of fact, this last year, we had our strongest year on record for new members. We had over 300 new store signings just last year alone. That includes new members joining Do it Best, existing members opening new locations, and existing members acquiring additional locations. Even as we invested like never before on the inventory side, we leveraged our extremely strong financial position to keep the gas pedal down on funding these member growth initiatives,” he said.

Starr also mentioned the company’s commitment to driving store traffic through ecommerce, an initiative that was announced earlier this year. “We’ve had an ecommerce offering for members for more than 20 years. This is an area that is doing nothing but increasing in importance going forward. We are committed to strengthening our offerings to you to better position you to win in ecommerce in your markets. particularly for the buy online pickup in-store business. The whole goal here is to drive more customers and more new customers into your store and introduce them to your business,” he stated.

Two months into the 2023 fiscal year, the results are positive and encouraging, according to Starr. “Sales through distribution are up 9 percent through the month of August. Again, that’s measured against prior year all-time records. With lumber, it’s a little bit different, because that pricing has come off a little bit. But, we’re driving really strong sales so far this fiscal year, and that has also translated to stronger profitability. It’s early, but so far we’re tracking ahead of our net profit budget,” he said.

He concluded, “As we look down the road, our expectation is to drive those sales higher, and continue the strong investments to position all of you for future success. You can only have best-in-class, best-in-suite services by investing in the organization. You’re all part of a company that is growing and committed to more growth. Your company is committed to providing full service on hardlines, lumber, and building materials. Your company is committed to continuing its members-first focus. Your company is committed to providing you the tools you need to help you grow. Your company is committed to making strategic investments for the future. including serious investments in ecommerce so you’re relevant for all consumers. especially the next generation of shoppers. I’m so excited for what’s ahead. There’s so much opportunity for growth. like never before. That’s why we’ll continue to invest so we can leverage those opportunities together.”

SOLUTIONS IN ACTION

For Do it Best’s Fall Market, members gained access to Solutions in Action, a full-size home center exhibit featuring best practices for merchandising, lighting, layout and branding, along with comprehensive ecommerce integration. This real-world example allows members to see the customer journey in-store and online, wrapped in the modern style, bright open floor plans and engaging displays of Signature Store Design™. Each aspect was thoughtfully developed by Do it Best to equip members with tools to create an outstanding shopping experience for their customers.

Dent Johnson, vice president of merchandising for Do it Best, said what members found in the Solutions in Action exhibit were assortments based on best-in-class analytics. “We put it all together and showed what we can do with our award-winning store design program. It’s an area that will be adaptable, and we’ve also integrated our preferred POS provider Epicor,” he said.

Regarding supply chain challenges, Johnson said Do it Best has gone through several phases. “A lot of the current issues still go back to the Texas storm of February 2021 that crushed the paint resin sector. That has gotten worse in some aspects, but the rest of the supply chain has recovered greatly over the last 90 days. We’re working closely with our vendors in those areas, and the spring outlook is looking good,” he said.

In terms of future projections, Johnson said they see slowing growth overall but are not planning for a recession. “Pro business remains strong but DIY is softening a little. We think next spring will be strong,” he said. Do it Best has made a significant investment to ramp up ecommerce efforts and that will be rolled out over the next 12 months, according to Johnson. “That will help drive more traffic through member locations. Members have been excited to learn about our new same-day in-store pickup initiative, with indoor and outdoor lockers so there’s 24-hour access. That’s going to be huge,” he said.