Building boom

Specialty fasteners and tools distributor benefits from growth in Chicago housing market

by Rich Vurva

When brothers-in-law Mike Saulnier and Chuck Strohmaier opened Air Fastening Systems Inc. in a Chicago suburb nearly 15 years ago, the location where their business sits today was still farmland. As developers continued to push westward from the city of Chicago to outlying areas, the pair made a name for themselves selling nails and pneumatic nailers to homebuilders. Margins on nails, staples and screws were high enough to afford them a comfortable living delivering fasteners and tools to job sites and performing air tool repairs.

The current landscape is dramatically different. Global competition has reduced margins on the products they sell by as much as 15 percent over the years.

New competitors — including big box retailers such as Home Depot and Lowe’s — continue to eat into their local market.

Their customer base has changed as well, as corporate conglomerates swoop into the attractive Chicago market to buy out smaller homebuilders and their valuable real estate. Customers are also more price conscious than ever before.

One thing that hasn’t changed is the pair’s desire to provide high-quality products, competitive prices and reliable service to their customers. But the marketplace changes are forcing them to work harder.

Positioned for growth
Air Fastening Systems Inc. started doing business in a 5,000-square-foot warehouse in Addison, Ill., in 1992. It’s now headquartered in a 16,000-square-foot warehouse and showroom in a new commercial/industrial zone in Aurora, the state’s second largest city. Located in Kane County, one of the fastest growing counties in Illinois, it’s about 45 miles west of downtown Chicago, making it ideally situated to supply homebuilders throughout the Chicago and Northwest Indiana region.

“We’re experiencing about 10 percent to 15 percent growth a year. Housing has been strong in the Chicago area,” Strohmaier says.

A 10-person staff generates sales of about $5 million annually supplying fasteners, power tools and accessories, compressors, generators and other construction supplies to major homebuilders. The business is just a short drive from an interstate, so contractors can get in and out much quicker than in more congested areas where big boxes tend to migrate. Although walk-in traffic has grown since moving into a new facility five years ago, making deliveries to customer job sites remains one of the company’s most valued customer services.

“About 75 percent of our orders are still delivered. Our main thrust is onsite delivery. Our goal is 24-hour delivery turnaround,” says Strohmaier. “We have customers who know we’re not the cheapest in town, but they know if they call here today, we have it in stock and will have it there tomorrow on time.”

Customers like Dave Pasquinelli of ALCA Carpentry Contractors, a residential and commercial builder headquartered in Burr Ridge, Ill., say reliable onsite delivery helps them control costs.

“Our biggest issue is controlling the variability of labor costs. The last thing we need is fasteners not being delivered to the job site on time, or the wrong tools for the job or broken down tools,” Pasquinelli says.

To eliminate the need for highly compensated carpenters to leave the job site — or waste time doing busy work when their tools break down — AFS lends tools to major customers like ALCA while their tools are being repaired.  It also recently began offering a preventative maintenance service on select equipment and tools.

“If we have a generator or compressor or nail gun that’s acting up, 99 percent of the time they have a replacement tool or piece of equipment they can drop off at the site. That’s a very valuable service for us,” Pasquinelli says.

Controlling costs
Warranty and repair service represents only about 10 percent of the company’s total sales, but it’s a key service that big box retailers don’t provide, Saulnier says.

“Eighty percent of the aggravation is from the service end of the business. But it’s such an important part of our business. It’s what separates us from the competition,” Saulnier says.

Controlling service costs is one of the major challenges facing companies that compete based on their service offering instead of price. The key is providing services that customers value, but doing so in a way that won’t break the bank.

“If we opened up the PM service to all of our customers, we’d need a big fleet of vehicles on the street. We’re trying to instill some controls on our end to monitor equipment as it comes in to avoid having to put more vehicles on the road,” Saulnier says.

AFS plans to implement a new system in 2006 to track tool repairs. The system will provide valuable data to help customers know when tools and equipment were repaired — so they can gauge the best time to replace them — but will also help AFS better understand its own tool costs.

The company has invested hundreds of thousands of dollars in pneumatic nail guns it provides to union carpenters throughout the region.

“Chicago is a very strong union market. The contractors provide all of the equipment for their union carpenters,” Strohmaier explains. “Over the years, manufacturers provided pneumatic nailers to customers who bought their nails. Today, we have customers with thousands of nail guns that we gave them for free and we have to maintain them.”

Saulnier says the company must closely control its limited resources to make sure it can provide the key services that major customers demand.

“We make our money from customers who buy fasteners from us. We can’t jeopardize that business,” he says.

One way to control service costs is to be selective about which customer segments receive each service. AFS performs tool repairs for customers who don’t buy fasteners, but usually only if the customer brings the tools into the shop. Customers must place a $250 minimum order to qualify for free delivery.

“We’re trying to streamline our business. We need to figure out a way to keep ourselves better organized and try to make information more easily accessible to our customers,” says sales manager Justin Bales.

Educating builders
Another way AFS differentiates itself is by actively participating in the Residential Construction Employers Council, a trade association of construction trade employers and builders. Strohmaier has led seminars at RCEC meetings and provided articles for the group’s newsletter on the proper fasteners to use with pressure-treated lumber and other construction-related issues.

“They do a great job of informing the industry about the proper products to use. They’re a great reference. They’re very knowledgeable about the products they sell,” says Lou Couper of the RCEC.

Educational efforts don’t have an immediate payoff in sales, but Strohmaier believes they help establish his company as a valuable resource to customers and prospects. Unfortunately, some builders don’t seem to care if a fastener meets code requirements established by the International Staple, Nail & Tool Association (ISANTA) or other regulating bodies.

“Our goal has always been to sell quality products that are code-compliant. AFS does not want to put our customers or our reputation at risk by providing fasteners that do not meet applicable building codes. Many carpenters don’t know the difference. I think some day they’re going to care,” he says.

Saulnier believes recent efforts to educate local building inspectors about fastener regulations have started to make a difference. He’s beginning to see inspectors insist that builders use fasteners that meet code requirements.

“We made the decision to go the high road and get rid of all the cheap imported product with questionable quality. We choose to represent manufacturers who will stand behind their product,” he says.

Solution providers
Customers know they can count on AFS salespeople to show up on job sites to solve problems. They helped one contractor figure out how to use a plastic grommet and fastener to attach Tyvek weather-resistant barriers to steel beams. They’re often asked for advice on the proper fasteners to meet building code requirements in Chicago, where steel is replacing lumber because of fire regulations.

“In the old days, a screw was a screw was a screw. But when you get downtown, there are a lot of different requirements. Customers count on our expertise, and when we don’t have it, we go to our manufacturers,” Strohmaier says.

Bales recently helped one customer find work during a slow period by calling another customer he knew was swamped with too many projects.

“My philosophy of business is that I look out for my customers. Period. I’m never afraid to point them in a different direction if I know I can’t meet their needs,” says Bales.

Saulnier says business is harder today than when he and Strohmaier started their company 15 years ago.

“We could not do today what we did 15 years ago. You can’t open up the back of your vehicle and go to job sites and try to sell tools and nails. You can’t buy it cheap enough today, plus no manufacturer would agree to set you up because you’re too small,” he says.

Saulnier and Strohmaier agree that the competitive landscape has changed dramatically over the years and will continue to change. But they believe their staff has the expertise, enthusiasm and drive to change with the times.

“We don’t know how the landscape is going to change in the future,” Saulnier says. “But one thing we do know is that people will continue to build houses.”

This article originally appeared in the January/February 2006 issue of Progressive Distributor. Copyright 2006.

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