Old and New Challenges for Distributors
Jack Keough, Editor/Associate Publisher -- Industrial Distribution, 8/1/2006
In this month's issue, our cover story (p. 28) focuses on the findings from our 60th Annual Survey of Distributor Operations. This year's study reveals several key issues that continue to cause concern for distributors: globalization; finding qualified people as baby boomers retire; shrinking margins caused by new competitors; and a changing industrial marketplace.
Distribution continues to be in a stage of transition. National chains are popping up in new geographical areas through mergers and acquisitions; buyers are doing less and less spot buying due to national contracts; more customers are moving overseas; and distributors are fighting for an ever-decreasing piece of business as end users continue to slash their distribution base.
Yet industrial distributors are an optimistic group, according to our survey. These distributors tell us they're bullish about sales this year and over the next few years. They say they're working smarter, are more productive, and that the future has never been brighter.
Nearly half of the more than 400 distributors surveyed in this special report say that private-label products are going to become increasingly important in the years ahead. Many large distributors have been doing this for some time, of course, but even smaller distributors tell us they see this as an opportunity to increase margins. At the same time, distributors say they are closer today with their customers than ever before, and nearly 60 percent point out that their influence over which brands will be bought is rapidly increasing.
“We're not just distributors of products. In many ways, we act as consultants in helping a customer decide which products to buy,” one distributor told us.
At the same time, relationships with their manufacturing counterparts do not seem to be improving significantly. More than 45 percent say their relationship with their manufacturers has worsened compared to five or 10 years ago. Twenty-five percent said relationships had improved significantly, but only 29 percent said they had remained the same.
Some distributors say relationships have not improved because of mergers and acquisitions that have drastically changed the distribution landscape.
Changes are occurring at a faster rate than anyone had predicted. How industrial distributors deal with those changes will ultimately decide their fate.
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