It's common knowledge that the industrial economy has been in the midst of a downturn since late last year. While no one can be sure of the extent of the trend, distributors that make the right moves could see a "springboard" effect as the economy recovers.

In theory, sales will increase as the economy recovers, due to higher production levels and inventory rebuilding. In addition, well-positioned distributors may have the opportunity to capture significant market share. We've watched several large distributors take actions that should position them for future above-average growth.

Hire and retain great people. Employers have more power in a slowing economy, as employees worry about job security. In some cases, this allows companies to hold on to good people, despite falling compensation. In other cases, insecurity may prompt top people to leave for a company that is perceived to be on more solid financial footing. MSC has recently been successful in luring some top producers away from competitors.

Clean house, but maintain fundamentals. Slow economic times often necessitate cost cutting. This can be an opportunity to re-examine how corporate resources are allocated. Re-allocating resources during a downturn can position the business to emerge a leaner entity. Grainger's integrated supply business registered its first profitable quarter in the first quarter of 2001, as the company cut costs and renegotiated unfavorable contracts. The moves translated to about a $3.5 million year-to-year swing in operating profits.

Invest selectively. While the tendency is to look for ways to reduce spending during slow times, smart companies look for ways to effectively apply dollars that will lead to future sales. New store openings, marketing and IT, in particular, are areas where cutting too deeply may impact future growth and profitability. Fastenal opened 50 new stores in the first quarter and plans to open another 50 in coming months. By re-deploying workers to new branches, Fastenal can keep costs down, while positioning for growth. Additionally, Fastenal continues to invest in IT, as the next version of Fastenal.com will launch this fall.

Distributors that effectively manage the downturn will be better positioned to benefit from increased sales as the market recovers. By focusing on good people, solid fundamentals and selective investments, they may also benefit from significant market share gains.