International Growth Gives Classic American Hardwoods Advantage

By Eric Smith

PROSPERITY: An employee inspects lumber at the Classic American Hardwoods Inc. plant in North Memphis. The company, launched by founder Bill Courtney in 2001, has been prospering amid the economic slowdown because of sound business practices that include diversification into other countries. -- PHOTO BY ERIC SMITH

Classic American Hardwoods Inc. President Bill Courtney said he runs his business according to an old adage: “When they’re yelling, be selling. When they’re crying, be buying.”

Courtney, who launched the hardwood lumber company in 2001, is adhering to the latter part of that philosophy, which calls for being aggressive as the competition contracts. So while the industry is suffering dramatically – prices are down 40 percent and production is down 75 percent nationwide – Classic American Hardwoods is growing.

“It’s been brutal, but we’ve been very fortunate,” Courtney said. “We made some moves about two years ago anticipating what was about to happen that shored our business up. We haven’t made a lot of money, but we’ve at least been profitable.”

That profitability over the past two years isn’t where Courtney would like to see it, but by comparison the company has performed well enough to be bankable, meaning it can secure the requisite financing to make improvements and expand capacity.

Specifically, because companies are going under or liquidating inventory, Courtney has been able to find equipment for 10 or 20 cents on the dollar.

To the bank

The company recently filed a $6.9 million loan through First Tennessee Bank NA on its North Memphis property. Operating as Memphis Land Development LLC, the related entity that owns the Classic American Hardwoods facility at 1245 N. Seventh St., the company filed the loan Nov. 25.

Courtney said the transaction did three things for the company: It gave it a local banking relationship; it rolled up some capital expenditures into term debt and freed up capital on the company’s operating line to buy much-needed equipment; and it allowed for even more expansion and improvements moving forward.

“Despite everything, our business still continues to grow in terms of our board footage produced, and I needed to produce more to take advantage of the sales that were available to me,” he said. “Combine the fact that we’re bankable with the fact that there’s a lot of good deals to be had out there with the fact that I plan on being in business two, three, four, five, 20 years from now, it made sense.”

Classic American Hardwoods buys unfinished lumber from sawmills, then dries it and grades it before selling it to companies that manufacture everything from flooring to cabinets to trim molds to furniture. As Courtney described it, “softwoods build a house; hardwoods furnish it.”

The company now produces 2.5 million board feet per month, or 30 million board feet a year, with sales in excess of $43 million.

Pursuing other markets

Courtney attributes the company’s continued success to its recent diversification. In 2007, one of Courtney’s original employees moved to Shanghai to open Classic American Hardwood’s first international office, hoping to tap into the growing demand overseas for hardwood lumber.

“Up until late 2005, we never sold a stick of lumber outside the continental United States,” Courtney said. “It was clear that we were going to have to not only diversify our products but diversify our customer base.”

Classic American Hardwoods later set up an office in Ho Chi Minh City in Vietnam, and it now sells products in Europe as well. Having representatives in foreign offices has helped grow those markets for the company.

“Our success has been that we have boots on the ground that can represent us rather than a wholesaler or middleman that represents us but really isn’t connected to us,” Courtney said.

Courtney said he saw the financial downturn coming, and he understood that being in multiple countries would help insulate Classic American Hardwoods from the economic meltdown.

“In the past if you lost an account in Texas, you just tried to sell more in New Mexico or California,” he said. “Now if we lose an account in Texas we have China to look to, we have Vietnam to look to, Germany, Austria, Great Britain, Poland. We’re the largest importer of hardwood lumber to the country of Sweden. We decided while everybody’s screaming and shrinking, that if we grew our marketplace we could maintain our business. We couldn’t grow our marketplace inside the United States.”

Looking ahead

As Courtney noted, China is becoming a true marketplace. Instead of making things with American materials and shipping them back to the U.S., the Chinese consumers are by and large keeping their own products, which has been a boon for business.

The company now has 30 percent of its sales in Asia, 20 percent in Europe and 50 percent in the U.S. Courtney is looking to establish a presence in Mexico, hoping to bring 10 percent of the company’s sales from south of the border by the end of 2010.

Diversification wasn’t the only smart move for the company; it also benefited from bringing its freight forwarding capabilities in house. That has saved money and kept shipments from getting held up in foreign ports.

As Classic American Hardwoods approaches its 10th anniversary, Courtney has seen his work force swell to 75. He has hired 20 employees in the past 90 days and projects more bright days ahead for his company and for the overall industry, because of what he views as a commitment to making sure hardwood trees are sustainably replenished.

Environmental stewardship is an important theme for Courtney, who said savvy lumber business owners are naturally focused on renewing their resources, helping preserve the industry for generations to come.

“Why would someone who makes his living harvesting trees not replant?” Courtney said. “You’ve got to replant because that’s the future.”