Lehman Pipe & Supply reflects family owned super success story

BY MORRIS R. BESCHLOSS
PVF and economic analyst

It’s no secret that The Wholesaler generally and I, as its PVF specialist, champion the cause of family owned businesses in the PHCP industry.

This in no way disparages our deep, abiding respect for our industry at all levels, but we believe that family businesses -- especially distributors -- are more hard-pressed in today’s turbulent economy than ever before. Even though it might be an exaggeration to call them an endangered species, the health of our $75-billion industry is a major factor in keeping these multi-generational core businesses alive and well.

Our monthly Q&As with those PVF sector’s manufacturers and distributors is one way to keep the industry in general informed about the benefits that those comprising independent ownership bring to everyone associated with our industry at all levels.

There is no greater ongoing success story in the PVF distribution sector than Miami-based Lehman Pipe & Plumbing Supply Inc. This 62-year-old dynamic growth concern has made all the right moves to where it is now -- a leading independent PHCP supply house in South Florida. Once the exclusive habitat of Hughes, Ferguson and Peninsula Supply companies, Lehman has carved out a niche that keeps on growing.

Reaching its first $1 million in annual revenues in 1974, it passed the $35-million mark in 2006. Three major spot-on decisions have helped this multi-generational family’s stupendous growth:

• The evolution from exclusive dependence on plumbing, heating, cooling to an ever-greater participation in pipe, valve and fittings.
• The realization that the Port of Miami was the gateway to the Caribbean and Latin America.
• The logistical expertise that allows optimum service from a singular location from within greater Miami.

With 89-year-old founder Julian Lehman, wife Betty and son Dennis active in running the business, the company’s dynamic growth and traditional values of service and integrity are in ownership hands.

Dennis cut his teeth in the rep business after college graduation, before joining Lehman Pipe in 1973. Although a hands-on operating top manager, Dennis has followed in his father’s footsteps in getting to know almost all his suppliers and customers personally. Dennis will be joining the PVF Roundtable-The Wholesaler Blue Ribbon PVF Industry Panel during the ASA Convention in Atlanta on October 3, from 9:30 to 11:30 a.m.

The following exclusive Q&A will help all of you get better acquainted with Dennis and Lehman Pipe.

Beschloss: Dennis, even before turning 60, your business reputation is reflective of the best traditions of yesterday’s “handshake” method of doing business. In this era of litigation, has this been beneficial to your impressive business growth?

Lehman: Our business has always been very straight forward to both our suppliers and our customers. We check-in and check-out every order that comes into our operation.

We report all shortage and overages to every manufacturer (there are far more overages than shortages). I would love to tell you we do not make mistakes, but that’s not the case. Every order is checked before a delivery is made. Our policy is very simple, we request that our tickets be signed and our driver go on to the next delivery. We do not have the time for a customer to check our orders. We will honor any and all claims of a shortage and generally will re-deliver that afternoon or the following morning. Ninety-eight percent of the time our customer who called in a shortage will call back and advise they found the material.

Beschloss: Your steady, and obviously profitable business growth has proven nothing short of awesome. Are there any particular secrets to your success?

Lehman: I believe the major reason we have been so successful is that over the years we have strengthened an extremely well-organized operation by maintaining a well-rounded large inventory of predominantly top quality Made in the USA material. We usually ship over 99% complete orders. My goal is to try and be competitive in the market. If I’m the lowest bid I probably made a mistake. We as a company have not looked for cheaper offshore manufactured goods on a direct purchase from overseas. We do handle some foreign products made or distributed by U.S. manufacturers, thus falling under their corporate insurance program.

Beschloss: With greater Miami impacted by commercial overbuilding and little heavy industry available, are you able to maintain your growth during these perilous times? Can you tell us how?

Lehman: There is no question that Miami, South Florida and, for that matter, the entire state of Florida has had an unbelievable run in the past. We probably have enough unsold condos to last several years. There is still a tremendous opportunity for companies that manage their inventories and personnel.

Miami is an incredibly vibrant and exciting city with much to offer the locals and the tourist world. Florida, like most states, is struggling for cash. We are and will continue to be a vacation and tourist paradise. It is my firm belief that the state of Florida must vote and pass the legalization of casino gambling within the next two years. The positiveness of this action would far outweigh the negatives. Some of the negatives have always been that gambling would bring in the wrong element of people to our state. I can assure you that some of the “wrong element” have lived here and will continue to live here. (They dislike the cold winters also.)

The reality of our situation is no different then any other part of the country. We presently have bingo, Jai-alai, dog tracks, race tracks, lotto and recently the Miccosukee Indian casinos. The truth of the matter is that you cannot be a little bit pregnant. Gambling is gambling and it is foolish to let a very lucrative revenue stream continue to leave our state and go to Mississippi, Louisiana, or gambling boats, the Bahamas, etc.

In review, there will be many opportunities coming downstream, such as the need for great amounts of fresh water for the state through a much needed desalinization program and the eventual opening of Cuba.

Beschloss: You have been quoted as saying of your suppliers, “We don’t date, we get married.” Is this a possibility that you are able to maintain in this age of constant change in people, as well as businesses?

Lehman: I truly -- possibly naively -- believe that business is a two-way street. In order for Lehman Pipe to continue to grow, I made the decision to become a partner with my manufacturers. For the most part I’ve taken the position that getting orders and receiving orders might make you a quick profit, but a good comfortable relationship lets you make a good living.

Our company is quite small in the overall scheme of the South Florida market. In the area of PVF, I feel we are one of the players. I have always believed that anybody who just keeps jumping from one factory to the next is a short term participant. It is my firm belief to always let my manufacturers know of my intentions.

If I get the order, they get the order. I have never asked manufacturers for a better price than that what is out there. -- though if offered I, of course, would not decline. But I do believe that loyalty commands strong partnership and thus it becomes the factory’s decision whether to keep me competitive or not.

Beschloss: In keeping your growth viable, are you seeking additional end-use customer sectors, as well as additional product lines to service your current ones?

Lehman: Probably the only inflexible area that I do not deviate from is credit. I have been taught that credit is a privilege, not a right. My dad has always told me if a man cannot pay you $500 on time every month, why would you want him to owe you $5,000. I have great employees in my credit department who stay on top of our receivables. Over the last five years my bad debt is under $1,000.

Lehman Pipe as a company is always looking for new AAA credit customers.

We are and have been for 62 years probably the only 100% wholesale supply house in the state. We do not sell any general contractors or owners. Our domestic distribution is to solely support the licensed contractor. If you are not an established customer, we will not even quote you over the phone.
As to the question of adding any new lines, if something should come along that appears to he a good fit, I’d always discuss it, but I do believe that it is virtually impossible to be everything to everybody when it comes to distribution.

Beschloss: Since you made a relatively early decision to become the “gateway to the Caribbean and Latin America,” has this become an increasingly important part of your revenue percentage, as well as total dollar revenues?

Lehman: We have been serving the Bahamas, the Caribbean, Central & South America for over 20 years. Central and South America are very similar to the way business used to be conducted in our Southern states many, many years ago. It is as it was in the deep South a very relationship-oriented market. By this I can assure you they make me earn every order as there is no willingness on their part to pay a premium just because you’re good friends.

Today our export sales account for over 35% of our market and my hope is to continue that process to reach about 40% or more within the next 24 months.

Beschloss: How has the company been affected by the increasing mergers and acquisition that have been growing at such a rapid pace lately, especially in your area?

Lehman: Florida has the virtue of being one of the top four states that has been a major target for acquisitions. I believe that the Hughes (hd) fiasco was doomed from the very beginning and they never realized it. You can not have your arms around the plumber Monday through Friday and on Saturday and Sunday tell the home owner you do not need a plumber.

I further believe that all of these major acquisitions in Florida are proving to be very beneficial to the stronger independents. It appears that the giant’s appetite has become so large that if they cannot keep feeding the monster it will turn and eat them.

Today is probably the best time for the strong independent. I believe that due to our small chain of command we are able to make many decisions in a much faster capacity.

On a personal note, Lehman Pipe had the incredible good fortune to become an early member of the Embassy Buying Group. The ability to be around so many extremely knowledgeable people has proved to be more profitable than dollars and cents.

Beschloss: Since interviews in earlier years did not anticipate your growth to the level you are now enjoying, does this obvious strain force you to reorganize your centralized business in any way -- either technologically or management-wise?

Lehman: Our growth rate over the last couple of years has been both demanding and exciting. We have now been on the Eclipse Computer System for over three years. I believe this system is far more advanced then we anticipated, but it is getting better with time; but we still have a long way to go.

Beschloss: Although you are fiercely committed to staying independent, is there a point at which you might consider the blandishments of prospective acquirers?

Lehman: As far as staying independent, I can humbly state that my hobby became Lehman Pipe and Lehman Pipe became my hobby. No matter what happens in the future I can promise that I have no intentions to retire. (Frankly I don’t know what I would do.)

Beschloss: Conversely, has Lehman Pipe considered geographic and product line growth by acquiring other companies?

Lehman: I have no desire to acquire anything in way of increasing our size. I strictly adhere to the fact that getting better can make you bigger but getting bigger does not guarantee you’re getting better.

Beschloss: With the current condo overhang in the Miami area continuing to grow, does this face you with a prolonged business downturn that may impact your 33-years of uninterrupted growth?

Lehman: By virtue of Miami’s size and physical location near the ocean with salt conditions, there will always be a great market for maintenance and retro fit jobs. Also as I mentioned earlier the export market is a major factor for us. I firmly believe it is only a question of time before Cuba opens up and there is only one city in the country that has it all to make this work (the language, logistics, money, contacts, etc.)

Beschloss: With energy development, power generation, and institutional and industrial construction this economy’s heavy drivers, are you expecting to share in this sector’s boom?

Lehman: As far as energy development as of now, I do not see South Florida as ever being a force in the nation. I do believe that fresh water will become a major commodity in Florida. We have only one major reservoir in South Florida- Lake Okeechobee. With the recent lack of rain and drought, there must be a major development effort toward the construction of desalinization plants. Although this is a very expensive water supply, who would have dreamed of $4 or 5 or more gasoline?

Beschloss: Are you involved in national contracts or other nationwide affiliations that have added increased revenues to your bottom line?

Lehman: We are not involved with any national contracts. At our Embassy meetings we have had preliminary discussions about this question. I do not have any answers at this time about the potential of national accounts. My hope is that the incredible resources of the Embassy Group might be a great vehicle to participate in such contracts.