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Building Materials Clash of The Titans | Todd Tomalak on Paradigm Industry Insiders

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The market may be down in Q3 2025, but the data tells a different story about what's coming in 2026. 


Stefanie and Todd unpack why home‑equity access is up 38% this year, why that capital hasn’t hit jobsites yet, and how a surge in windows and doors could create a 2021-style scramble as early as next year. If you sell to or through pros, this is the map for what’s about to move. 

Stefanie shares her five-part BLEND playbook for independents to stay relevant, which you won't want to miss.

Topics we cover:
• Market softness set against rising home-equity extraction
• Deferred demand building in windows and doors through 2027
• Pros as channel kingmakers and the labor bottleneck
• Independents’ path: brand, leverage, experience, niche, digital
• E‑commerce up despite softer orders; research shifts online
• Decentralization vs scale in post-acquisition execution
• QXO vendor simplification, price leadership, AI investment
• Lowe’s marketplace, builder focus, and footprint advantage
• Measure pro digital draw rate and close the loop with AI search
• Training to de-risk complex, high-margin installs

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Todd Tomalak:

Every pro 10 years from now starts their initial job with online being the anchor, probably with AI being the anchor. And the route of like where that goes, it had better not be bypassed.

Stefanie Couch:

You can't just be a good hitter and win World Series. You gotta have the whole thing. They have to go digital. They have to be where customers are looking for them. That's gonna include AI, chat, all those searches.

Todd Tomalak:

The message is clear. Home equity extraction's up 38% right now. It hasn't been deployed yet. And you have 2x larger pool of window and doors that will have to be done. What we're basically saying is some of them will be funded by Helock, and whoever gets that will get a whole bunch of other dollars. That's a great spot to be. Thank you. It's a pleasure to join.

Stefanie Couch:

And it's been a wild year or so in the industry. Today we're gonna dive into some things. You got a lot of new data about market conditions. We're gonna dive into that. We are gonna talk about what we're calling the clash of the Titans with QXO, HD, and Lowe's. And then we're gonna talk about the future of the channel and just and the distribution channel specifically and what it might look like in a few years.

Todd Tomalak:

Well, excited to talk. There's a lot of change happening.

Stefanie Couch:

Yes. And it feels more rapid than it. There's been so many acquisitions and things like that. But with the influx of AI and market conditions, it feels like the stakes are pretty high right now. You told me on a call the other day you were talking about how soft the market conditions are right now. And you've got a ton of data. You're here at Paradigm, you're going to present in about an hour. And so I'm excited to hear your presentation. But you also told me that it was going to turn on a dime. And I want you to expand upon that and tell tell me a little bit about what you see. What's the mirror, mirrored ball telling you?

Todd Tomalak:

Yeah. Um, you know, so so sometimes you see conditions begin to thaw or change before before they pivot. And I think I think 2025 has been the year, the year of that. So we've had high interest rates and high mortgage rates for for three years now. Salesmen softening and slowing, but kind of powering through until it coughed right now. Uh, what we've seen happen in the last two quarters is you know, we we we do a lot of work measuring orders and pricing and backlogs and all these things. Basically, pro jobs that are that are coming in the door are down about 20% sequentially, Q3 versus Q1. So, so far. At the same time, what's really interesting to see is that the the high-income homeowners uh are doing something that we've never seen them do in the data ever. Not during the GFC, uh, not during COVID, not during uh we we don't have data back in the early 80s on this, but uh what what we're seeing happen is basically they're we're calling it deer in the headlights. So they're they're freezing up uh a lot of reports of uh worry about losing their job in the next five years. So you don't do any spending you're worried about losing your job. And so we've essentially seen things freeze. In the last uh six weeks or so, we've seen builder foot traffic improve sequentially, which is really unusual. Cancellation rates have kind of steadied out, and uh, we are seeing some indications that this this kind of goes to the point about turning on a dime. There's a whole lot of deferral, which we we we we can talk about, but uh there is more access being set up to accrued home equity right now. So off of a very, very low level, uh the equity tapped out right now this year is up 38%. That's with a bad macro. That's with a lot of uncertainty. And it's just and a lot of it's super prime. So these are these are people with great balance sheets, strong income. We think that's gonna start to dollarize for the space beginning about Q2 next year. It should be 3x higher than where it is right now. So um a lot of deferral, that's the story. We're starting to see it, you know, pivot now, which it wasn't pivoting three over the last three years.

Stefanie Couch:

That's exciting, but it's also still scary because all these are what ifs, which everything always is. I mean, nobody knows. No one could have predicted what was gonna happen during COVID. I mean, I remember thinking the world was going to come to an end. We had just hired a bunch of people for a new door shop we were opening. I was like, I'm gonna have to fire a hundred people that we just hired two months ago. That's a bad feeling. Yeah. And five months later, we were like, oh my gosh, we need more supplies, we need more people, we don't know what we're gonna do. So no one really knows. But you actually mentioned seeing possibly double digit growth in 2027, especially in categories like Windows and Doors. What is the data that's telling you that?

Todd Tomalak:

Yeah, yeah. So we we've seen this before in in other categories. So uh let me let me pick on, let's pick on roofing.

Stefanie Couch:

Okay.

Todd Tomalak:

Um, we're not talking about roofing today, but but but it the analogy is really important. So if we went back in time 10 years ago uh and we talked to industry, you know, insiders about roofing, there was a feeling that roofing was broken. You know, housing's improving, rates are going the right direction, everything's going, and roofing's flat to down and uh just not coming along. Well, what was happening was a a shift in in the type of things roofs are made out of, the shift in asphalt type, uh basically moved the window of when all these roofs were were done. So pushed it to now, you know, 2023 to 2025. And so now we've got Depot jumping on SRS and QXO jumping on beacon and and re-roof is significantly higher than it was during that team. Uh what we're seeing now is basically the same story play out with with windows and doors. So what windows are made of now is not the same thing they were made of, you know, 15 years ago.

Stefanie Couch:

Yeah.

Todd Tomalak:

And uh just some quick math. Well, I'll show a slide on this later on today. But if you just look at, you know, the count of say how many homes are you know over 20 years old, haven't had window and door jobs done within the last 20 years. So, you know, conceivably ripe for a window job, it's gonna be two to three X historical norms by 2027.

Stefanie Couch:

Yeah.

Todd Tomalak:

So I I think calling for like 15% growth sounds like a lot, but not when you've got the pie growing 2x or 3x bigger. So that's a pretty if things come together as we think they might, especially on the home equity side, uh, we could see it could feel a bit like it did in 2021, where you can't get a pro.

Stefanie Couch:

Yeah.

Todd Tomalak:

You know, you can't get a window that you want. So um it's tough to call the timing, but the but the levels, the story for the levels is there.

Stefanie Couch:

Well, here's really how I see it is that the pros are kind of the rulers of the channel, and they're going to be the pro contractor. There's already not enough. There's going to definitely not be enough if what we're saying is going to happen happens, especially in things like windows and doors. Windows and doors are something you need to know what you're doing to install. It's not like uh, you know, something where you can just do a DIY project that can go really, really wrong. I mean, people try and you can do it with some products, but you really need to be a professional. So it feels like with the war we're seeing, you already mentioned the roofing, people buying those companies. The same war is happening over the business with the pro contractor, and they're kind of calling the shots. Do you agree with that?

Todd Tomalak:

The message is clear. I I don't think anything that you said is is even a stretch. Uh, we can go to Home Depot's investor relations to see how they're looking at it. And uh, you know, their their last investor day presentation, I was struck by there's a strategy slide where they say, you know, in our base case, how we're gonna grow was, you know, we used to just grow by growing shares and some MA and you know, adding some more stores and and gaining some pro market share. That's there. But then their plus cases we're gonna gain even more pro-market. So it's all about pro-market share growth. And uh we're pretty clearly seeing the SRS deal as the the onus of them going after the part of the business. Uh, I mean, I've seen this real time in the last few years, but we've even seen this, I think, before that. This is this shouldn't be surprising where when the labor market gets tight, uh, suddenly the builders are willing to look the other way. They won't admit it, but they're willing to look the other way. If they're you know strained on timing, they don't want any delays on the homes, they don't want any problems with callback. What they're basically buying is a finished home with the products that they want installed without a headache. And a good pro who can do that, uh they can swap in other products that they want. Even no one will admit it, but they do. We've seen it happen. Uh, they can make a lot more margin, their pricing's all over the map. That's why, that's why the pro is the that's where the battle will be won.

Stefanie Couch:

Yeah, and even if they don't do that secondary project today in a year, if they do a good job, they'll call back and they'll come and do their siding or they'll come and do their roof or whatever they offer.

Todd Tomalak:

We we know we we did a really interesting analysis looking at um this is you can't you can't make this, this is what the data says. If so, let's think about that window, that window story. So, so you know, choose the number, but it's gonna be bigger because we've got more homes that have to have windows done. If you take uh a home that needs a home improvement and you don't change anything else but just fund it with HELOC, that's it. That's it. The chance that it overlaps with an uh another home improvement, uh kitchen or a decking project or you know, something else uh grows by between four and seven X. Four and seven X. Wow. So so you know, I'll say this again. People uh get skeptical when they hear double digit growth, and then I'm like, well, well, home equity extraction's up 38% right now. It hasn't been deployed yet, and you have 2x larger pool of window and doors that will have to be done. What we're basically saying is some of them would be funded by HELOC, and whoever gets that will get a whole bunch of other dollars. That's a great spot to be.

Stefanie Couch:

Yeah, absolutely. If I had a pretty big bucket of money and I wanted to go invest right now, I would go buy some older, boring businesses in the window and door installation category, and I would get them up to speed with marketing and customer service and all of the things that will make them amazing, and I would be ready for 2026, 2027 because that market is ripe for disruption. Most of these people are guys and trucks, they're great guys and trucks, but there's not a lot of people that have that together where they have all the things to make it really be able to be scalable. Well, there is so many conversations going on in the market about the Titans, but there's a lot of independents out there. And it seems scary to think about going up against Goliath three times, maybe more than that, because you got BFS, you got other people that are huge. What do you think the independent should be doing? Is there space for them in five years? What what does that even look like? Yeah.

Todd Tomalak:

And that's the question that all these independents should be asking. So I think there's a place. I do, I do think there's a place for them in five years. I think the place is different and they have to they have to adapt. If this was the three little pigs. So there there is a group of independents that that really have not uh adapted much. They don't have much of an on and even an online presence like a 90s style website is not really an online presence.

Stefanie Couch:

Right.

Todd Tomalak:

Right. What I what I would have them do, and I'm I'm not a marketer. I'm not a marketer, so there's other people that are closer to this than than than myself. Um but I would mentally imagine the next generation of pro. What we know is happening right now, you know, Q2. We just talked about how bad the market uh the conditions are, just coming apart, pushback orders, you know, 20% worse than uh than what we saw at Q1. Online revenue for building products is up 9.9%. Holy cow.

Stefanie Couch:

Yeah.

Todd Tomalak:

So so that's important. That's important. And I think that uh they have to have a sense. There's a small independent lumber yard that I think of that is the number one distributor for things like Fez Tool, SawStop. How do they do that? They don't have any scale. But they did something right. Yeah. So I think they have to get super niche, they have to uh be really effective at a wider audience and uh and kind of own their space. How they do that is they need people to to help them to help them navigate that. But um, if they don't do anything, you know, we're gonna run into a situation where they're fine for five years, but there's you know, the the the the labor math on this is really it's really clear. We're losing a generation of highly competent pro contractors that's worth a lot that loves the independent, better service, legitimately so, better relationship, but they're retiring. Yeah, and and their buddy who works at the independent or owns it is also kind of on the cusp of retiring. And then what happens? Well, he's got a 30-year-old son, you know, or daughter, that's thinking about uh how they want to buy and they like buying things online, they do it all the time. And so maybe so what we we just put out a report that looked at kind of who's eating whose cookie. So online shopping's way up. Where is it coming from? Okay, so pros, pros are shopping online. Some of them are going and then converting at Manufacture Direct, like going right to the manufacturer's website. Some of them are going to Biller's first source, you know. So they'll go and shop and they'll learn and they'll discover. Yeah. I don't think you can afford to not be in that early kind of top of funnel online shopping stage. You're gonna lose some, non-zero.

Stefanie Couch:

So I think that's one of the things that people miss the most, especially in the in the independent channel, is that you can't just be thinking about the moment someone comes in and hands you their card to buy. And for me, it's really a five-stage process that they can think of to actually continue to win and thrive. And I call it blend just so I can remember it, but it's brand. So it's being memorable, being out there. You have to be found to be able to be chosen, right? So if you're not out there, you don't have a brand, you don't have anything out there, you're not gonna be found. L is leverage. So can you leverage partnerships with bigger people, like a co-op, a partnership with a distributor, something like that to be able to be a big guy or gal without having to be one. E is customer experience. So experience, I think that is where even if the it changes from the older generation to the newer, these contractors still want the service and the experience that they know they can trust no matter how many times they order. N is niche, which you mentioned earlier. I don't think they can win on every category, but they can probably win on two or three big categories that they really want to live and die by. And then D, you mentioned it, digital. So they have to go digital. They have to be where customers are looking for them. That's gonna include AI, chat, all those searches because people are already not just searching on Google.

Todd Tomalak:

Is there anyone that you within building products that you feel is doing that?

Stefanie Couch:

Is doing it well.

Todd Tomalak:

Yeah.

Stefanie Couch:

Um, I think some of the bigger people are doing it pretty well. I think there's a few niche customers that are are doing the niche part really, really exceptionally well. Like, for instance, I'll give you a few examples. A few weeks ago, I was at the independent home improvement conference in Orlando. I met a wild man named Pat Sullivan that owns some hardware stores, Sullivan's hardware in Indianapolis. He has four stores. And when I say wild man, he is literally a comic. He has a radio show. He's hilarious, but he has niche down. So he has a lot of cool things that happen at his store, a lot of experiences that people bring their kids, Santa shops, pumpkin things, things like that. He has a bar and a, I think a lunch store in his in his location. He does Instagram, YouTube, millions of views on these videos they make. He's getting a buzz. So he's doing branding. He's got the leverage, he's a part of a co-op. So he can buy like a bigger person. He's doing customer experience niche and he's online. So yeah, he's kind of hitting all of them. There's a few people that I've met um through that that are doing it. They're mostly four or five store chains, and they're working really hard to do it, and they're not scared to. I think one of the things is being able to not be scared to do something that might make you look stupid to all the people that are like, What are you doing? Because it is still so different. You know, I wear a pink hat and I look totally different. And there are some people that are like, What are you doing? Um, but then there are some people that are like, Whoa, what are you doing? I'm curious. And so I would rather be that way than be like just lukewarm. Yeah, where no one cares.

Todd Tomalak:

So, so what what what what I what I heard you just say, okay, I I I think about this more and more. So after COVID, there was this, like we all remember it, there's this window where no one could get nothing. Yeah, you're not gonna get windows and doors. I don't care where you want to shop or who you like to buy from. Yeah, they don't have it. You know, and if you do find someone, they're gonna you're gonna install whatever they have.

Stefanie Couch:

Yep.

Todd Tomalak:

Right. And you're not gonna like name, name, and so we saw all these pros go to places that they never would have even admitted going to. We went to Home Depot, you know. We had a large single family rental developer frantically approach us and saying, like, we've got all these homes that we can't we can't let people live in them unless we put windows in. Who can we go to? So we're throwing connecting them with big box retailers.

Stefanie Couch:

Yeah.

Todd Tomalak:

And then once supply chain's normalized, and they're they're really horrific sounding anecdotes that came in, but like we the whining, the whining of, you know, I had to deal with a teenager, uh, and I'm not trying to bash teenagers, they're great. Sure. But at the pro desk, and they had no idea about this and this and this and this and this. And so I'm so thrilled that I could finally go back to my, you know, traditional. That's why they like the pro channel.

Stefanie Couch:

Yeah.

Todd Tomalak:

But then they told us that every time I go to the lumber yard to buy, but I still check online.

Stefanie Couch:

You got to connect all the dots. And that's the thing that I think is so important is it is a lot of things that you have to do. You've got to be, it's sort of like if you were on the baseball team and you're trying to hit and field and catch at the same time, you got to be able to do all of it. You can't just be a good hitter and win World Series. You got to have the whole thing. And you also have to have bench strength coming through because if that really great team is 50 to 60 and in 10 years, they will not be there, then you're gonna be toast in 10 years. And how do you train? This is something that at Grit Blueprint, we talk about this all the time. I think this is the biggest problem in the industry for everyone, the Titans and the one store owner. Is when you think about products, especially like a window and door product line, or you think about composite decking and railing or something that's pretty complicated, especially product, those are the things you make the most margins on that you want to sell the most. They're also the easiest things to screw up. They have the most components and they're coming out with new product lines every day, every year. How do you remember and teach a 20-year-old? You mentioned, you know, the young the young kid straight out of college that's working at a store. Right. How do you teach them those one million things to remember? They also need to know the construction context by place, by region, because if I'm selling a door in Atlanta versus Texas, totally different ball game. And then they got to know how to sell, communicate like an actual human, and be able to deal with sometimes a lot of hardships, like somebody messes up something and they come in screaming at you. It's a lot of things to cover.

Todd Tomalak:

Yeah. No, it for sure is. If someone can master that, I think that that's kind of the golden t. So, so you know, so sometimes I think about other industries. What are the parallels to other industries? Because you do see this shift between channels and products, and it's not the same. But but it's kind of worth saying out loud. I think a film. My goodness. So you know, there there was a period. I didn't when I when I first heard this, it just blew my mind. There is a period, this this is on record in the nine early 1920s, maybe even to the mid to late 1920s, where you know, movies were new and and they were silent films. And if you wanted to to go out, you know, on the town and go to a cinema, um, the owner of that channel, that's a channel, right? The product, the product is the film. They had so much market power.

Stefanie Couch:

Yeah.

Todd Tomalak:

They they would play whatever film they wanted. It didn't matter what they advertised, they'd run it 2x, sometimes 2.5x speed, like super speed it up, so they could they could get more ticket sales through talk about I can't imagine you know, going to pay for a Marvel movie and they play something else. And they play whatever the heck they want. And now we've seen that kind of swing the other way, but I don't know. Now with Netflix producing their own, being able to control. So if if uh in building products, maybe the analogy would be uh there will someone will will crack this this nut of being able to do all the things that you just mentioned and uh deliver a pro install.

Stefanie Couch:

Yeah, I believe vertical integration is actually the number one thing that people are trying to solve for. I see people already doing that, like wood grain is a great example of that. Um, they are, you know, they have a two-step distributor platform in a few different places now. They have the manufacturing, they just bought the Tawanda plant in Pennsylvania, and they're trying to vertically integrate. And I think there's a lot of people that are doing that. COVID scared a lot of people because their whole supply chain was wrapped up and you know, we can't get this, we can't get that. And they were just one of many that were trying to get it.

Todd Tomalak:

But that's scary. Yeah, it is it's scary too because there's a lot more risk. It is that you bite off, yeah. That's the case for the big boys.

Stefanie Couch:

But Elon, the richest man of the world, right? No, did the same thing.

Todd Tomalak:

Right.

Stefanie Couch:

You know, he said, Hey, why am I waiting and paying X, Y, and Z for a part that I could go get for, you know, $500. I'm paying $250,000 because it's a rocket part and it's just rocket parts are expensive. Let's just make that.

Todd Tomalak:

Elon's an interesting example because it's an example of someone who's well capitalized and who's willing to break the mold and to tear the whole process down to take a fresh look. And I think that's that's been a the housing pain point for a long time. Uh we're at an exciting point in time to see who does that.

Stefanie Couch:

Well, that's a good segue to our next conversation point because I do feel like we have someone who's quite Elon-esque that has just entered the scene. Um, I don't know for sure if that's a good comparison.

Todd Tomalak:

What a comparison. I've there's few human beings that I would that that's a uh fantastic business comparison. I think I know where you're going.

Stefanie Couch:

Yes. So I'm calling this the Clash of the Titans, and it feels like the last year has been more like an episode of HBO secession than probably the building industry has been historically in my life. It's been it's been interesting, but not this interesting. Brad Jacobs, the founder of a lot of different companies that have gone to a billion dollars. This is his eighth one, has entered the scene in the building industry in a very bold fashion, we'll say. And now the three Titans that I'm comparing really is Home Depot, Lowe's, and QXO. You've also got Builders for Source in there. You've got people like ABC. There's there's several other ones. But I want to talk today about those three. And so comparing him to Elon, he is a disruptor. He is very direct with what he is going to do. He literally wrote a playbook, which I know we've both read. I've read it multiple times called How to Make a Few Billion Dollars. What do you think is going on right now in the market with these three? SRS has been purchased by Home Depot. Lowe's just announced that they purchased FBM. Beacon was purchased by QXO. There's been multiple others, GMS by Home Depot, crazy times.

Todd Tomalak:

This is a really interesting time in history, I think, for building products distribution. Um because you know, two of these companies, Lowe's and Home Depot, are not new companies. They've been around for a lot, you know, for a for a long time, you know, almost 40 years. And yet the amount of change in their general go-to-business model that maybe we've seen in the last three years that's that's pretty significant to look at. So to your point about SRS and uh you know what we saw happen with Foundation too, uh with Lowe's, it's tricky because I think uh Fred Jacobs is clearly a fantastic, brilliant entrepreneur who's done this many times before in other industries. Even difficult, like like you know, trucking and other things like that. Um what he needs to do is he needs to do more acquisitions. And uh there's a case to be made that he's not bidding, you know, he's not the largest, he's not the whale yet. Uh Home Depot is there, Lowe's are there, and they're they're actively bidding against him. So he's he's got to get more active. Uh this isn't my own my own perception. We would have to see that. We'd also have to see him recruit and uh and kind of set up the right team with the right tools to make the improvements that he's done in in other industries in building products. He's what he's he's done that. There's pretty pretty good evidence that he's on that.

Stefanie Couch:

I mean, he's hired a bunch of people from USLBM. Yeah, he's hired AI from Target and yeah, the Walmart supply purchasing person who's very AI savvy. I mean, if people think, you know, we talked a little bit about AI on our call we had before this. AI is not gonna be like the internet where we have this like little rev-up period, you know, oh, let's see if I want to get a computer. No, it's it is here. And I believe there is an arbitrage moment that we have about 18 to 24 months before the entire category in any business, not just the building industry, changes. If people think they have time, they don't. And so, especially for people that are smaller, they're like, well, we'll just wait and see how it plays out. You you shouldn't do that. Bad advice.

Todd Tomalak:

I'm so excited to watch all this develop.

Stefanie Couch:

It is like an HBO show. It is a little bit.

Todd Tomalak:

So Home Depot bought a best of breed roofing operator, SRS's top scores across the board.

Stefanie Couch:

Yeah.

Todd Tomalak:

Beacon's a different animal. Beacon didn't have the same beacon would have been in like a four out of five, you know, rating as opposed to like a 4.9 out of five. If it was an Amazon score, we got some data on this. And so what I'm watching for, you know, is basically Brad mentioned he can double earnings. Double earnings.

Stefanie Couch:

He's also cut the vendors already from 2,300 vendors to only 20 key vendors, which is that's very to me. I mean, I'm giving Brad a lot of credit. I'm comparing him to Elon and Steve because that's the very first thing that Steve Jobs did when he went back to Apple is he said, we have 300 products, we will sell 10. He went right back and cut the fat.

Todd Tomalak:

And I have a sense with their investment in AI, or at least where they're going. We heard both of the big retailers on their on their earnings mentioned. So the tariff wall hit, right? In April, we had Liberation Day, and then there's some initial chatter around we're gonna try to do zero price increases. No one can do zero price increases. Maybe in aggregate, you can kind of try to swap something for another as a portfolio. That's what they're trying to do.

Stefanie Couch:

Yeah.

Todd Tomalak:

It shifted to being price leaders. And so what would be interesting to see is if Brad can find a way uh to become a price leader and you know, prove that he can buy like a kind of good but mediocre company and double its earnings. And if you can do that, now you can buy a lot and you can go really, really fast. I think we need to see that middle piece come in. I'm very excited to watch.

Stefanie Couch:

Do you think there's people that just do not want him to win so badly that they would turn down a better offer from him and take one from Home Depot or Lowe's or someone else like BFS just to not let him win?

Todd Tomalak:

No, people that I like uh with I I think I think um a lot would depend on the the thing that Brad seems to offer is he offers a lot of upside and skin in the game. And I think if you become a believer that he's building something amazing, like Tesla, let's pick on Elon again.

Stefanie Couch:

Yeah.

Todd Tomalak:

Yeah, who doesn't want a piece of skin in that early on? Right.

Stefanie Couch:

Well, and people need a purpose. And it feels like he needs to prove the dream. Yeah, he he is selling the dream pretty hard. And I believe that I actually believe he will be successful because he's he's done it seven times before in very antiquated industries. I mean, you know, trucking, garbage, um, equipment. They're I mean, they're pretty boring, just like the building industry. I don't think it's a boring industry, but historically it has been relatively hard to change, we'll say.

Todd Tomalak:

Right. Yeah, he's not afraid to move fast and break things. And I think he's smart and he's hiring a very competent team. I also think Home Depot are incredibly competent at what they do and they've got a great cost of capital. And they can follow things up, they can ruin things.

Stefanie Couch:

Yeah.

Todd Tomalak:

If they if they do, that's a big window for for for Brad. Um that kind of is the other thing to kind of see is like how how well disciplined they are, whether or not um, you know, they're able to scale and kind of cross-sell what they've been doing in SR. It looks good so far.

Stefanie Couch:

Yeah.

Todd Tomalak:

Um, but but we'll see.

Stefanie Couch:

Well, one of the things that we talked about that I think is a really interesting thing to watch play out with SRS and Home Depot. SRS has a pretty amazing leadership team.

Todd Tomalak:

Yeah.

Stefanie Couch:

And you mentioned that they're the data tells the same story. It's not just a gut feeling. But I'm actually curious to see do they continue to leave that like it is? Because a lot of times when we see these acquisitions, the first few months of that honeymoon period period feel pretty good. It's like, hey, we're gonna let all the salespeople stay and everything's gonna be good. We're not gonna the worsen in the business, mess with your money.

Todd Tomalak:

Right.

Stefanie Couch:

And then they take these hunter salespeople, they give them rules, they make them use technology. Technology and then they mess with their paycheck.

Todd Tomalak:

Right, we've seen that.

Stefanie Couch:

And then they say bye-bye and go somewhere else. Do you think that Home Depot will be able to do that at SRS and leave them to play in the sandbox like they've got?

Todd Tomalak:

Yeah, I think time will tell. I have not heard so far that they've they've that they've ruined SRS. I've heard that they've given them a lot of autonomy. I can tell you though, that pre-SRS, uh, we had people write in letter, long, long letters, like in in email form, uh, of all their beefs about how how the pros are being mismanaged at Home Depot and their perspectives on this. So I think um this this is probably a great example of uh we will see the quality of of management decisions. And if if they're able to not break SRS and they're able to use like the credits been been pretty effective so far, if they're able to to kind of not break what's working well, and and you some often to your to your point, that means uh being yielding, being flexible, not demanding conformity for everything. And uh and Brad, my my intuition on this is that one, you know, to to his credit, he seems like he's willing to reward the white elephant hunters, yeah. So so someone who goes out and does something fantastic, that's what he wants. Unfortunately, with integrations, that's usually what gets you know quashed. Is we want to we want to remove cost and we want to kind of standardize and and that works in the short term in that you you've killed all your white elephant hunters. So yeah, that that is the question. I don't know. I don't know.

Stefanie Couch:

Well, and historically throughout my career, you know, I've been in this my entire life. And I've worked at some different places and I've worked with a lot of different people as vendor partners and stuff. And I've seen mostly that decentralization is where people really win, where you can run your market like you need to. You can bring the products in that work for you, you can make the calls on the floor right there in your market. And it feels like the bigger things get, that that's almost impossible to allow because the centralization that you need to have to homogenize to be able to work at scale at a big company like Home Depot or any of these places, it also doesn't allow for that on the floor decentralized, make the call where it matters type idea. I'm not sure how you balance those two.

Todd Tomalak:

I think that's that's the battle. You just articulated the battle. So um, and and I think, you know, to your point of like Ken, is there a place for some of these traditional that's where their place will be if if there is. Yeah. Um and they'll probably make ridiculous margins, yeah. Do really, really well and be hard to displace. I just I just had a friend, you can't make this up. I just had a friend who runs a cabinet production facility tell me that uh they are shipping truckload after truckload of custom cabinets in Nantucket every week. The market's down. Yeah. There's there's we're in, they don't even have a website. I'm like, what? What? You don't even, but um there is there is a niche. Yeah. And I think that's that that that'll be interesting to see. And they they're able to do what you just said. Just, you know, a lot of a whole lot of like decentralized, flexible, because it's all custom.

Stefanie Couch:

That's how my dad ran his business. You know, when we had a lumber yard, we were in a really high-end market. We're servicing, we live, we live near and we're on the lake that Nick Saban from Alabama and Alan Jackson, all those guys have a house on. It's called Lake Burton in North Georgia. So we did a lot of super high-end custom homes. And when they called, we said yes.

Todd Tomalak:

Yeah.

Stefanie Couch:

I mean, that was that was the business.

Todd Tomalak:

Yeah.

Stefanie Couch:

We we got you, period. End of story. Whether that was in my dad's F-250 or on the lumber truck or or whatever needed to happen, happened. And I don't know if a big company they can try that. It's really hard to do that if you're not decentralized enough. So I'm I'm curious to see how that works out. With this clash of the Titans, we mentioned three people. We have not said Lowe's very often. They're kind of seen as the underdog, but you actually have some data that maybe says that might not be true.

Todd Tomalak:

So we we we spent a lot of time trying to decompose why. Why? So so Lowe's did a you know, I would say both Home Depot and Lowe's this last quarter had better top line results than than at least our team expected, way better e-commerce results than we expected, way better. Um because we're seeing all this all this tough macro housing data roll in. Uh what's interesting to me about Lowe's is this marketplace that they've they've, you know, in addition to some of the other acquisitions that they're doing that they're working directly with home builders, which hasn't been the focus of the other two as much. Uh this marketplace that they're opening, which is uh pretty much a direct challenge to Amazon. If you sell to Amazon today, you could sell a doohickey. And uh you probably can sell that same. There used to be a lot of uh very clear boundaries among within distribution of there's the channel products and the channel prices for pros, and that's a different thing than retail. Uh we're seeing products that uh originally were designed for showroom only. Like, you know, I'll pick on $10,000 Japanese toilet. You could only buy the showroom.

Stefanie Couch:

Yeah.

Todd Tomalak:

Like while it's at lowest marketplace right now, today. That's interesting. So it it makes me get just get a sense that we've we've kind of taken this the snow globe of uh where people play within building products distribution. You've you've shaken it up and we're seeing what what works, what settles out. Um, I think the formula of what works in a down market versus what works when that market snaps starts turning back. And if if we do start seeing these you know HELOC HELOC funded projects, that's a different, that's a different animal. So so right now it's about organic market share gains of search, uh landing a percentage of those and then capturing them with whatever products are your you know your your your preferred product. So yeah, it's it's interesting to watch. Well one nugget on on lows that we saw. So we have uh this is gonna be a whole new data product that we released, but we've got uh perfect permit data as close as you can get to it. You could do interesting things with AI. It turns out if you draw circles around all the Home Depot locations and all the Lowe's location, we're gonna do this for like BFS and ABC and all these other ones too. But Lowe's had a better better footprint, better footprint, at least this year, despite all the difficulties. And so what I what I'm kind of watching for is you know how much of their performance is due to like market conditions, just being around the right places at the right time versus like these operation things that are the, you know, you get the pawn to the end of the chessboard and now it turns into a queen. Yeah. Um, which I know that is what they're shooting for.

Stefanie Couch:

Well, to quote Brad, capital is a weapon if you know where to aim it. If you had all the capital, Todd, and you could aim it wherever you wanted to in one of these big businesses, where do you think the place that they really need to focus in the most is right now?

Todd Tomalak:

So if you put me on the the management or board of one of these businesses, uh, I would say they need to be m actively measuring their draw rate among um pro online pro-online touch points. Um they're not gonna convert all of them. But that 9.9% number, I'll I'll share the I'm I'm gonna talk about this later on today. Uh but the the growth that's happening in e-commerce, that's gonna funnel differently. That's gonna funnel someplace else entirely. Uh people were worried about Amazon just being a showroom. I think what we're gonna discover is that every pro 10 years from now starts their initial job in some form of electronic, you know, with with with online being the anchor, probably with AI being the anchor.

Stefanie Couch:

Yeah.

Todd Tomalak:

And the route of like where that goes, you had better not be bypassed. Um, so I I think you know, among among that group, that would be, you know, the the the single biggest touch point of, you know, so great, your online sales are up 11% or 8%, depending on which party you're at. What's your draw rate? Where are they going? We're seeing some, this is my point before about some of the e-commerce pros. So not just people going online, but pros going online shopping, and then they go to manufacture direct, like big builders. I want to know that. That's important to know, right? Versus, so um, I haven't heard any of those three solve that problem yet. That's where they should be spending their time.

Stefanie Couch:

I think I think that's a really good point. And figuring out how people are going to be searching in the future and what they're looking for, because that's changing really quickly, too. Of you know, long tail searches with AI, people are being way more in depth and how we're actually how it's being found is so different. I mean, I don't search on Google anymore. I do everything I search on Chat GPT.

Todd Tomalak:

Sure. 100%. Take my preferred, preferred punch list for every product that I like to use when I build a home. Start there, give me the give me optimal pricing. What other things can I like just these are all things that couldn't be done five years ago.

Stefanie Couch:

What other products should I think about instead of this one I've been using for five years or you know, for sure. Right. All right. Well, one big question I'm gonna put you on the spot. If you had to pick a winner for the Clash of the Titans, who is it?

Todd Tomalak:

Oh, are we are we calling individual names?

Stefanie Couch:

If you're thinking of an individual, then I guess I maybe know your answer.

Todd Tomalak:

So I think in terms of pure upside, uh QXO is interesting simply because to your analogy before about getting involved with with Tesla and Elon very, very early. If you buy the dream, you're very early. Yeah.

Stefanie Couch:

Right. And if he's right, he's really right.

Todd Tomalak:

I need to see him double, I need to see him double earnings. I need to see him do that and prove that he can organically draw like this digital pro to his if he can do that. Ooh, there's a lot of upside.

Stefanie Couch:

Yeah.

Todd Tomalak:

We need to see that. Um if he can't do that, you know, or if we see Home Depot prove that they can scale SRS really, really well without without squishing, you know, all of the soul and spirit, um, then then I think it turns really quick. So I I say the jury is still out, uh, but I I do believe that the dollars, the dollars are there and will be allocated uh probably closer to like winner take all, you know, at least in terms of margin dollars. It'll look like Apple's, you know, share of share of uh uh of of phone revenue versus share of phone margin.

Stefanie Couch:

It feels a little bit like betting against him. It's like betting against Tom Brady at the Super Bowl. I mean, the odds are very similar.

Todd Tomalak:

Yeah, maybe, maybe uh Belichick, right? So he was good at building, building kind of franchises of of people that were were under undervalued, but were were willing to be there, including Brady for the dream. Um, yeah, so that that we we need to see the ring, the first one, and then probably the the the next ones will come.

Stefanie Couch:

Yeah, it's gonna be a really interesting thing to watch play out. Well, thank you so much for joining me today, Todd. I hope that we can watch this together, have another conversation to keep on track about where we are in the market, because it's gonna be a crazy next year or two.

Todd Tomalak:

Very exciting. Thanks for having me. Uh, excited for the conference, and we'll be listening in the future.

Stefanie Couch:

We'll see you on the next episode. Thanks for joining us on the Paradigm Industry Insiders Podcast. If you enjoyed today's conversation, be sure to subscribe on your favorite podcast platforms and follow Paradigm on LinkedIn and YouTube to catch more stories, insights, and ideas from your peers across our industry. See y'all.

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