NEWTON, MASS.—Eighty-four percent of distributors in the construction industry expect their sales to increase in 2004, according to findings from INDUSTRIAL DISTRIBUTION's 58th Annual Survey of Distributor Operations. Of those who expect an increase, 64 percent say the increase will be by 1 percent to 10 percent. Twenty-eight percent of respondents expecting an increase say it will be by 11 percent to 20 percent, while only 4 percent think it will be any higher than 21 percent. Actions these distributors intend to take with an increase in sales include building inventory (53 percent); hiring more employees (42 percent); unspecified actions (28 percent); and increasing travel (16 percent).

"As long as the construction market continues to stay strong, companies should easily see a 1 to 10 percent sales increase," said Georgia Foley, executive director of the Specialty Tools and Fasteners Distributors Assn. "In our quarterly Trend Reports, sales were up 17 percent for our members the first quarter of '04, and up 14 percent the second quarter this year when compared to last year. So when your respondents project a 1 to 10 percent sales increase, that's a conservative figure when compared to what our members are reporting."

In other results, the role of the construction distributor was a closely divided topic among the survey respondents. Forty percent of the construction industry distributors said that private label products will become important in their business, but a close 35 percent disagree with that statement. Forty-one percent say their customers are pushing to standardize brands for their most important product lines (30 percent disagree). An intriguing statistic is that 46 percent of respondents think that their role is becoming more about fulfillment and delivery, and less about helping with product and brand decisions. Forty percent disagree, and 13 percent had no opinion.

When it comes to the hot-button subject of operations moving to China, distributor respondents are in a bit more agreement. Fifty-nine percent of them agree that more of their customers' operations will move to China in the next five years. When asked what should be done in the United States to minimize the movement of operations to China, 75 percent of those that do expect the operations to move said reducing health care costs and providing tax incentives to promote investment in manufacturing are key goals. Sixty percent said reduce litigation costs, and 51 percent said reduce taxes. More investing in plants and equipment would help, according to 50 percent.

"Government intervention to discourage companies from moving production to China is a losing proposition," said Foley. "With many companies manufacturing in China, and many more moving in that direction, it's difficult to tell companies to stop. However, a recent government statistic reports that even though American companies are investing heavily overseas, 85 percent of their total investment is still in the U.S. Reducing litigation, health care costs, and increasing tax incentives looks good on paper, but once Congress starts debating these subjects and special interest groups get involved, everything gets bogged down."

As for for-fee services, a trend that seems to be taking hold within the distribution community, construction distributors intend to sell more services within the next three years, according to the survey. Services that construction distributors sell to their customers include fabrication, set-up and installation, extended warranties, faster delivery, employee training, on-site store rooms and tool crib management, and kitting. As an average, distributors expect to increase their sales of services to 18 percent of total sales in three years, up from the current level of 12 percent. Survey results suggest that the smallest companies will continue to register a higher percentage of their sales through services.

"Services that simply charge for previously 'free' value-added activities will fail," said Mark Dancer, vice president of Pembroke Consulting. "…Successful services will build on the distributors' established competencies and go further to offer results that were previously not achievable. For example, distributors may build on their product knowledge and go beyond simply answering questions or conducting occasional training sessions, to observe, audit and upgrade contractor work methods."