Volume 4, No. 10
November 2008

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"Gifts For Geeks Redux"
By Mike Gould

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New Amendments
by Mel Muskovitz

Ann Arbor Area BUSINESS MONTHLY magazine brings the reader the latest business news and information important to the businesspeople in Washtenaw County. Each month articles cover real estate, legal, Internet, employee concerns and the climate of business in the greater Ann Arbor area. There is news about company employees and feature articles on local businesses. We cover business news from Ann Arbor, Chelsea, Dexter, Manchester, Milan, Saline, Whitmore Lake, and Ypsilanti.

Fingerle Lumber Weathers
Local Economic Climate

Alex Harrision

From left to right are John Fingerle, Mark Fingerle and Larry Fingerle in a model kitchen in their product showroom on Madison Ave.

From left to right are John Fingerle, Mark Fingerle and Larry Fingerle
in a model kitchen in their product showroom on Madison Ave.

Fingerle Lumber is an Ann Arbor institution that has been servicing its loyal customers for 78 years. Having recently weathered the threat of closure due to pension fund issues, owners John Fingerle, Mark Fingerle and Larry Fingerle spoke with the Ann Arbor Area Business Monthly about how the company is dealing with the economic downturn, and their plans to thrive in the face of uncertainty.

Describe the economic climate as it pertains to your lumberyard.

JF: "We've had fairly consistent growth through the company's history, although that hasn't been the case in the last few years as the economy in SE Michigan has suffered; and with it, the housing market.

Many of our builder customers are not building nearly as many homes as they once were, and so they're not buying as much from us as they once were. We are concentrating on all the markets that we can possibly identify for the things we sell-new homes, remodeling and repairs, commercial work and do-it-yourself projects-those are things that have all helped us weather the storm better than some, even though it's been difficult. Being diversified has allowed us to concentrate on any area of the market that's more active."

MF: "There's a lot of attrition in this industry. Some of our competitors have remained with the old traditional lumber yard model where they sell mostly to builders and professional customers as opposed to going after the do-it-yourself category like we have. Those guys are hurting in times like these."

What advantages do you see in Fingerle Lumber that you feel sustain you when others are not as successful?

JF: "We don't carry bank debt, and we have very good employees. Unfortunately, over the last few years we've had to let some people go, and in most cases, with no plans to bring them back. Many of those people are darn good people and it was not a performance issue-just simply that we weren't busy enough to employ them all. The result of that is that we have our very best people still employed with Fingerle Lumber Company, so we're well poised to take great care of our customers who do need materials. We're very proud of the way our people wait on customers when they come in. Our buying staff is well connected with our staff and we can get great prices on the products we purchase. We've also been able to survive the advent of the big box stores like Home Depot and Lowe's which didn't exist a couple decades ago."

How do you perceive the climate of the lumber business across the country, and how does that affect your business?

MF: "They are struggling as well. I talked to an employee of an OSB (oriented strand board) manufacturer this morning. They're operating at about one third capacity right now. He told me that throughout North America, the OSB industry is putting out about 54% of their total capacity. Things are scaled down to nearly half their normal production."

LF: "It's that trickle down effect. People aren't purchasing new homes, therefore builders aren't getting business, therefore they're not purchasing as much from us, and we're not purchasing as much from the mills."

How have your strategies and plans for the business changed in the last six months to a year?

LF: "A big focus has been keeping expenses in line with the sales volume we're seeing. Sales volume has fallen off so we have to reduce expenses to stem losses, and then make as much money as we can on that lower volume."

JF: "It's been a struggle to be confronted with a downturn like we've been. Our biggest expense by far is wages, salaries and benefits-people-and it's impossible to predict how long (the downturn) is going to last and how deep the recessionary trend will go. Our people are so knowledgeable about what they do, and take such good care of our customers that we were reluctant-maybe too reluctant-to make the necessary reductions that we eventually had to make.

MF: "That being said, I think we've been more proactive than some of the competition around us. One thing that has helped us tremendously is having no bank debt. We've managed our reserves very well.

What do you perceive as the reasons that Fingerle has held on within the market where area competition has fallen by the wayside? (Nearly a dozen lumberyards in Southeast Michigan have closed in the last year and a half-branches of national companies as well as independently owned companies.)

LF: "You hear a lot about deleveraging these days in the news, where companies react by getting out of long-term debt and strengthening their balance sheets. Well, we've always been strong in that respect, so there's been no required deleveraging because we were not leveraged in the first place. That's worked in our favor. Also, we've enjoyed a diversity of customers as opposed to a focus on builders and contractors. Customers are now choosing to remodel rather than buy a new home, and the remodeling market has been a real bright spot for us relative to new construction home building.

JF: "We're also a single location operation, and we're privately owned. That's just how we've always done it. A lot of the national companies have simply said, "Goodbye, Michigan," at least for awhile. They may come back when the market improves. A new movie was being shot in Howell recently and as they were building sets on location, they were trying to find the nearest lumber yard. There was nowhere for them to go nearby that could give them the volume of materials and delivery service they needed. So they came all the way to Fingerle in Ann Arbor. It is a very telling story; both in the respect that the market is shrinking, but also in the respect that we can fill in the gap for materials and service as competitors are less numerous.

How are you using your marketing resources to your advantage in this climate?

JF: "When it comes to marketing, it's really a question of trying to determine what the various subsections of your customer base need and how to fulfill that need. We've never found that advertising to builders was a particularly effective way of getting their business.

MF: "Marketing to them means monitoring building activity and using outside sales people to get to know builders, work with them to anticipate their needs and facilitate that builder's business by helping them manage the job."

LF: "We also hold special events and expos for our builder clients, which helps to solidify our relationship and thank them for their business.

JF: "With the do-it-yourself market, we can't just go out and find them, so we have to advertise. We do it through newspaper, radio, direct mail catalog and our newly revamped website.

How important are the sales of your non-lumber items-cabinets, countertops, etc.?

JF: "We are very diversified when it comes to products and that has helped us. Some companies have focused only on rough lumber and moldings, but we enjoy having many product lines available. The more we can be a one stop for customers where people can get as many items as possible, particularly when they are remodeling, that's a benefit.

MF: "We also have a breadth of forest products, including specialty moldings, trims, and species such as cedar that people cannot find anywhere else locally."

JF: "We're known for having the largest selection of cedar products in a few hundred mile radius. So we'll do business with people in Cleveland, Chicago and Ontario, as well as the Ann Arbor area. There was one day last week that we had delivery trucks in Chicago, northern Michigan and Ontario, all at once."

What are the goals you are aspiring to in the near future?

MF: "To grow sales."

JF: "Our goal is to adapt in an anticipatory way rather than a reactionary way, not simply wait around for the market to grow to the point where it will lift us up. We feel we do our best when we concentrate on doing what we do best, which is provide an exceptional level of customer service and valuable supplies."

Any plans to change locations?

JF: "Presently, we have more room in downtown Ann Arbor than we need. For that reason we listed this property for sale with a commercial real estate broker this year. We don't know what the result of that is going to be. There are advantages and disadvantages of being in downtown Ann Arbor. On one hand we're in a great spot to service remodeling customers with projects in town. On the other hand, we expanded our facility here over the years with no master plan. As we grew, we added new parcels of land and built new sheds, all of which are more geared toward handling materials by hand rather than mechanically. We can't handle materials as efficiently as we like had we a purpose-built facility somewhere just outside of town. Our property is unique because it's large and downtown, and it's been difficult to get an accurate appraisal. So at this point, we are curious to see what the market value is for it. We don't have any specific new locations in mind, however."