Tell Me I'm Wrong

My reporting on a price increase at Pittsburgh Paints last week shifted the demographics from Cleveland to Cranberry, though it was not the price of paint which Pittsburgh's employees were looking to discuss.

Like the 7% price increase announced by Sherwin-Williams Pittsburgh’s increase reflects the changing priorities of the largest paint retailers, coveting profits more than revenue in a stark reversal for both brands which are known by dealers to use their scale to buy business at any price. 

Explaining why Sherwin-Williams store managers get bonused based on how few dollars their store loses.

What most who reached out did want to talk about was the status of Pittsburgh’s company-stores and the future for them as they end their first year of private equity ownership; 20% of the time American Industrial Partners is likely to own the brand.

Pittsburgh CEO Brian Carson has offered his stores for sale since acquiring the brand, though he’s found little interest in them in whole or in part.  An apathy which leaves Carson no choice but to operate the stores.  At-least until he can figure out a plan B, because it’s unlikely AIP is planning a run at the private equity ownership longevity record.

Having raised prices enough to stabilize the bottom line–with no mention of the top–most Pittsburgh stores should stay opened while Carson and his team map out a different exit.  Too few and sparsely scattered to be considered a national brand without PPG’s ownership it will be interesting to see how Pittsburgh stays relevant as cuts to reps and locations further diminish that brand.

Cuts which are coming, perhaps as early as the end of this year.    

Stuck with the winners Carson will have no patience for the losers, which would be any store remaining unprofitable despite the price increases.  How many will close is known only to Carson but no less than 100 seems like a good guess, though 200 seems just as good a guess. With the year coming to an end there’s incentive for Carson to make those cuts now, putting employees in those stores at risk of a holiday layoff.

Because private equity loves playing the Grinch.

PPG reported their financials recently with third quarter earnings reaching a record $2.13 per share (adjusted) on more than $4.1 billion in sales, higher profits having just divested Carson’s lament.

PPG’s growth is being fueled by their technology-advantaged products according to chief executive Tim Knavish, including the products of their Performance Coatings Segment which saw double-digit increases in automotive (OEM), marine and aerospace coatings. 

None of which would have been sold in the stores, further accentuating the point. 

Also reporting results (to me) last week were a number of independent paint retailers with most sharing that sales in gallons were flat for the year with most experiencing small losses in the DIY segment which were offset by gains in rezi-repaint.

The dealers are benefiting from investments in sales reps, professional store managers and fleets which they’ve been making for decades, the primer for this moment. And with the spread between Benjamin Moore and Sherwin-Williams prices narrower than at any other time dealers are taking advantage. A once in a lifetime opportunity for Benjamin Moore and their dealers, perhaps explaining why CEO Dan Calkins has held the line on prices. He’s using Warren Buffett’s money to buy a share of Sherwin’s rezi-repaint business, a strategy which is working.

No matter what Heidi Petz tells you.

The price of paint is increasing faster than the rate of inflation though most expect inflation will catch up soon as tariffs have their effect.  In paint stores it won’t be liquid coatings most effected by price increases, with most being manufactured domestically from materials of that same origin.

Though exceptions might experience significant increases. 

More likely it’s the products on the peg hooks rather the floor which will teach dealers and store managers a lesson in macroeconomics and and finally answer the question of who pays the tariff and whether or not they are inflationary? 

Because there had been some doubt.

With the vast majority of the SKU’s in a paint store coming from abroad I expect to see frequent price increases as tariffs take effect with some product at-risk of increasing as 25% depending on its supply chain and manufacturer’s tolerance for trading margin for sales.  With tariffs on steel and aluminum now double what they were last year at this time I’m expecting brushes, scrapers and other hand tools to see the largest increases.

But I’m hoping someone emails me here to tell me that I’m wrong.