The History of LMC
How it all Began...
In the early 1930's the lumber industry - manufacturers and retailers alike - focused their attention on reducing overhead and seeking more efficient means of operation. In order to achieve their goals, they would have to pay more attention to buying.
Group buying was then in its infancy. The Associated Merchandising Corporation of New York City, a huge buying cooperating merchandising group of large independent department stores was probably the most notable. Their members were non-competitive and shared basically the same financial and merchandising concepts.
AMC's philosophy was simple - quantity discounts. By pooling their buying, the members of AMC were able to achieve large trade discounts.
Hearings on the new Robinson-Patman Act pointed up the enormous discounts granted, particularly in the mail-order and large chain-grocery fields. This had a great appeal to retail lumber dealers. They had already experimented in pooling to purchase car-loads of slow-moving items such as millwork, moulding, and high-grade lumber.
Putting it all Together...
One group of lumber dealers, in Pennsylvania, lead by Fred H. Kessler, president of Central Lumber Company in Reading, sought to carry group buying a step further.
James L. Buckley Sr., Secretary-Manager of the Middle Atlantic Lumbermens Association, who had previously met with the president of the Associated Merchandising Corporation of New York, set up a meeting with Fred Kessler. During this meeting, the two drew up a list of some forty to forty-five names of prominent retail lumber retailers. This list was made up of cash-discounters who, in some cases, were in direct competition with one another.
Kessler and Buckley approached the companies on this list. The first twelve quickly jumped on board.
A meeting was planned for early July, 1935 to be held at the Bellevue Stratford Hotel in Philadelphia. Fred Kessler chairmaned the meeting during which the following points were agreed upon:
- The corporation would be set up and would be known as Lumbermens Merchandising Corporation.
- A minimum of thirty-five dealers would be needed to get it started.
- Each dealer would subscribe to one share of $100 common stock.
- Subscription for market bulletins would be $30 per month, plus other charges as required.
Each dealer at this meeting was assigned two or three other prospects that they were required to contact. The quota of thirty-five was quickly signed up.
The original thirty-five stockholders were:
At the organization meeting in August of 1935, Fred Kessler was elected president; Charles B. Wolf, vice president; J. Everett Walls, treasurer; and James L. Buckley, Sr., secretary. Directors besides Kessler, Wolf and Walls, were Henry H. Broscious, Sunbury, PA; John W. Lundy of Williamsport, PA; S.L. Shanaman, Phoenixville, PA; Joseph Petersen of Clementon, NJ; and J. Hammond Geis of Baltimore, MD.
On October 1, 1935, Lumbermens Merchandising Corporation opened for business with a small office in Philadelphia. The manager was James L. Buckley, Sr. with an annual salary of $3600. E.V.H Bell was assistant manager and made $2700 annually. The bookkeeper/stenographer, Helen M. Donaldson worked for $15 per week. Rent was $35 per month. The Corporation's monthly budget was $1200.
Invoices were billed at the prevailing market price. Dividends were paid to each stockholder at the end of each year, based on their purchases. This policy provided additional working capital and was also an incentive for the retailer to get the full re-sale price on his merchandise, with the dividends as additional profit.
So much responsibility was placed on the individual that stock was issued only to individuals and not to companies. This way, in case of sale of the company or change of management, the stock could be recalled if necessary.
That first year went anything but smoothly. Buckley knew very little about the technical details of the building materials business. The manufacturers, which LMC felt would beg for the big orders LMC could produce, were warned, perhaps threatened, by the wholesalers, who were strongly banded together, "If you do business with LMC, you don't do business with us." LMC had to search for dependable sources who where not represented by local wholesalers. It was obvious that large manufacturers would not be interested in a few carload orders, because the average dealer was buying only a half-car or a car of material at a time.
West Coast Fir and Hemlock was then being shipped by water to the Eastern Seaboard. Water rates were sufficiently low that a back-haul could be arranged of up to three hundred miles before meeting the rail rate coming in the other direction. LMC conceived the idea of a "group schedule" of Douglas Fir boards, dimension, and uppers. The premise behind this was simple. If LMC appeared big enough, it would make a sufficient impact on the manufacturer to prove LMC was a force to be contended with. LMC put together an order of 1,500,000 board feet (a tremendous order for the time), and dangled it before a few of the major West Coast mills. Long-Bell Lumber Company took the bait.
Call it luck or good fortune, LMC hit the market just right. Not only did Long-Bell Lumber give them a good discount, but prices went up before January 1 making the first order a good buy.
Then came the deal the really put LMC in solid with its dealers. A small asphalt roofing manufacturer in New Jersey was going out of business. They had a large inventory they wished to liquidate.
LMC arranged to purchase the entire inventory, some 300 carloads, at a discount of 33-1/3% off list. Major discounts at that time were between 5% and 10% depending on volume!
The offering was quickly grabbed up by LMC dealers with the strict understanding that the deal was to be kept confidential. Unfortunately, the price leaked out and the trade was "shook up."
The stockholder who was responsible for the leak was sternly chastised. Thereafter, a policy was adopted stating that anyone revealing prices of other confidential information could be summarily expelled.
Despite the "leak" the deal was so good that it, along with the West Coast Lumber purchase, gave proof to the trade that LMC was indeed a force to be reckoned with.
In addition to buying at considerable discounts, another advantage LMC has was low overhead. LMC had no salesmen, no advertising.
A weekly market bulletin was the means by which LMC sold product. This bulletin spelled out current market conditions, and offered special prices on available items.
Regular district meetings were held roughly every month or so. These meetings were used as a way to sell additional product and also to review company performance. Attendance for these meetings was generally strong.
In addition to the monthly regional meetings, an annual meeting of stockholders was held. Dividend checks were distributed at this meeting assuring 100% attendance.
The first annual meeting, only three months after starting operations, was held in January, 1936. At this meeting, dividend checks ranging from a few hundred dollars to well over a thousand dollars were distributed. It appeared that LMC was well on its way.
New York and New England Join the Fold...
In 1936, LMC grew to 70 stockholders with the addition of 35 dealers from New York and New England. By year's end, October 1, 1936, sales volume was at $536,000.
The War Years...
In 1942, during World War II, LMC was on the verge of falling on hard times. Everything was going into the war effort and building materials were scarce, to say the least. LMC's income in May and June barely covered expenses. Something had to be done. Almost miraculously, LMC got a call from a gentleman named Gene Howerdd.
Gene Howerdd was vice president and sales manager of Georgia Hardwood Lumber Company, the predecessor of Georgia-Pacific Corporation. Prior to the war, LMC had contracted with Georgia Hardwood for thirty to forty cars of mostly Yellow Pine per month. Because of the war, this contract had been cancelled. LMC could not obtain the sufficient priorities needed to continue to purchase.
Several representatives of LMC met with Gene Howerdd to discuss a proposition that Howerdd had. It seems that the U.S. Army Engineers were not obtaining enough lumber for immediate shipment, particularly boards used for shipment. Howerdd suggested that LMC dealers might act as distribution centers with Georgia Hardwood supplying material. A deal was drawn up setting up a new corporation known as Georgia Distribution Yards, Inc. or GDY. The outline of the deal was basically this:
- GDY would enter into an agreement with each stockholder of LMC who wished to participate, leasing their storage facilities for $1.00 per year.
- The U.S. Army Engineers would give GDY a letter of intent to supply 100 million feet of 1" Yellow Pine lumber over a period of twelve months.
- This would give Georgia Hardwood the sufficiently high priority to manufacture or procure this lumber and ship it to the various LMC yards.
- The LMC yards, in turn, would unload the lumber, stock it, and reship it, in carload quantities, to whatever destination the U.S. Army Engineers required.
- The lumber would then be invoiced to the U.S. Army Engineers, at cost plus $5.00 per M handling, plus 10%.
The GDY rented a small office in Washington DC within walking distance of the new War Department Building, the headquarters for all lumber purchases by the U.S. Army Engineers.
Georgia Hardwood shipped 5,000,000 feet, about 150 carloads, into the distribution yards, forty-two of the seventy LMC yards, the first month but the lumber didn't move. Either they had hit a low spot or the GDY was being shut out. It was a catastrophe. There wasn't a single order that first month and forty-two LMC dealers were sitting on $200,000 worth of lumber!
Luck changed, and soon orders were flowing in as fast as they could be shipped.
The relationship with Georgia Hardwood was very good. They were producing excellent lumber and LMC received very few complaints on the 80,000,000 feet that had been shipped.
By November 1942, GDY was well accepted. The distribution yards were practically the only source for available board for immediate shipment. Stock was being shipped into the yards at a rate of 7-10,000,000 feet per month and the yards were fulfilling orders within twenty-four hours including Saturdays, Sundays and holidays.
On New Year's Day, 1943, GDY got an order around 5:00 am. That order had to be in Chester, PA by 6:00 am the following day or a convoy would be held up. The U.S. Army Engineers agreed to have cars placed wherever they were needed in order to expedite the shipment. The nearest dealers where Brosius and Smedley in Wilmington, DE; Shanaman in Phoenixville, Pa and Wolf in York, Pa. The empty rail cars were delivered to these locations by individual locomotives, loaded and shipped. All by 6:00 am!
By 1943 the push had ended and on August 1, 1943, Georgia Distribution Yards, Inc. was terminated. While only short-lived, GDY accomplished the following:
- 80,000,000 feet of lumber had been shipped in and out of forty-two yards over a period of 10 months.
- A great contribution had been made to the war effort by supplying immediate lumber shipments on an emergency basis.
- It had greatly helped forty-two LMC dealers over a very critical period. Kept their organizations together and gave them some real stature in their communities, as well as a pretty fair inventory of hard-to-get lumber when it was all over.
LMC has gone through many changes since the original thirty-five got together in 1935. That first year the volume was almost $600,000. Today, there are over 370 stockholder companies and annual sales volume exceeds three billion dollars.