On any given Saturday morning, a steady stream of homeowners and other do-it-yourselfers shuffle into their neighborhood Home Depot in search of equipment and supplies. Sprinkled among those individuals is a contractor or two in search of a good deal on screws, drills or other necessities for the jobsite. And while those professionals may find a nugget or two in the big box that is The Home Depot, many more rely on local, independent distributors to provide the expertise and service that no large retailer can match.

That's precisely why last May's announcement that The Home Depot would acquire White Cap Construction Supply, a distributor of specialty hardware, tools and materials targeting large- and medium-sized construction contractors, caught those distributors' attention. Always cognizant that the larger competitor couldn't match them on service, now, it seemed, the big box was making inroads into their territory.

As part of its strategy to expand its professional customer market base, The Home Depot incorporated the 1,720-employee, Costa-Mesa, Calif.-based White Cap into its supply division. Prior to the marriage, roughly 60 percent of White Cap's sales were delivered to the jobsite, while the remaining 40 percent were purchased at one of the firm's 70 branch locations. The distributor's 65,000 products include brand-name construction materials, hand tools, fasteners, safety equipment, power tools and equipment.

Through the merger, The Home Depot is expected to gain purchase and expansion power in the business-to-business customer segment, where independent distributors thrive.

The Construction Specialist spoke with a few independent distributors about the merged companies, what the new development could mean for their businesses, and how they will compete against the latest 300-pound gorilla of the distributor world.

What's the business climate like right now for independent construction equipment/supply distributors?

Ron Radonovich

General Manager, Fasteners, Inc., Denver

2004 was a good year for us. We had a significant sales increase, some of which was due to new customers and some due to the steel and material price increases, which allowed us to raise our prices. The strong national housing market helped to a degree, but we were also involved in the building of a new convention center and a variety of smaller local projects.

Wayne Garrett

President, Centaur Enterprises, Inc., Grand Island, Neb.

Our business is up as it should be, since we're a growing company. It's not like it was three or four years ago, but it is very solid and steady. We're at the point where we know which months are going to be good, and which are not. The national economic recovery gets stronger all the time, and that's the key driver.

Dave Murphy, Jr.

Vice President, Contractors Supply Inc., East Providence, R.I.

The market has been steady and strong. The housing market is definitely having an influence, along with the low interest rates, which also are helping to spur on more commercial building. We've seen quite a few large projects going on in our area, and they've helped to keep business pretty steady.

How is competition from big boxes like The Home Depot these days?

Bob Campbell

President, Campbell Supply Company, Iowa Falls, Iowa

The level of competition we're seeing from big boxes has been the same over the last few years. They really haven't yet made much of an impact on our business.

Radonovich: The side of our business that Home Depot affected the most was in the area of tools, as well as some of the consumables (such as screws, nuts, bolts and nails) that went with the tools. Quite frankly, that aspect of the business has been whittled away for the last three or four years. Home Depot has a lot of overhead to cover, so smaller distributors still have the advantage in that they can be more nimble. We don't have to cover 10 layers of management to make a profit.

Murphy: We don't find Home Depot at this point to be a huge competitor for us. We're just not dealing with the same things. As a company, we're geared toward the commercial- and industrial-type of contractor who has come to expect delivery and service as part of the package. Home Depot just isn't set up for that. Also setting them apart from us is the fact that we sell chemicals and a wide variety of product lines.

Garrett: We didn't even have a Home Depot in our market until a few years ago. Even so, it's not a huge issue for us because we don't cater to the retail. There are some smaller contractors that shop hard [on price] to begin with, and they don't represent our core customers anyway. When Home Depot first opened, we did feel some effects, but after two months we forgot they were even there.

How will the recent The Home Depot/White Cap Construction Supply merger affect the nation's independent construction distributors?

Campbell: Short-term, it has actually been great for us because there is always fallout from customers who don't like what took place. They stubbed their toes on some things and didn't get it right initially, and that turns customers away. We've tried to position ourselves to be there to pick up those customers. That has meant properly positioning ourselves to be "the next in line" that they come to see.

What we've also seen is a shift on the vendor side, as those suppliers take a completely different look at the independent versus the big box. Where they may have focused on selling to the "acquired" company in the past, they now have to deal with Home Depot and its centralized purchasing decisions. Recently, vendors have been paying a lot more attention to the independent firms that help them locally, and that belong to marketing groups like Affiliated Distributors. It's been very interesting to watch that evolve.

Garrett: There are some publicly traded industrial supply companies that have produced good financial results, but they've experienced side effects that don't allow them to dominate or "own" the market to the point where a smaller, niche player can no longer compete. I expect the same results from the Home Depot-White Cap merger. I'm very curious to see how the Wall Street mentality plays out in the construction industry, where margins are tight and relationships are strong. I'm not saying Home Depot won't make it happen, but I really don't think they'll prohibit a company like ours from functioning well in the marketplace.

Murphy: This industry is based on relationships and service, and requires salespeople who are extremely knowledgeable. For example, it takes us at least two years to get a sales rep relatively up to speed on the market. You can't just hire people off the street and give them the kind of knowledge to adequately service your customer base. Overall, I think it's a pretty big leap of faith for Home Depot to go from where they are now, to chasing bridge and highway, waterproofing and form work. They may be able to do it, but it's not going to be easy.

Radonovich: The one thing Home Depot lacks is expertise, and the ability to get customers in and out in a hurry, and with the right product in hand. When our customers hit the counter, our goal is to take care of them immediately and get them back on the road. Everyone has been in the big box stores and knows what it's like: You're number 22 in line behind four lumber carts and meanwhile you have a roll of nails in your hand and you need to get back to that jobsite as soon as possible. I don't really know if Home Depot is ever going to be able to solve that issue.

What strategies are independent distributors using to compete in the market right now?

Radonovich: We get to know our customers, and make sure that they're more than just a line of data on a computer report. We know what makes them tick, and realize that each one is a bit different from the next. You can't just say, "all home builders want this," or "all glass companies want that." It's about finding the differences between each one, catering to those needs and maintaining strong relationships with them. I don't think the big guys have the ability or latitude to do that.

Garrett: Consistency of personnel is important, as is knowing what customers need and having those products on hand for them at all times. White Cap was very successful at doing that in our market, and I expect they'll be able to continue doing so for quite some time. In this industry, price and quality are important, but at the end of the day, our customers really want service. If you're a distributor that has a really sharp price on all the "A" items (and that's what you get at Home Depot), you're still not going to be as effective as you could be if you had the knowledgeable people to back it up.

Campbell: We're constantly offering more products and services to customers. If they want chain slings or hydraulic hose assemblies made up, we'll do it for them. If they want us to come in and service their stock rooms with bar coding, we'll handle it. Those are the types of value-added services that we can handle well, and the average big box doesn't offer.

Collectively, most independent distributors of construction equipment and supplies expect little effect from the Home Depot-White Cap marriage, though all admit that they're watching the merged firms' moves carefully. Those distributors that serve niche markets seem less concerned than those that work with a broad range of customers, although the general consensus is that Home Depot will be hard pressed to provide value-added services such as repairs and customer attention that independent distributors specialize in. Stay tuned...