We’re excited to provide the readers of Industrial Distribution with the results of our 67th annual Survey of Distributor Operations. The objectives of this report, as always, have been to understand the most critical issues affecting distributors, and to provide data to help drive their educated business decisions. In this segment, we focus specifically on:
- Demographics, which establishes a profile of survey respondents based on company size, sales volume, and product line.
- Challenges, Trends & Economy, which outlines the initiatives distributors are undertaking to address key business and market concerns.
- The Balance Sheet, which offers insights into revenues and profitability.
- Best Practices, which sheds light on distributor relationships with suppliers and customers, as well as their global business plans.
- Tech Usage & Investments, which covers areas like e-commerce and other big-impact technology solutions.
- Value of the Distributor, which addresses the reasons our survey respondents believe customers do business with them.
- Employment, which identifies hiring and layoff trends, recruitment, and compensation.
- The results of this study are based on an email survey sent to Industrial Distribution subscribers. Recipients of the survey were offered an incentive to complete the questionnaire.
- Industrial Distribution’s subscriber base is comprised of 27,000 readers, the majority of whom identify as executive, upper management, sales, or sales management. Results are based on a pool of respondents within this subscriber base.
- Because Industrial Distribution transitioned to a new publisher in 2010, no survey was conducted that year. Therefore, results which track comparisons over the past decade will reflect a gap between 2009 and 2011.
Comments on this year’s results? Email ID’s executive editor, Anna Wells, at Anna.Wells@advantagemedia.com.
Challenges, Trends, & the Economy
In an industry where economic factors, supply chain issues, and employment affect a business with equal force, many industrial distributors find there is no shortage of challenges. In our survey, we asked these companies to identify their top concerns, and “Economic Conditions” have ruled the day since 2008. Interestingly, this year the economy was booted from the top spot by “Price Competition,” which barely edged out its predecessor by one percentage point (Figure 1).
One of the more significant changes our table shows has been the number of distributor respondents who cite e-commerce as a primary concern. In 2003, only three percent considered this a primary concern.
In fact, the turning point wasn’t until 2010, when the group jumped from six to ten percent. This year, 14 percent say this is a primary concern. It’s possible that this increase in fear over e-commerce ties directly to the top concern of price competition, considering the increase in online selling has meant pricing has gained a lot more visibility. Additionally, there is a danger that online outlets like AmazonSupply will set the bar artificially low on commodity items, forcing industrial distributors to face pushback or potentially lose customers.
Another area where distributors are exhibiting an increased level of concern is over keeping qualified employees. Between 2008 and 2013, this never raised past 18 percent. This year, 24 percent cite this as a concern, a jump of nine points over last year. This is the biggest jump we’ve seen over the last 12 years. Now that the recession is over, the best talent in an organization has a lot more freedom to look for other opportunities, which perhaps has companies scrambling to find ways of retaining their top people. Additionally, concerns over mergers and acquisitions have been a bit more consistent since dipping in 2008.
Back then, four percent said this issue was a primary concern — perhaps due to other pressing recessionary concerns like economic issues, layoffs, and the like. This year, write-ins included a few references to healthcare, some to government regulations, and one respondent saying “weather problems have hurt sales.”
There were a few areas where tension seems to be easing up. For 14 percent of respondents, “Customers going out of business” is a primary concern, yet it has been on the decline since 2009, where a whopping 67 percent identified it as a source of stress. Additionally, fears of manufacturers moving offshore has seemed to go up and down over the past decade, but it’s only significantly impacted one in ten respondents in the past three years.
Finally, concerns over fringe competition like mail order houses and mass merchants have consistently remained low, as have fears of distribution termination, manufacturer consolidation, and environmental concerns.
When it comes to strategies for growth, “Grow sales amongst existing customers” tops the list again, with 77 percent of respondents identifying this as a primary strategy. The second and third highest performing were “Add to customer base” (66 percent) and “Take market share from specific competitors” (34 percent). Much like the previous question on challenges, it appears distributors have online competition on the brain when it comes to their growth strategies as well. This year’s results show incremental gains in several areas around online commerce and tech solutions. For example, last year 18 percent cited internet sales as a primary growth strategy, compared with 24 percent today. “Invest in a web re-design” was something 13 percent said they wanted to pursue in order to grow, compared with 10 percent who said the same last year. The results for “Invest in technology” were the same — showing an increase of three points over 2013. Write-ins in this category included strategies like “create better vendor partnerships,” “grow infrastructure,” and “(work on) value added selling.”
Despite the fact that only 15 percent identified merging with or acquiring another distributor as a growth strategy, we know M&A has had a huge effect on the marketplace. So far in 2014, major names in distribution such as WESCO, Airgas, Wolesley, and Kaman have announced acquisitions. In early 2013, CA Burkhardt, Senior Managing Director of HT Capital Advisors, told Industrial Distribution that 2013 would see a lot of independents positioning themselves for sale. The year ended with a significant amount of activity in the industrial sector, something Burkhardt attributed to many of the big acquirers having substantial cash resources to pay for acquisitions — coupled with more readily available bank financing at attractive interest rates. This, along with pent-up desire and the amount of capital private equity has had to bring to the table, meant Burkhardt was optimistic that the industrial distribution sector would continue to see a lot of activity through 2013.
It shouldn’t be a surprise, then, that in the past 12 months, nearly 8.5 percent of our survey respondents were part of a merger or acquisition. Adding to this, nearly 16 percent said they were approached, but that the merger/acquisition did not take place. Of our respondent group, 44 percent think that more distributors will consolidate in the coming year — with 46 percent saying the rate of consolidation would stay the same.
Those who would consider themselves to be agreeable to a buy-out (Figure 2) has increased to nearly 25 percent — up from the 19.5 percent who said so last year. One-third of our respondents say they are actively looking to purchase another distributor (Figure 3). Last year, the results of this question were quite similar, but they do show a slight increase over the 30 percent who said the same in 2011.
As long as the economy remains stable, it’s possible that acquisition activity will continue to be a factor in strategic growth for some distributors, and a source of competition for others.
Stay tuned! The next section of the survey - "The Balance Sheet" - will appear in our newsletter on Wednesday, the 7th.
To view the entire survey in our digital edition, please click here.