Macomb Group maintains red-hot growth rate
BY MORRIS R. BESCHLOSS
PVF and economic analyst
In these turbulent times, it’s especially gratifying to see an independent pvf distributor set an incredible growth pace since the start of this decade, and this is not in the hotbed of the greater Houston area or other prime centers of energy development. This stupendous expansion (from $5 million annual revenues to $150 million) has been accomplished in the depressed Michigan/Ohio arena, the heart of the Midwest, which has seen the greatest diminution of industry activity in any area of the U.S.
This accomplishment is especially remarkable in that the current owners, who took over in 1991, have literally become the dominant distribution factor, establishing a 12-branch network of outlets in key areas of Michigan and Ohio.
Headquartered in Sterling Heights, an exurb of greater Detroit, Macomb is now firmly established in eastern, central and western Michigan. The company’s foray into Ohio, although of recent origin, is already well underway with branches in Cincinnati and Columbus supplementing inventory previous established in Cleveland/Akron, Toledo and Lima.
All are interlaced along the two states’ extensive highway system, which allows interchange of inventories from a combined 500,000 square feet of combined warehouse space covering nearly 400 product groups. Among these are the outstanding brand names in the pipe-valve-fittings industry in 12 branches.
Macomb’s customer base includes a wide range of mechanical contractors, fabricators, institutions, and industrial and public maintenance, contracts and projects.
Although PVF dominates the group’s product offerings, Macomb also offers plumbing & heating products, instrumentation, and also services non-stock items, which make up 30% of Macomb’s group sales.
Fielding a crack team of inside and outside sales as well as product specialists, the company is led by CEO Bill McGivern, the 45-year-old dynamo, who is the youngest chief executive inducted into The Wholesaler pvf Hall of Fame. Co-owner and vice president is industry veteran Keith Schatko. Both McGivern and Schatko are in their mid-40s, joined Macomb in the early 1980s, and have 26 years of industry experience. Both took over in 1991 and have led Macomb to the dramatic growth which is still a project in process. Making up the top executive group is Jim Tucker, director and sales, Dick Dixon, treasurer, and Steve Dixon, fellow director.
To provide us with up-to-date answers to what’s making the “miracle of Sterling Heights” tick, we have the privilege of interviewing Bill McGivern.
Beschloss: Congratulations on your amazing growth, Bill. With the phcp industry in a state of flux, do you expect to maintain the double digit compounded rate of growth which you have been able to achieve?
McGivern: As we start to earn at the higher revenue levels, it becomes increasingly more difficult to sustain the double-digit growth rates of the past. Instead, our focus will be on maintaining solid, sustainable, controlled growth through targeted branch expansion into under-served territories. We expect there to be maturity at some of the existing regions, but growth opportunities still remain in the Tri-State region (Michigan, Indiana and Ohio) we’re currently servicing.
Beschloss: When you and your partner became co-owners of a 14-year-old supply house, headquartered in the outskirts of Detroit, did you envision the ultimate growth that you are now achieving?
McGivern: No one could’ve predicted the actual results we accomplished; however, it starts with a vision and a confidence in what you’re trying to achieve. Together, we felt that the opportunity to grow existed if we could continue to consistently deliver the level of service our Customers demanded and have come to expect. Realistically, it’s not unreasonable to assume that we ultimately have the capacity to grow the business in our region to bill $1,000,000 a day!
Beschloss: When I first interviewed you about 10 years ago, your sales were about $5 million per annum, 1/30th of what you’re projecting for 2008. What strategy allowed you to achieve this legendary growth in a territory that’s not exactly a hotbed of industrial activity.
McGivern: There is no “Secret Sauce” in distribution. It starts with good, dedicated people working at the right locations consistently delivering Customer orders correctly, timely, and priced fairly. We offer our customers a broad array of products to service their needs; we retain skilled, experience sales people that can offer alternate solutions; and we deliver on what we commit to. We also trademarked “The Macomb Group” logo to identify all of our locations and reinforce that superior service commitment to our customers. Secondarily, our region is still in transition away from the heavy automotive and steel production of the past, with emerging industries that require our product offerings.
Beschloss: With an area once known for such major distributors as Coon-de-Visser, W.T. Andrew, Barclay Ayers & Bertsch, and Taylor Engineering, how were you able to extend your reach into areas once controlled by these distribution giants?
McGivern: A lot of our former competitors struggled with the impact of success and growth. As a lot of privately held businesses find out that it’s not easy to balance generational succession issues, tax planning, or other organizational development issues that come during the good times. Being able to deal with financial leverage is a result of cultivating and developing strong relationships with customers, vendors and the bank.
As these mighty organizations began to weaken, we made sensible arrangements to expand either our geographic footprint or product offering (or both) to take on additional market share.
Beschloss: Having become a dominant factor in east, central and western Michigan, you are on your way to taking a similar role throughout Ohio. What motivated your team to make this strategic move into an area with which you did not have the same familiarity as you did with Michigan?
McGivern: It began with our familiarity with a seasoned, experienced industry veteran, Jim Gutek, who was already established in the Toledo area. A partnership focusing on his procurement skills and our operational expertise led to our first Ohio branch. Thereafter, we continued to evaluate the Ohio marketplace for areas currently being “under-serviced” by the us Flow turmoil and steadily expanded into those regions.
Hiring the right people to manage and service those facilities was the key.
Beschloss: You seem to have aggregated the top brands across a wide spectrum of the pipe-valve-fittings sector. Has your incomparable volume been benefitted by the caliber of these top notch lines? Have your vendors been satisfied with the revenues you have delivered for them?
McGivern: Vendor support is critical. There will always be a need (and temptation) for cheap imported product, but having reliable domestic product to offer is paramount. Due to the nature of commodities, being able to identify trends (especially when major fluctuations are about to occur), is a skill-set earned over time. Open, frank dialogue with your vendor partners with respect to their production planning, pricing, or growth strategies can help overcome periods of shortages or excess capacity. Of course, there is no substitute from paying your bills timely! Our vendors view us as reliable partners that have the financial capability to order in sufficient quantities, not abuse return privileges, and help them find a home for their products.
Beschloss: With us Flow falling by the wayside and other major distributors losing competitive positions, are you satisfied that you have filled the resultant vacuum adequately?
McGivern: We’re proud of our accomplishments to date, but never fully satisfied. We didn’t set out to usurp any of our predecessors, but if our success contributed to their ultimate demise, so be it. The focus for us has always been customer satisfaction. We run our business, not theirs. If they tried to implement failed strategies, we took note to avoid repeating those mistakes, but just kept accentuating our strengths.
Beschloss: With such giants a McJunkin-Red Man, Ferguson and Columbia Pipe, plus Galloup and Satterlund still operating in the area, how do you explain the massive expansion you’ve been able to achieve?
McGivern: Despite our size, we’ve striven to remain flexible and nimble in our ability to service our customers. We don’t have shareholders or Boards of Directors to “bless” our market strategies. We analyze situations from multiple perspectives, arrive at consensus, and implement those strategies without fear of repercussions on our stock values. Mind you, these are fine, respectable organizations that are constrained by their own hierarchical issues. Here, at The Macomb Group, there are no passive investors; everyone contributes daily. We try to give our customers a choice every day and they seem to ratify we’re doing something right.
Beschloss: With the automotive industry and the hundreds of component manufacturers in deep trouble, are you prepared to suffer a major letdown in 2009 and beyond in the Michigan area?
McGivern: Before the recent credit crisis that hit in September, we were postured for another successful year in 2009. Now, several large corporate expansion projects have been “moth-balled” awaiting easing of the credit markets. We have curtailed our expectations for a relatively flat year as a result. Due to our recent geographic expansion in 2008 in both Cincinnati, Ohio, and Grand Rapids, Mich., there is still growth opportunities not yet realized. What ultimately happens to the auto industry remains to be seen. If bankruptcy is indeed in their future, the fall-out to Tier-One and Tier-Two suppliers is going to put a dramatic strain on everyone. If that is the case, we will respond accordingly and run our business in a prudent manner.
Beschloss: Are there other end-use industries available that have made up for this setback?
McGivern: In 2008, we began our foray into the awwa (waste-water treatment) product segment through our acquisition of iap inc. There still is tremendous opportunity in this arena due to aging infra-structures and demographic shifts in population. We also expanded our product offering to include fire protection, hose assemblies, instrumentation and gauges, and valve repairs. We feel these areas will help mitigate some of the drop in automotive related business.
Beschloss: Since the region is facing a significant recession in 2009, what steps have you taken to maintain your ambitious growth?
McGivern: The first thing we did is choose to not be “victims” of the recession. Yes, things will be more difficult (especially as it relates to cash-flows), but we’re prepared to “ride things out.” We’ve secured adequate access to financial capital to give us flexibility to continue controlling our own growth. We’re also prepared for any requisite “belt tightening” if circumstances dictate.
Beschloss: Are there other geographical growth areas in which you plan to expand?
McGivern: We intend to stay true to our original plans of not being “everything for everyone.” If we identify the right people to manage and can find the right location, we are still interested in expansion. Indiana still remains a viable choice, especially along the Ohio River Valley region.
Beschloss: Does the longer-term outlook in your trading area provide you with additional potential; or do you attempt to expand geographically to keep your revenue expansion at a fever pitch?
McGivern: As long as we can continue to profitably service our customers, we are desirous of confronting those challenges. The key (as it has always been) is having the right people on your team, working together to deliver the customer solutions. We’re excited about the challenges confronting us and we believe we’re fully capable of addressing them in the same manner which got us to this point in time.