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Case Study

MFS Creates Opportunities in the Midst of COVID-19 Pandemic

National distributor pivots quickly to stave off financial impact of coronavirus shutdowns. I’ve always been a very optimistic person. Optimistic people are also risk takers. We just see opportunities where others see issues. Upset customer? Let’s prove ourselves beyond belief. Slow moving product? Try a new market and see what we discover. There’s not much that will slow me down. I have to say, COVID-19 almost did. A national health pandemic was not something I’d ever considered, let alone prepared for. There isn’t a single business leader out there who entered this pandemic truly confident or left unscathed. I credit both my team and our prior experiences launching new products in new markets for how we’ve been able to weather the COVID storm and create opportunities where others saw issues. Restarting in ‘Startup Mode’ At MFS Supply, we were facing a 30% decline in sales in March. I knew I needed to make moves to survive as a company and save jobs. MFS Supply is a national distributor of renovation and preservation supplies. We work with contractors, investors and property managers in both the single-family and multifamily space. Because we provide appliances, cabinetry and other construction materials deemed essential, MFS Supply was able to stay open and operating during stay-at-home orders. But just because we were open, that didn’t mean our customers were. Real estate agents were pretty much shut down; HUD postponed foreclosures, leaving our preservation contractors in a lurch; new construction projects couldn’t find workers even if they were still operating; and multifamily renovation projects had to be deferred indefinitely. This pushed us into what I call “startup mode”—MFS Supply had to trim down, run lean and pivot into new areas that could support our company during this time. Our approach for survival boils down to three steps. First, we had to accept reality. I had a beautiful and ambitious budget for 2020 to hit—and I had to accept that it wasn’t going to happen. If I clung to what we had planned for, we would fail. Second, I needed to redefine winning for MFS Supply. We weren’t going to hit that budget, so what were we going to work toward instead? And finally, I had to execute the plan. I knew it would take speed and discipline to align the business to our new goals and game plan. Accepting Reality: A Pivot MFS Supply had run a “Jan San” unit years ago that provided custodial supplies to businesses and cleaning crews across the nation. We had always stocked masks, gloves and disinfectants although they were never a hot product for us. We sold out of everything we had by the end of March. As an essential business with employees returning to work each day, we knew firsthand how important it was to get these products into our offices and warehouses as soon as possible. So, we pivoted to personal protective equipment (PPE) and cleaning supplies—and we did it fast. Our purchasing team started searching for new vendors, any vendors that were selling PPE domestically or overseas. This was the most difficult part. Our existing vendor network was sold out of PPE almost immediately. We had to start from scratch. This new market for PPE was fast-paced and harsh. If we didn’t commit to 10,000 Lysol wipes in 15 minutes, we lost the deal. It was definitely a risk for the business. Big deposits were due upfront. We were working with new vendors who charged hefty prices that would lead to high costs to our customers. We had to jump in with both feet, win or lose, to take on this opportunity. We jumped in. Our marketing team whipped up emails, e-commerce messaging and flyers on these new products as fast as possible and rolled them to the sales team. Our sales team hit the phones armed with the basics, and we told to run with it. We transformed our fulfillment department in the warehouse to support this new program. We built out our shipping tables to include mini-bins for picking and packing to improve speed and efficiency. We quickly pushed lean practices into fulfillment, including new practices to reset inventory levels quickly and correctly. Keep in mind, we did all this with minimized staff and many employees working from home. We also had the additional challenge of implementing COVID safety practices into both fulfillment and a warehouse. Building out six-foot distances, hand-washing stations, limiting contact between employees, wearing masks and gloves—all while launching this new initiative. Here’s my optimism again: A silver lining to COVID-19 is we proved as a company that we can launch a new product program and get it out the door in record time. We definitely made mistakes—we were moving too fast not to. For example, we thought we could get products out faster and more efficiently by stocking some PPE products in our New Jersey location and others in our Ohio location. Split the load. That quickly proved to be a logistical nightmare. We had to short ship orders; New Jersey had limited staffing, so their products took longer to get out; back orders piled up. But we learned, and it strengthened our program. It also put all hands on deck. I was back in fulfillment packing boxes on Saturdays and approving orders on Sundays. From my directors to support staff, we had employees from all departments getting trained on our fulfillment process so we could keep up with our customers. Battle Scars We still have our scars from COVID-19. This PPE program wasn’t a cure-all, but it certainly helped us triage. It saved jobs, and even created new ones. The risk paid off for us, and we’re doubling down for the future. We’re continuing to build this program out to make it permanent at MFS Supply. States are opening up, and employees are returning to work. All businesses need masks, shields, wipes and more to keep their employees and customers safe. We’ve begun working with municipalities, schools and local businesses—all

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One Company’s Experience Dealing with the Unknown of COVID-19

3 key questions we asked to determine our course of action Renters Warehouse was heading into a spring market that had great potential for us. New clients. New technology. We had just spent a year integrating the largest third-party management company in single-family rental (SFR) with a marketplace platform that enabled us to help customers buy, lease, own and sell SFR under one roof. The second quarter of 2020 was about to be legendary—and then COVID-19 hit. The unprecedented unknown was nerve-wracking. What’s the worse-case scenario? We couldn’t even really imagine the worst worst-case, because that was something from a horror movie. To put revenue numbers to these scenarios, we had to figure out how people were going to respond to the crisis. We made educated guesses about how people would react—and what that would mean to Renters Warehouse. Question 1: Were tenants going to pay the rent? Revenue for our landlord clients is rooted in tenants paying their rent. Some politicians ran to the microphone to encourage people to skip their rent payments. It was conceivable that as much as 50% of rents could be delinquent. As we tracked rent payments day by day in April, we found very quickly that our tenants, people who reside in single-family rentals with average rents of about $1,650 a month, were going to pay. In a normal month, 97% of the 22,000 rents we collect are paid on time. On April 1, 43% of our rents were paid. We finished the month at an astonishing 93% paid—just a few points below a normal month. We breathed a sigh of relief and started worrying about May. My personal love for SFR hit a new high March 1, 2020, when 58% of our tenants paid their rent on the very first day of the month. That was a record, and something clicked when we saw that. What is “essential” to life in America has taken on new meaning during this crisis. It’s now a subject of everyday conversation. Obviously, shelter is essential. After all, these days, the only way to keep your family safe is to go to a certain place and stay there. That place is home. But there is more to this. At a time when powerful people were chanting #CancelRent, we achieved the highest first-day rent collection percentage in company history. When things are tough and uncertain, people continuing to pay their rent is an indicator that housing stability is important. People aren‘t messing around with their housing situation. Question 2: Are we going to be able to continue renting homes? The question about rent being paid was about recurring income. For owners, that’s rent being paid. For a property management company, that’s management fees being paid. But would people sign new rental leases and buy investment property? That’s the other half of our business and it forced the question: Is movement in housing essential? In other words, in times like these, anyone who can stay in place probably will. So, who needs to move? For this we looked at the only historical comps we could find: the financial crisis of 2008 and the terrorist attacks of 2001. If the movement of people in a time a crisis was what we were trying to understand, 2008 home sales were a reasonable indicator. If no one in their right mind would buy or sell a home in a housing market “free fall,” who would still buy or sell because they had to? The answer was two-thirds. According to the National Association of Realtors, about 35% fewer homes were sold in the years after the crash of 2008 than during a normal housing market. Keep that number in your head. In 2001, I was on a management team that ran a decent-sized real estate brokerage in the New York City suburbs. After the terrorist attacks, the housing market froze. Everyone was hunkering down. I assume it was more intense in New York than in other parts of the country because we all knew people who had died, and many of us saw the smoke from the buildings with our own eyes. The city was the economic engine we depended on, and it had just been hit hard. We were wondering whether anyone would buy real estate in New York again. We wondered if this was the beginning of a new normal where restaurants and theaters were going to be bombed on a regular basis. If so, who would want to live near that? So, this time period and circumstance presented another reasonable comp for today—something totally unprecedented, unknown and out of left field. By October and November 2001, the market thawed out and the number of homes sales leveled off at a 35% reduction from where it was otherwise going to be. There is that number again. When no one wants to move, two of three people who were planning to move still do. So, at Renters Warehouse, we felt it was reasonable to forecast that 35% of the potential tenants we would have placed in the second quarter of 2020 would not move but 65% would probably still need to rent houses. We sounded the alarm to our agents to stay in the game. The pie would be smaller, but there was still going to be a pie, and we needed to get a healthy slice of it. Real estate agents on straight commission would be automatically furloughed if they didn’t stay productive, so it was critical to sell them on the expectation of a smaller, but active market. This was no time to go dormant. Here is how it played out. During the third week of February, our new tenant inquiries—our early indicators of tenant behavior—fell off a cliff. By the middle of March, they leveled off and stabilized at a 35% reduction from the norm. Since then, they have increased. In the final tally, our tenant placements in April were, you guessed it, about 35% off what we budgeted

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