Goodtimes ahead

After a slow year in some sectors, Top 100 distributors look for a strong 2000

By -- Industrial Distribution, 6/1/2000

In a word, the best way to describe the tone of the industrial distribution community through the first quarter of 2000 is "upbeat."

Firms that saw declining or flat sales last year look for improvement in 2000. Likewise, those companies that had a good 1999 expect even better performance in the months ahead. And while some uncertainties linger on the horizon-like the effect of rising interest rates, increasing energy costs, and the impact of e-commerce-the outlook among this year's Top 100 companies is pretty rosy.

"Everybody I talk to says they're a lot happier this time this year than they were last year," says Robert McCollum, president of R.S. Hughes, No. 48 on this year's list.

"From an industrial point of view, I see the economy getting stronger than it was a year ago," adds John Santacroce, president of Argo International Corp., No. 71. "Things are picking up."

Santacroce and others note that 1999 was soft due to slowdowns in key customer segments-like the steel, oil, paper and mining industries. Distributors serving the electronics and semi-conductor industries had similar concerns in 1998 and through part of 1999, though things began to improve last year. And concerns over Asian and South American markets seem to have waned, as well.

"We're happy with the economy now," continues McCollum. "We're looking at double-digit growth this year because the Far East crisis went away, which I think was part of our problem in the early part of [1999]."

While some distributors were hit hard in 99, the majority of the companies in this year's Top 100 reported sales growth of between five and 15 percent. About a quarter of the firms listed reported a decrease in sales from 1998 and just two percent reported flat sales. When asked to project sales for 2000, 79 percent of firms predicted an increase, while just one percent said they expect sales to decline. (Twenty percent of firms declined to provide a forecast for 2000.)

Key factors

The likelihood of the Federal Reserve raising interest rates several more times this year clouds the outlook for some of the Top 100 members. Lee Mulkey, president of Purchased Parts Group, Inc., No. 58, says his concern is that rate hikes will slow the economy too quickly, although he is not sure how that would immediately affect end users. Jack Cahill, president of No. 21, Kaman Industrial Technologies, expressed similar concerns, also noting the potential impact on his customer base.

Ken King of Noland Co., No. 22, is keeping an eye on that situation as well, though his outlook is positive.

"Rising interest rates may reduce demand for new homes, but home improvement activity should more than make up for it," says King, who is Noland Co.'s vice president of marketing and branch operations. "We believe the current economic expansion still has plenty of steam."

Rising energy costs are also a concern to many in the Top 100. Wes Delnea, president of Canada's Windsor Factory Supply Ltd., No. 79, says the cost of gasoline now influences the planning of sales calls, as well as the actual delivery of products. Andrew Nations, president of Bearings & Drives, Inc., No. 80, has similar sentiments.

"I guess the one thing that's a little worrisome at this point in time is the fuel prices and how that may affect inflation and the economy," says Nations.

The other big issue, of course, is e-commerce. From top to bottom, just about every member of the Top 100 list is struggling to get a grasp on this new way of going to market. While some companies have spent millions building internal programs, still others are joining the ever-widening array of portals serving the industrial buying community. And some firms are doing both, saying they want to diversify their online initiatives. Applied Industrial Technologies, No. 8, is a perfect example. After investing in two e-commerce sites last year-AppliedAccess and FarmWarehouse-the company was in talks with some of the major portals and other online communities earlier this year.

"We are being very prudent in how we go about this," Applied's president and CEO David Pugh says of e-commerce. "It's uncharted waters ... there's no road map on this one."

While just about everyone is thinking about e-commerce, no one is too sure how the whole phenomenon will work itself out. What's more, most executives interviewed for the Top 100 say they don't think e-commerce will have too much of an impact on business this year. They're more concerned about the effects it will have several years down the road.

"In the next three to five years it will be dramatic," says Richard Star, president of Engman-Taylor, No. 70.

Nations, of Bearings & Drives, has similar sentiments. "In the short term, there are certainly going to be more companies starting to use the Internet," he says. "Within this year there won't be a significant amount of volume, but the groundwork is being laid."

The changing landscape

Industry consolidation had its usual effect on our Top 100 list. Warner Industrial Supply, The Ross-Willoughby Co., The Robert E. Morris Co., and Piping & Equipment of Conyers, Ga. all dropped off due to merger or acquisition last year. Vallen Corp. and Tristate Electrical were both acquired in the fourth quarter of 1999, but remain on the list because they continue to operate under their own names as divisions of Netherlands-based Hagemeyer NV.

Safeco Inc., Power/mation Division, Inc. and Fairmont Supply were dropped because they chose not to participate in our study this year. Two other companies-Hypower/Bearing & Transmission and Prime Technology-are missing, as well. Though they operated independently in 1999, both firms were acquired early this year-Hypower by Applied Industrial Technologies in January and Prime Technology by Methods Machine Tools in March-and therefore declined to participate.

There are 11 newcomers to the list: Meritage, USFlow, Wilmar Industries, Red Man Pipe & Supply, Integra, Canadian Bearings Ltd., Jefferds Corp., Hardware Specialty Co., GT Sales & Mfg., Piping & Equipment, Inc. (of Houston, Tex.), and Tenaquip Ltd. And there is one name change this year: Rero Distribution (No. 65 last year) is now Horizon Solutions Corp. and checks in at No. 62. Also of note, Wilson Industries, No. 20, acquired No. 50., Texas Mill Supply, in January. The two are listed separately this year, but will be combined in the 2001 listing. The same goes for Bowman Distribution, No. 37, and Curtis Industries, No. 65. Bowman announced its intention to acquire Curtis in April.

The additions and subtractions, combined with the rise and fall of sales figures, caused a jumbling in the ranks, though most companies moved up or down just a few slots. The highest jump in rank goes to Questron Technology, which climbed from No. 83 to No. 59. The biggest drop in rank goes to Womack Machine Supply, which went from No. 81 to No. 96. The changes also caused Standard Supply & Hardware Co. and Moody-Price, Inc.-numbers 98 and 99 last year-to be cut from this year's list.

All companies are ranked by 1999 calendar-year sales, except where noted. Likewise, figures represent North American sales only, except where noted. The exceptions are for companies that run on fiscal years and those that do not separate international and North American sales. Sales figures for Canadian firms are listed in American dollars.

Industrial Distribution would like to thank all the companies that participated in this year's study. As usual, we are always looking for new ways to make this survey more useful. If you have questions or suggestions, please call Senior Editor Susan L.P. Srikonda at (617) 558-4722.