Defeating the champ
By David J. Manthey -- Industrial Distribution, 1/1/2001
On November 11, 2000, the heavyweight champion of the world, Lennox Lewis, defeated No. 1 contender David Tua in a 12-round unanimous decision to retain his title. Lewis is not flashy, remarkably fast or overly strong, but he is big, effective and has been difficult to dislodge.
The situation is similar in the industrial marketplace, where a massive group of small, highly effective distributors collectively have control of the lion's share of business.
Assuming a $400 billion annual market, the top 50 distributors have less than 10 percent market share. The largest, W.W. Grainger, has just over one percent share, and there are only six companies with greater than .5 percent market share.
Lennox Lewis is the collective personification of the thousands of local, regional or specialty industrial/MRO distributors-the combined 92 percent of the industry with less than 0.1 percent market share each.
Why do buyers continue to spread business among many small distributors when they could consolidate a majority of their purchases with fewer large suppliers? Reasons include inertia ("we've always bought from ABC"), long-running relationships, specialty products, top-notch local service and support, and/or mistakenly viewing purchase cost as the only cost of acquisition. Above all, the mantra seems to be, "if it ain't broke, don't fix it"-hence, the Champ retains his title.
How do you unseat the Champ? You must have superior skills, size, strength or speed and you must get a shot at the title. The longer the Champ holds the title, the better the odds that he makes a mistake or meets an opponent with better skills.
More companies are consolidating purchases and elevating the MRO buying decision, decreasing the number of suppliers. New business models are bringing focus to procurement that will ultimately simplify purchasing, consolidate buying power and disallow "maverick purchases." As this happens, the entrenched suppliers will be forced into the ring with tougher opponents.
We think that the top 20 or so distributors will continue to win market share. We haven't seen a first-round knock-out by the largest competitors, despite greater buying leverage, extensive national coverage, broad product lines and sophisticated computer systems. But as challengers with superior skills, size, strength and speed succeed in elevating purchasing decisions, the Champ will have to fight for his life to retain the title.
David J. Manthey, CFA, is a research analyst with R.W. Baird & Co., Milwaukee, Wis. He can be reached at (414) 765-3774 or e-mailed at dmanthey@rwbaird.com.
Company 12/13 close Year change 52 wk. High 52 wk. Low Applied Industrial Tech APZ $19.63 18.0% $20.06 $14.31 Airgas ARG 7.75 -18.4% 10.19 4.63 Barnes Group B 21.25 30.3% 21.25 12.00 DXP Enterprises DXPE 0.94 -61.5% 4.25 0.25 Fastenal FAST 58.13 29.3% 73.31 35.00 Genuine Parts Co. GPC 21.13 -14.9% 26.69 18.25 Grainger (W W) GWW 37.00 -22.6% 56.88 24.31 Hughes Supply HUG 15.54 -27.9% 23.69 13.90 Industrial Distr Group IDG 2.06 -36.5% 3.75 2.00 JLK Direct Distr Inc. JLK 8.63 -16.4% 11.69 4.50 Kaman Corp. KAMNA 15.63 21.4% 16.06 8.77 Lawson Products LAWS 27.44 18.6% 27.81 20.50 MSC Industrial Direct MSM 17.75 34.0% 23.25 10.44 Noland Co. NOLD 18.38 2.8% 20.13 12.69 Pentacon Inc. JIT 0.88 -72.0% 5.69 0.63 Premier Farnell PFP 11.25 -18.9% 16.50 10.38 Questron Technology QUST 3.31 -48.5% 12.63 3.19 Sunsource SDP 3.00 -29.4% 7.13 2.88 Strategic Distr. STRD 0.69 -52.2% 3.41 0.34 WESCO International WCC 7.38 -16.9% 10.88 6.50 DISTRIBUTION TECHNOLOGY Company 12/13 close Year change 52 wk. High 52 wk. Low Datastream Systems DSTM $10.06 -59.0% $47.50 $8.00 Edwards J D & Co. JDEC 27.38 -8.4% 48.31 10.25 Prophet 21 PXXI 7.25 -26.6% 25.00 6.50 Sterling Commerce SE 9.08 2.0% 21.25 7.97 MANUFACTURERS Company 12/13 close Year change 52 wk. High 52 wk. Low Baldor Electric BEZ $21.69 19.7% $22.50 $14.88 Black & Decker Corp. BDK 35.56 -31.9% 52.38 27.56 Columbus Mckinnon Corp. CMCO 11.25 11.1% 16.63 9.88 Cooper Industries CBE 43.13 6.6% 44.25 29.38 Danaher Corp. DHR 67.94 40.8% 69.81 36.44 Dana Corp. DCN 14.75 -50.7% 33.25 14.75 Emerson Electric Co. EMR 77.88 35.7% 79.75 40.50 Fairchild Corp. FA 5.50 -39.3% 9.44 4.13 Federal-Mogul Corp. FMO 1.75 -91.3% 20.88 1.69 Illinois Tool Works ITW 60.75 -10.1% 69.00 49.50 Ingersoll-Rand Co. IR 42.13 -23.5% 57.75 29.50 Kennametal Inc. KMT 28.56 -15.1% 33.81 19.13 Makita Corp. MKTAY 7.69 -10.9% 11.06 6.50 Milacron MZ 16.00 4.1% 18.25 12.06 3M MMM 113.88 16.3% 119.00 78.19 Parker-Hannifin Corp. PH 41.81 -18.5% 54.00 31.00 Pentair PNR 27.63 -28.2% 44.63 23.25 Regal-Beloit Corp. RBC 17.86 -13.4% 21.88 14.60 Starrett (L.S.) Co. SCX 21.31 -5.0% 25.00 16.13 Textron Inc. TXT 46.00 -40.0% 77.50 40.69 Timken Co. TKR 14.81 -27.5% 21.81 12.56 |
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