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Nail Fast helps both vendors and customers come out ahead of the game

Jim Smith sees the construction fastener business, like chess, as a game of skill. It's a game he's been playing ever since he founded Nail Fast, Inc., in 1986.

The construction market in the Albuquerque, N.M. area is a challenging arena to face big name opponents, especially in this slow economic climate, but Smith says he enjoys the challenge.

As one of the only independents in the region, he has advantages over his competitors because decisions are made locally. That allows customers and vendors to go right to the people in his firm who can give them the answers and services they need, he adds.

If profit and steady growth are the metrics, then Smith, the president of Nail Fast, and his business partners are winning. He says the company's profitability is higher than the industry average though the company is growing at a slower pace.

"We don't chase business just because it's there," says Smith. "We have listened to the industry consultants. There are a lot of good ideas but most small distributors don't put them into practice."

For example, Smith says he is a firm believer in activity-based costing. He says many businesses his size ignore it because they have no time or money and it may seem too difficult. Strategy is a big part of the game plan and having good information is critical, he says.

Tactical analysis

"I suggest at least taking scientific guess-estimates," says Smith. "I try to make sure I am looking at the right numbers, however."

Smith says he couldn't tell you what the sales figures are for the last month or quarter but he is acutely aware of what the company made in gross margin dollars, which is very different from margin percentage. Gross margin dollars are what pay the business's bills.

"The gross margin from sales had better be higher than expenses" says Smith. "Without really looking at profitability, there is no way to know if a customer is profitable."

Smith says the sales team will review the top 100 accounts and compare average invoice to the company's average cost per invoice Then they identify accounts that fall below that level.

"We explore how we might still be making money with this account even if it is below average," says Smith. "Is this account receiving all of the services which generate costs and not being profitable? If that is the case, something must be done."

Rather than just terminating services, Smith says he looks at the services and costs.

"In some cases, the salesman quoted high prices and the customers didn't go away," he says. "We both win. They continue to get our services and we keep their business. In the worst case, we do lose the sale but at least no longer are losing money on transactional costs."

He says most customers understand that he needs to make a profit in order to continue providing valuable services. It is harder to convince salesmen to walk away from some sales where there is high volume, even if there is little or no profit in it.

Sometimes price is the ultimate issue, however, says Smith. Large national distributors and home centers compete for business from residential construction contractors, which account for 60 percent of Nail Fast's sales.

He says that the profit margin on many items has decreased even while expenses such as insurance costs increased. This problem is compounded by the local economy. Wages in New Mexico are lower than many regions of the country so sometimes manufacturers' prices are simply too high. Smith says he can't afford to sell some electric power tools, for example.

"Vendors are concerned that we make their market numbers, but I don't get paid for market share," he says. "If I can't make a profit, I won't sell it. I am happy making fewer, profitable sales."

He says this can strain relationships and some vendors have added new distributors, but he tries to communicate with business partners and find a way to make customers, vendors and his own business happy. Other vendors appreciate this relationship.

Two-pronged approach

"Home centers do not offer the services we do, like technical and application information, demonstration of products, repair and maybe even delivery to the job site by a salesman," he says. "We, as an industry, can't continue to offer all this at rates competitive to the big box stores."

As a Specialty Tools and Fasteners Distributors Assn. member and past president, he says he is very aware of this issue. He says it is a problem that customers are looking at an outdated paradigm.

"They want old-time service at new prices set by the big boxes," says Smith. "We cannot let the businesses that don't offer services set the prices while allowing the customers to set the service levels."

He has faced these issues by unbundling services to some of his customers. Many of the businesses that purchase from Nail Fast are sole proprietorships and small contractors who were already buying from home centers and are concerned ultimately with price.

"If that is the way they want it, we give them pricing and service similar to the home centers, but we still distinguish ourselves as better," says Smith. "They come in, pay and take away the merchandise, but we still have someone there to answer questions and provide direct customer service."

He says the larger general contractors, commercial customers and subcontractors like roofing or drywall businesses are more likely to appreciate the distributor's full services. He explains to them why, even at the higher cost of these services, it is a good deal.

As a small business, Smith says Nail Fast also has advantages over its large national distribution competitors. The decisions are all made locally, which can't be said of a branch office where the executives are hundreds or thousands of miles away.

"The whole thing is handled locally, we are close to our customers. We let them know what we are doing and how it will affect them," says Smith. "If there are problems or mistakes, we can handle it right away."

He says at Nail Fast, all of the staff are well trained, knowledgeable, and take care of problems. Even the office manager knows the accounts and the products well enough to handle problems that come up and knows as much about the finances as a CPA, he adds.

Smith attributes part of his success to the assistance he received from STAFDA in attaining the technical proficiency to achieve supply chain efficiency. This can be done fairly cheaply, he adds. Nail Fast uses a mid-level, off-the-shelf distribution software provider.

"By using our system to its fullest, it allows us to be competitive," says Smith. "We even amaze our software vendor; they say that most customers are only using about 15 percent of their system's capabilities while we have actually taught them some of the things that their system can do. Some of their salesmen have even called us for help."

Team player

Even large vendors like Bosch Power Tools appreciate how small distributors can help them compete, says regional manager Bryan Jackman.

"They support our entire line," says Jackman. "Smaller distributors are closer to their customers and can react quickly to market pressures."

Businesses like Nail Fast can implement more effective and efficient ways of doing business with their customers, he adds. They are also an asset in launching new products.

"Nail Fast is great in supporting new product introductions," says Jackman. "One value of small distributors is they are more nimble and can be creative in introducing new products to their customer base."
Nail Fast also works closely with manufacturers' representatives.

"Small independent distributors are a source of steady growth," says Rich Gunson, principal of The Summit Agency, a Pagosa Springs, Cob-based multi-line agency. "We have seen big boxes take a slice of the sales but they aren't a serious threat to a stocking distributor like Nail Fast that provides so many services."

He says Nail Fast stocks his line reliably and doesn't pick his inventory based on price. That is important for businesses that purchase to specifications. Home centers' inventories continually change based on lowest price and new items.

"The big boxes actually charge more on some of their fasteners than small distributors like Nail Fast," says Gunson. "Another value is the experienced people in the organization."

Dave Razner, a representative with Hurtisford, Wis.-based Associate Engineering, says Smith runs a very tight organization and closely manages every aspect of the business.

"Nail Fast is a small-sized account but it does business as professionally as any big organization," says Razner. "Customers often prefer smaller companies where they can deal directly with the owners."

The company deals mostly with STAFDA distributors. He says he has rarely seen a distributor that has so fully exploited all of the opportunities and resources that STAFDA has to offer.

Representative Bryan Booth says Nail Fast's employees are outstanding and have done well with the products that Denver-based Pro Sales represents. He has trained many of the employees in the proper use of the products.

"They know our products and their application," says Booth. "They also know their customers' businesses. Even if they aren't the biggest, they do a great job because of their knowledge."

COMPANY SNAPSHOT

Nail Fast

President: Jim Smith
Headquarters: Albuquerque, N.M.
Founded: 1986
Annual Sales: 2.5 million
Employees: 9
Primary Products: Pneumatic nailing and stapling supplies, nails, staples, "Tex" screws, drywall screws, concrete anchors and other construction fasteners
Territory: New Mexico, El Paso, Texas and Juarez, Mexico
Web Site: www.nailfast.com

COPYRIGHT 2002 Cahners Business Information in association with The Gale Group and LookSmart.