The 65th Annual Survey: Demographics

When it comes to industrial distribution, we’ve learned over the years that changes to the marketplace tend to be incremental . . .

This article originally appeared in the May/June 2012 issue of Industrial Distribution. To view it in its original format, click here.

“The more things change, the more they stay the same.”

When it comes to industrial distribution, we’ve learned over the years that changes to the marketplace tend to be incremental.

Before we launch into an analysis of what the marketplace is doing — as well as what our readers have planned for the future — it’s important to look to exactly who our respondents are.

Figure 1: Which products do you most commonly carry?

This year’s group of survey takers hails mostly from the Midwest (38 percent), with 21 percent with Northeastern U.S. roots, and 15 percent in the Southeast. These figures (including seven percent in the South, six percent in the Southwest, eight percent in the West, and four percent outside of the U.S.) have changed little over the past few years of the survey.
Though a small percentage of our overall subscriber base, the consistency of our survey data suggests that these respondents embody a fairly accurate representation of our overall reader demographics.

The consistency is no surprise then, when you examine the length of time these businesses have been operational. Almost half (49.2 percent) work for a company that’s been in business for fifty years or longer. Perhaps more astounding was the data reflecting a real lack of new business development over the last several decades. Of our pool of respondents, only 17 percent report to work each day for a company that is less than 25 years old, which supports the amplified M&A trend of recent years — companies aren’t launching so much anymore, rather, they’re merging in order to grow stronger.

And as these companies grow stronger, there are a few key lines in which competition is the most intense. 51.4 percent of survey respondents say they most commonly carry MRO supplies, with many specifically calling out product categories like hand tools, safety supplies, adhesives, sealants, and lubricants (Figure 1). Other highly-represented product lines include cutting tools, pneumatics, chemicals, power tools, hoses/reels, electrical products, material handling, motors/controls, and grinding and finishing equipment. Along the same lines as last year, customizable, high tech products such as software and mobile devices land low on the list.

Figure 4: Compared to 2011, has your number of product lines changed?

Based on the types of product lines stocked, it should come as no surprise that the readers of Industrial Distribution magazine (and thus, the respondents of this survey) sell primarily into manufacturing and processing markets (Figure 2). Two-thirds also reach construction end users, and nearly as many OEMs and government markets. These big groups are pretty well in line with our 2011 results. Markets showing an uptick, such as aerospace and automotive, may likely be the results of the steady improvements in the American automotive sector — including in the Detroit Big 3 — as well as big orders for Boeing this past year. Those companies serving the utilities markets showed a decline from 62 percent last year (to 58 percent), although this market has seen little in terms of year-over-year sustained growth in the past decade. Despite these fluctuations, major suppliers to the electrical utility sector (Wesco, FW Webb, MSC) have continued to put up big numbers.

And speaking of big numbers, this year’s survey results suggest a broad mix of revenue categories in the industry once again in 2012 (Figure 3). One-fifth of our survey respondents represent companies with $500 million or more in sales last year. On the other end of the spectrum, 28 percent say their company’s sales were less than $10 million. A diverse group from revenue category, the “upper middle” pack was slim. On the other hand, the numbers were hearty in what might be considered the small distributor category: 57 percent of our respondents report sales below $50 million last year.

This year’s results show 73 percent have increased the number of product lines carried. Last year’s report showed a significantly smaller expansion (61 percent), with over a third of survey respondents keeping the number of product lines stocked the same from previous years.

As we move forward with the results of this year’s survey, several areas reflect a shift towards more economic flexibility and overall business confidence. One key indicator comes from the results of a question on what kinds of changes industrial distributors had seen in relation to the number of product lines they were stocking. This year’s results (Figure 4) show 73 percent have increased the number of lines carried. Last year’s report showed a significantly smaller expansion (61 percent), with over a third of survey respondents keeping the number of products lines stocked the same from the year previous. This year, a full ten percent more of you said you’d expanded (versus staying the same), while the number whose product lines contracted stayed relatively constant.

Other items of note:
• The number of family-owned distributors has fallen steadily over the years, with a marked drop-off occurring between 2009 and 2011 (Figure 5). It’s quite possible the economic conditions post-2008 caused some unplanned mergers or sales from the independents. It’s to be seen whether this will stabilize over the coming year or two as surviving businesses get back on their feet. Even if this is not the case, at least sellers can be more likely to see a bit more common ground with buyers when it comes to pricing. Curt Tatham of Lincoln International told us at the end of 2011 just what to expect: “The market appears at greater equilibrium as sellers and buyers are more easily agreeing on price. This is in stark contrast to 2009 when a large gap often existed between buyer and seller expectations.” (More on M&A trends in the next segment of this issue: Challenges, Trends & The Economy, page 16).

Figure 5: Distributors that are family owned

• 82 percent of respondents tell us they don’t have a degree in the field of distribution operations (or another related field), a result consistent with what we’ve seen in the past several years. While many in the industrial supply field grew within the business, the industry still strives to develop more training opportunities for its future workforce. Organizations like PTDA’s Industrial Career Pathways (ICP) work behind the scenes to help introduce young people to the idea of a career in industrial distribution by partnering with community colleges to develop distribution-specific coursework. Until programs like these gain steam, it’s unlikely we’ll see much movement from that number.

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