Wolohan Lumber Co.

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Wolohan Lumber Co.

1740 Midland Road
Saginaw, Michigan 48605
U.S.A.
(517) 793-4532
Fax: (517) 793-4582

Public Company
Incorporated: 1964 as Wolohan Lumber Co.
Employees: 1,600
Sales: $418.0 million (1995)
Stock Exchanges: NASDAQ
SICs: 5031 Lumber, Plywood & Millwork; 5032 Brick,

Stone & Related Materials; 5211 Lumber & Other Building Materials

A leading retailer in the lumber and building supply industry, Wolohan Lumber Co. sells a full-line of materials used mainly for new home construction and home-improvement projects. During the mid-1990s, Wolohan operated more than 60 stores, ranging between 20,000 square feet and 45,000 square feet in retail space, in seven Midwestern states, including Michigan, Wisconsin, Ohio, Illinois, Indiana, Missouri, and Kentucky. Although the company operated exclusively as a retailer during the 1990s, for decades it was involved in several different business lines. At the turn of the 20th century, Wolohan operated grain elevators, before entering the lumber business as a wholesaler. As the decades passed and numerous ownership changes were effected, Wolohan subsisted as a lumber-yard operator, deriving the bulk of its business from sales to professional contractors. Beginning in the early 1980s, the company embraced a new business strategy when it began targeting do-it-yourself customers and remolding its stores. Store expansion ensued, as the company developed into a regional chain that during the 1990s was deriving half of its total sales from do-it-yourself customers and professional contractors.

Early 20th-Century Origins

The Wolohan family’s century-long legacy in the lumber business began with the patriarch of the family, Charles Wolohan, who founded Charles Wolohan Inc. at the turn of the 20th century. Located in Birch Run, Michigan, Charles Wolohan Inc. operated a granary elevator for local farmers and later added lumber as a sideline business. It was with lumber that the Wolohan family would score its greatest success, building an enterprise whose existence would span a century.

By the early 1920s, lumber had become a significant aspect of the Wolohan business, its growth fueled by an expanding home construction market. Partly because of the growth realized through the company’s lumber business, Charles Wolohan Inc. was able to add a second elevator to its operations, establishing the granary in Hemlock, Michigan, in 1924. Over the course of the ensuing two decades, the Wolohan lumber and elevator operations steadily grew, expanding during years of economic depression and years of war. By 1950, there were seven elevators composing the company’s operations, five of which where adjoined by lumber yards. At this point, in 1950, the company was acquired by Wickes Companies, marking the beginning of an era in Wolohan’s history that saw it emerge as a pioneer in mill-direct buying and cash-and-carry retailing.

Two years after its acquisition of Wolohan, Wickes Cos. effected a company-wide reorganization that separated the lumber operations as a distinct entity. Named vice-president and general manager of the lumber operations was Richard Wolohan who joined the family business in 1932. While under Wolohan’s stewardship, the Wickes-controlled family business began to experiment with then-novel retailing strategies, including cash-and-carry, which the company began testing at its Davison, Michigan, lumber yard in 1952. The most sweeping changes, however, were nearly three decades away. Their arrival signalled the creation of a distinctly different type of lumber retailer, one that held sway during the 1990s.

Independence Regained in the 1960s

A new business strategy was adopted during the late 1970s and early 1980s, but before the definitive changes reshaped the company for the 1990s several key developments occurred. In 1964—14 years after becoming part of the 50-lumber-yard Wickes enterprise—the Wolohan Lumber business struck out on its own once again. That year, Richard Wolohan and 10 managers left Wickes and formed Wolohan Lumber Co., the direct predecessor to the Wolohan lumber business that operated during the 1990s. Years after the split with Wickes, Richard Wolohan described Wolohan Lumber Co. at its outset, saying, “We were highly leveraged and undercapitalized—all the good and bad things that go along with that kind of enterprise,” but aside from the company’s financial vulnerability it stood strongly positioned in other respects. The management team in place had years of experience in the lumber business and possessed the purchasing, accounting, and operations expertise to make the eight-yard lumber company a winner.

Wolohan Lumber Co. generated $10.6 million in revenue during its first full year of operation. Six years later—in 1971—the company completed its initial public offering of stock, as it continued to expand during years of robust housing construction. Nearly all the company’s growth during this period in its history was dependent on business derived from building contractors. Such would be the case throughout the 1960s and 1970s, a two-decade span during which Wolohan Lumber operated as a typical, builder-oriented lumber yard. By the end of the 1970s, however, a severe drop in the number of new housing construction starts prompted the company’s management to re-evaluate its business strategy. It was a period in Wolohan Lumber’s development that one industry observer described as a time of “serious soul-searching.” After this introspective investigation, Wolohan Lumber management resolved to become a more retail-oriented company, that is, a lumber company whose focus was directed at the do-it-yourself (DIY) customer rather than exclusively at building contractors. By virtue of this decision, a new type of Wolohan Lumber began to take shape.

1980s: The “New” Wolohan Emerges

A number of steps were taken during the late 1970s and early 1980s to realize a shift in the company’s business perspective, including the addition of a former K-Mart president to Wolohan Lumber’s board of directors. By far the most influential addition, however, was an 18-year veteran of Wickes named David Wallace. Wallace joined Wolohan Lumber in 1980 and quickly made his influence felt, spearheading the metamorphosis that engendered an industry leader. “Dave Wallace was the key person from the outside in making the transition to a retail company,” remembered a Wolohan family member. “He’s a very strong executive who led our company through some difficult years and focused on the consumer side without losing the builder side of the business.”

Wallace’s inaugural years as president proved to be a crucible for both the company and its new leader. A nationwide economic recession during the early 1980s devastated the auto-motive and steel industries in the Great Lakes region where many of Wolohan Lumber’s markets were located, causing the lumber company’s sales and profit levels to sink alarmingly. Wolohan Lumber’s net income reached its nadir in 1982 when the company reported a meager $638,000 gain, but the program put into effect by Wallace already was underway, and more profitable years were quick to return.

The recovery orchestrated by Wallace greatly expanded Wolohan Lumber’s customer base by targeting DIY customers. It also lessened the company’s dependence on the frequently capricious home construction market. Wallace’s aim was to increase the importance of consumer sales to Wolohan Lumber’s bottom line, an objective that was accomplished by several key maneuvers. Advertising spending as a percentage of sales nearly doubled in the years following the early 1980s recession, as the company shifted its focus toward non-professionals. An extensive store renovation program also was put into effect, giving nearly every store a refurbished appearance and increased floor space. Further, those stores that did not meet profitability targets were shuttered. Perhaps most important, an employee training program was developed for everyone on the payroll, including sales clerks and corporate executives. The purpose of the employee training program was to stress the importance of DIY customers and how to meet their needs, the success of which proved instrumental to Wolohan Lumber’s recovery during the 1980s.

By the late 1980s, there was tangible evidence that the strategy embraced during the early 1980s had produced positive results. The push to become a more retail-oriented company drove sales and profits upward at an encouraging rate, as the number of DIY transactions exponentially increased. The number of DIY transactions tripled between 1981 and 1988, pushing sales up 190 percent during the seven-year span. Annual profits recorded a much more prolific increase, soaring 1,659 percent between 1982 and 1988 to reach $11.22 million. By the end of the decade, the average square footage of Wolohan Lumber stores nearly had doubled to 24,000 square feet, making more room for the DIY customers who were patronizing the company’s stores in droves. After several years of increased advertising spending and extensive remodeling, Wolohan Lumber executives had greatly increased the importance of the DIY customer. Total yearly sales were evenly divided between professional and DIY customers by the decade’s conclusion, reaching a balance the company’s management team had been aiming for since the early 1980s.

Company Perspectives:

“Our purpose is to make the customer Number One, in our plans and in our actions. Our challenge is to provide the best value in products, service, quality and price that addresses our customers’ needs. By making our customers Number One, they in turn will make Wolohan Lumber Co. Number One.”

Growth Continues in the 1990s

Entering the 1990s, the Wolohan Lumber chain of building-supply and DIY centers comprised 50 stores scattered throughout seven Midwestern states, with the largest concentration of retail units located in the company’s home state of Michigan. The early years of the decade witnessed another nationwide recession, but unlike the downturn during the early 1980s, the refocused Saginaw, Michigan, company was able to beat back the affects of a depressed economy more effectively thanks to its shift toward attracting DIY customers. Wolohan Lumber did not escape unscathed from the deleterious financial climate, however, struggling through what chief executive officer James L. Wolohan described as a “disastrous” 1991. Although sales increased during the year, eclipsing $300 million for the first time, the company’s net income slipped from nearly $12 million to $9.3 million. Compared to the ills suffered by other lumber retailers during the recession, however, the damage incurred by Wolohan Lumber was minimal, and by the end of 1992 the company was once again performing admirably.

Wolohan Lumber’s recovery in 1992 took place while the nation was still in the thick of a pernicious recession, buoying hopes in Saginaw that the company’s sales mix between professional and DIY customers would hold the company in good stead during cyclical downturns in the retail lumber industry. To keep the company moving in a positive direction, a chain-wide remodeling program was effected during the year that under-scored management’s attention to the needs of homeowners. As part of the remodeling effort, building materials and lawn and garden inventories were expanded. Higher profit margin, remodeler-oriented mill work and kitchen and bath presentations were also incorporated in the company’s network of stores, helping sales for 1992 reach a record $344 million and net income rise above $10 million.

The encouraging financial figures posted in 1992 added vigor to Wolohan Lumber’s expansion plans for the future. While retailers of all sorts continued to reel from the stifling economic climate, Wolohan Lumber increased its store count, opening two stores in 1993 and six stores—all in Michigan—in 1994. Sales surged ahead as a result, swelling to $380 million in 1993 and $449 million in 1994, marking the 13th consecutive year of record sales. Wolohan Lumber’s enviable record of annual sales increases, which dated back to the recovery spear-headed by Wallace during the early 1980s, came to an end the following year, however, when the vagaries of the retail lumber industry negatively affected the 60-store chain. New home construction was down 12 percent during 1995, and lumber prices plummeted 20 percent, the combined affect of which crippled Wolohan Lumber’s short-term profitability. Five new stores were added to the chain during the year, but four stores were closed because of weak profit performance, causing the company’s net income for the year to plunge 66 percent from $11 million to $3.7 million. Sales, for the first time in 14 years, dropped as well, falling to $418 million as DIY sales dropped eight percent and contractor sales dipped six percent.

Although 1995 proved to be a difficult year, the retrogressive financial slide did not dampen hopes for the company’s future, at least in the minds of management. Much of the blame for the year was attributed to factors outside of the company’s control and to the four stores that fell below Wolohan’s profitability standards—developments that did not dash hopes for a speedy recovery. Another store was added to the chain in early 1996, raising the total number of Wolohan stores to 62 and symbolizing the company’s push forward during the late 1990s. As the company charted its course for the late 1990s and the celebration of its 35th year of independence, executives in Saginaw, led by chairman, president, and chief executive officer Jim Wolohan, were confident that the future would bring a continuation of the growth achieved during the 1980s and the first half of the 1990s.