When The Home Depot announced almost a year ago that it was buying Atlanta-based Apex Supply, Don Maloney found some comfort in the news.
"Another distributor commented that all the purchase did was validate our channel of distribution because Home Depot was trying to get where we are," Maloney says. "I believe that comment states our reaction very well."
Maloney, however, laces his comfort level with a strong dose of reality. As incoming president of the American Supply Association, Maloney will lead the national organization at a time when many companies from outside the two-step distribution channel are trying to get where wholesalers are. Home Depot has upped the ante with its Apex acquisition and relentless expansion of stores. Dot-com companies are starting to nibble away business, and their e-commerce efforts are threatening to take bigger bites out of wholesalers' wallets.
To make his year in office even more interesting, ASA is in the midst of a restructuring that Maloney and other leaders hope will make both the national and its regional affiliates stronger. In July, ASA members voted through their representatives to reduce the number of regionals from 13 to six. Changes in dues and services also are planned.
The goal of a revamped ASA, however, is very much in tune with protecting the wholesaler's stake in the distribution channel. ASA must provide the education, tools and services that wholesalers need to compete against home centers and dot-coms, Maloney says. His own company, Beaumont, Texas-based Coburn Supply, hoped to start beta testing Sept. 1 on an e-commerce program that includes the Source ASA+ electronic catalog of product information.
"Our purpose in trying e-commerce is to make distribution more effective and efficient," Maloney says. "If we can create a Web site that's efficient and fast, the customer is going to use it to buy product from us. It will become our other counter."
East Texas and east
Web sites and e-commerce are a far cry from the origins of Coburn Supply. Albert Coburn, Maloney's great-uncle, started the company in 1934 in Beaumont. Arthur J. Maloney, Don's dad, went to work for Coburn two years later.The company opened its first branch in Lafayette in 1939, but it closed in 1941 when the United States entered World War II. The building in which it was located was disassembled, moved to Beaumont, reassembled and reopened after the war as the company's sole location.
Like many other wholesalers, Coburn Supply experienced most of its growth in the years following World War II. Fueled by the postwar economy and the oil-and-gas industry, Coburn opened branches in east Texas and Louisiana. The growth resulted from a combination of acquisitions and startups with much of the activity occurring in the 1950s and '60s and then again in the last 10 years.
Arthur J. Maloney became Coburn Supply's president in 1952. Even though the corporate headquarters was located in Beaumont, he operated the company for many years out of his Lafayette office 120 miles away. Although born in Beaumont, Coburn Supply grew to have more locations in Louisiana.
Don Maloney himself was born in New Orleans, where his mother, Alice, lived with his father's mother while his dad was stationed in the U.S. Navy in New Guinea. After his tour of duty, Arthur J. Maloney moved his family first to Beaumont and then to Lafayette, where Don grew up.
Following graduation from the University of Southwest Louisiana (now the University of Louisiana at Lafayette) and a stint in Sears management training in Houston, Don Maloney started work in 1969 in Coburn's Lafayette operation. When a Coburn vice president suffered a heart attack in 1973, Maloney moved to Beaumont, where his office remains.
"The Sears program gave me a look at the outside world, but I always felt I'd be in this business," Maloney says. "I've worked in the warehouse, at the city counter and as an assistant branch manager."
Today, Maloney is Coburn Supply's president, a position he assumed in 1987. When his father died in 1984, Don Maloney was named executive vice president and CEO. James Maloney, Don's uncle, served as president from 1984 to 1987 and now is chairman, residing in Baton Rouge, La. A.J. Maloney, Don's brother, is executive vice president, based in Lafayette.
Coburn Supply was set up as a series of partnerships, a structure that evolved into 10 separate corporations for tax purposes and may help to explain the Beaumont-Lafayette-Baton Rouge connection. Coburn is in the process of rolling that structure into one corporation to streamline the 10 sets of books and improve the company's overall efficiency.
Coburn had embarked on an even more sweeping corporate change in 1998 when it joined with other wholesalers to form Supply America. That consolidation venture disbanded last year, however, due to a lack of public funding.
"Our concept of Supply America was a good concept; our business plan was a bona fide way to go to market," Maloney says. "The dot-coms took off at the same time and attracted investors' interest. But we don't see the movement to consolidation in our industry stopping."
Small-market preference
Coburn Supply made an acquisition itself late last year when it purchased SPI Inc., a municipal utility business in Lafayette. This year the company has opened three branches, two in east Texas and the other in Louisiana.The new locations bring Coburn's total to 32 in Texas and Louisiana. About half the company's business comes from plumbing sales, including its 23 showrooms. Close to 40% is generated by HVACR sales.
In our latest Premier 150 ranking of the nation's top wholesalers, Coburn is No. 54 with sales in excess of $100 million (see May 2000). Coburn employs about 450 people.
Despite its size, the wholesaler's focus remains on smaller markets. To this point, Coburn Supply has not tangled in big cities such as Houston, Dallas or New Orleans.
"We have avoided going into major metropolitan areas because our forte is knowing how to service smaller markets," Maloney says. "We understand the smaller markets better than the bigger ones. The housing starts last year in Houston alone are more collectively than in all the cities where we have our stores. But that doesn't mean that we're not interested in going there."
One big reason for Coburn's preference for smaller cities is the company's knowledge of its customers. Maloney admits that he's wary of the credit risks of some big-city contractors, but he also believes that Coburn is more important to its current customers than it might be somewhere else.
"In smaller markets, we're more of an extension of the customer," Maloney says. "In bigger markets, the attitude is more of what have you done for me lately?"
Being in smaller markets doesn't mean that Coburn has avoided Home Depot and other big-box home centers. In fact, Maloney concedes that a few of his customers may even shop at Home Depot. These contractors may have credit problems or their primary interest might not be plumbing or HVAC, he says. Coburn's best customers, however, do want the depth and knowledge of product that the wholesaler offers.
"We have customers who do business with us because they like what we do, not just our price," Maloney says. "They see value in what we do. We have competent people who know the product and are focused on this industry. If a manufacturer has a new product to sell, we bring the contractor and that manufacturer together.
"Why does a contractor call us? He gets answers, we deliver and we're competitively priced."
Adding value to value added
Still, Maloney believes that wholesalers generally and Coburn Supply specifically can do their jobs better than they are doing them today. That conviction explains why Coburn is experimenting with e-commerce."Our industry is so far behind the electronic commerce curve," Maloney says. "With e-commerce, distributors will have to go to market differently. Our salesmen will still talk to customers over the phone, but we have to do other things to make sure we bring value to the process."
E-commerce represents an opportunity to make it easier and faster for a contractor sitting at a computer terminal to order product, he says. Technology also offers the chance to improve efficiency as well as speed.
A big question among wholesalers is whether their contractor customers are ready for e-commerce. When Coburn switched fixture lines earlier this year to American Standard and hosted open houses for the rollout, the wholesaler had the opportunity to ask customers about e-commerce. Most of the feedback was positive.
"If a customer has a child then he's on the Internet, although he may not be using it for business," Maloney says. "Our generation is the first one being taught by our children. What we may find is that our customers are smarter than we give them credit for."
Like other wholesalers, however, Maloney is concerned about how e-commerce will affect his business.
"We're worried that contractors could come on our Web site, check our prices, leave without placing an order, and we'd lose the business and not even know about it," Maloney says. "Another issue is whether a contractor or competitor could look into our computer to see what is in our warehouse or check our inventory levels and pricing to use it against us."
The upside of an interactive Web site, with passwords and firewalls set up, would outweigh those concerns, he says. A contractor with a computer could do business with Coburn at any time during the day or night. The customer could order materials, look at job folders, download submittals, and check pricing or invoices.
"As long as our Web site provides an easy way for a contractor to work from his office, he'll continue to do business with us," Maloney says.
If, however, a contractor finds it easier to order materials from a dot-com, he may just do that.
"The dot-com companies worry me," he says. "They're like Home Depot in that they carry a lot of stuff. If dot-coms come on strong, wholesalers will have to deal with that. It could be disruptive to the industry."
Due to his close ties to ASA, Maloney says he took himself out of negotiating sessions with the different vendors that offer e-commerce programs.
"We interviewed other companies that offered the same type of service as the Source ASA program," A.J. Maloney says. "We had confidence in Kevin Price and his team at the Center for Advancing Technology. We felt we could communicate with them and that they had a better understanding of our industry.
"The fact that it was an ASA-supported program didn't exercise any undue influence. We felt it was an independent decision."
Resource ASA
ASA's Center for Advancing Technology and Education Foundation are two of the most valuable resources that the national association provides its members throughout the country, Don Maloney says."CAT is working with the foundation to improve education," Maloney says. "The drive to get the Education Foundation funded is the biggest step our industry has taken. We have real money and the education foundation is going to do real things with it, such as teaching wholesalers how to use technology. That's an issue for the national organization."
A stronger ASA would provide its members with more of the tools and services that they need to compete in the 21st century, he says. That's a goal of ASA's reorganization plan, as first proposed in its 1998 White Paper. Another objective is to give ASA a stronger national voice on issues that affect wholesalers.
Much of the attention so far, though, has focused on reconfiguring ASA's regionals. But Maloney believes that the changing landscape of PHCP distribution made the reduction of 13 regionals to six a necessity. Coburn Supply is a member of the Wholesale Distributors Association and Maloney is a former WDA president.
"WDA used to be made up of a lot of small supply houses," he says. "There aren't as many small independents left. Some regionals don't have as much revenue as they once did because there are fewer corporate headquarters to pay dues. Some form of consolidation is the best way to go."
A number of small independents worry that a stronger national association won't hear their voices. The newly configured regional structure will address that concern, Maloney says.
In significant ways, Maloney will face the same challenges as ASA president that he confronts as president of Coburn Supply. Just as Coburn is trying to streamline its separate corporations, ASA is working out the details of its regional reduction. And, just as Coburn is trying to figure out ways to add value to be more appealing to its customers, ASA is in the same situation with its members.
"My biggest fear is that as an association we will lose focus on our real objective to make ASA stronger," Maloney says. "We see value in a national association. If it's not useful to our members, though, the national voice will go away. But it's not our intent or desire to lose focus."
A.J. Maloney says he's confident that his brother will get the job done.
"Don has the ability to focus on the objective and take the steps necessary to accomplish the goal," he says. "He's good with people and good at listening. He uses a consensus of opinions to reach a decision."
