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For many of Industrial Distribution's Big 50 distributors , the economy in 2004 could be divided into two distinct halves. The first half was flat, as customers were slow to build inventories and make capital investments. Business began picking up in the second half, however, with most distributors reporting strong third and fourth quarters—a trend that has carried into 2005.

In 2004, distributors were faced with surging steel prices, shortages and surcharges, causing unpredictable sales forecasts, a drop-off in sales, and bankruptcies of some major steel customers. Oil prices surged, as did interest rates, causing some customers to rethink expansion of their businesses.

Bearing Headquarters in Broadview, Ill., No. 47, lost nearly $6 million in sales because a steel customer went out of business. However, president Jim Timble points out that his company made up for more than half of that drop off by focusing on other, more profitable sectors through a market-share initiative developed by his company. Timble sees strong sales for this quarter, and is optimistic about revenues for the year. He's not alone.

'2005 has started off strong, with better numbers than last year at this time, and the rest of the year looks to be more of the same,' says Idelle Wolf, president of Barnes Distribution North America in Cleveland, No. 19.

Our Big 50 distributors are taking a variety of steps to increase their sales and profitability. Lewis-Goetz and Co. in Pittsburgh, No. 46, used activity-based costing and customer segmentation to determine specific profitability of their customer base.

Company president David Goetz has eliminated customers not deemed profitable and is focusing on other sectors where there is more growth potential. Business rebounded for Goetz and others selling to the coal and mining industries as oil prices soared.

'One of the things that happens is that, as oil prices rise, the coal industry rebounds,' says Goetz.

Lewis-Goetz closed 2004 with a 10 percent increase in sales, and its sales for the first quarter of 2005 rocketed to $25 million—a record for the company, which is keeping it on pace for a $100 million year.

Many companies are looking to non-typical industrial sectors to grow their businesses. Years ago, it was automotive, chemical and aerospace that drove sales. Today, many of our Big 50 distributors are selling to government agencies, military and the food processing, mining, construction and coal industries.

'Our growth industry going into 2005 is biopharmaceuticals,' says Ernie Coutermarsh, senior vice president at F.W. Webb in Bedford, Mass., No. 18.

Distributors also are 'doing more' for their customers in order to keep them from moving to competitors. Wilson Industries in Houston, No. 9, for example, has unveiled a new customer relationship management solution to help better manage sales across its network.

'A key and unique component of the CRM is an integrated tool that allows us to track and report savings that we drive for our clients,' says Joe Chisholm, vice president of sales for Wilson. 'We believe that driving a continuous improvement in overall costs for end users is the single most compelling change in the industrial distribution arena.'

Wilson, like several other Big 50 distributors, intends to look for acquisition possibilities to increase market-share.

The biggest acquisition among our Big 50 distributors occurred two months ago when WinWholesale purchased Noland Co. in Newport News, Va., No 15. Ferguson Enterprises , also in Newport News, No. 1, a division of the Wolseley Co., also made three key acquisitions in the past few months, including Full Service Supply, a subsidiary of Kennametal; Mecko Supply; and J.P Daddario Co.

Several companies reported record years. W.W. Grainger in Lake Forest, Ill., No. 2, had record net earnings and earnings per share, and saw its share price soar, while Fastenal inWinona, Minn., No. 8, saw a 24.5 percent sales growth and continues its plan to open more stores throughout the country. MSC in Melville, N.Y., No. 11, recorded a whopping $100 million increase in sales in 2004 compared to 2003, and this year, total sales could exceed $1 billion for the first time in the company's history.

There also were some other 'firsts' for our Big 50. Interline Brands in Jacksonville, Fla., No. 13, for example, went public this past December on the New York Stock Exchange.

The Internet continues to be a driving force for increasing sales, but many of our Big 50 say they're using the Internet more as a communication tool than anything else right now.

'The biggest benefit is using [the Internet] as a communication tool, both on the customer side of the business and also on the supplier portal side,' says Steve Endries, president of Endries International in Brillion, Wisc., No. 32. 'You have customers that don't want to go down the Internet path, for whatever reason. Our call center today is larger than it's ever been and more business goes through there.'

Adds Don Latham, president of Canadian Bearings Ltd. in Mississauga, Ontario, No. 35, 'The Internet is playing an important role in automating our transactions to our major clients as we expand our business with them. Unlike other distributors, we are not visibly participating in day-to-day business with a broad base of customers. We've focused on linking systems as opposed to say, merchandising over the Internet.'

Other Big 50 companies say they are just beginning an e-commerce, B-2-B Web site.

'Hopefully, by August 1, we should have a B-2-B Web site available for our customers,' says Dean Wagoner, president of Dillon Supply Co. in Raleigh, N.C., No. 36. 'In the beginning, we won't set the woods on fire with it. This is an investment in the future. They'll be looking for more ways to do business electronically, not just to place orders, but to get information. If we don't start now, we'll be way behind the curve. In the future, it will be a much more important part of our business.'

Bob McCollum, CEO of RS Hughes in Sunnyvale, Calif., No. 30, doesn't see his Web site as a critical issue. 'A lot of accounts will buy from the Web site if you're there, so we accommodate that. But we don't look to that as a critical issue in our growth. The guys who like the Web are the guys in the back room—engineers, technical guys. Some of our suppliers have links into us. Yeah, it's grown, but people still like to be involved with people.'

And people continue to be the most important asset a distributor can possess.

'One of the greatest challenges our company faces is continuing to recruit the best talent and investing the time to train them,' says David Little, president and CEO of DXP Enterprises, Inc. in Houston, No. 29. 'We believe that attitude and expertise through training will provide the kind of service our customers deserve.'

No one ever said running a distributorship was going to be easy, and that's apparent from the myriad challenges facing these companies. Customers are reducing the number of distributors selling to them, are demanding more and more services at a lower cost, the dollar continues to lack strength internationally, and more and more businesses are moving offshore.

'I think the thing that concerns us at SDI is the constant drive for piece-price savings,' says Larry Wiseman, vice president of sales and marketing at Strategic Distribution Inc. in Bensalem, Pa., No. 38. 'There's only so much you can give, and it's a constant challenge for us. I think that what we've tried to do is counter this by showing year-on-year savings though other areas of performance. That's the value proposition that we try to present to our customers. But it's often very difficult to get through a conventional viewpoint that many of our clients' purchasing departments have, which is strictly 'what can you guarantee me in piece-price savings?' They sometimes have a hard time looking beyond that.'

Many of our Big 50 tell us that the dwindling manufacturing base in the United States over the past few years has caused a substantial loss of business. But some distributors say they are making up for that loss by selling more solutions than products.

'There's less business and more competition for fewer dollars, but we've been working closer with our customers on their processes and streamlining their businesses,' says Lawrence Wolfe, president of Production Tool Supply in Warren, Mich., No. 25.

Other distributors are developing sales-growth plans jointly with key vendors, opening new regional distribution/logistics centers to streamline deliveries and supplies to branches, and using more technological tools such as bar coding and radio frequency identification to improve shipping errors and inventory accuracy.

The loss of a strong manufacturing base, however, can not be overemphasized.

'U.S. manufacturing represents a big chunk of business for us,' says Peter McCausland, chairman and CEO of Airgas Inc. in Radnor, Pa.. No. 5. 'And while we like what we see as somewhat of a renaissance right now, we're concerned about long-term trends.'

McCausland, like other executives interviewed for this report, says his company is committed to focusing on the customer and adding value to the products they're selling.

Philip Derrow, president/CEO of Ohio Transmission & Pump in Columbus, Ohio, No. 48, adds that one of the major issues facing his company is 'trying to increase the value we provide to our customers and suppliers while lowering costs and providing growth opportunities for our associates.'

INDUSTRIAL DISTRIBUTION'S Big 50 was compiled by editors Jack Keough, Victoria Fraza Kickham, Alison Lutes, Kimberly Griffiths, Joe Nowlan, and Alice Yu Miller. Further information on the Big 50 may be obtained by e-mailing Victoria Fraza Kickham at victoria.kickham@reedbusiness.com.