Today's economic landscape has some distributors shying away from expanding into new product lines and geographies and instead focusing on their core businesses, according to Reed Anderson in Refocus on the Core.
“Anytime a business faces a challenge, particularly a distributor, there is a tendency to pull back to core markets and practices, as opposed to diversifying, which is easier to do when all the numbers are going up and to the right,” says Anderson, head of Houlihan Lokey’s industrial distribution practice.
Sagging oil prices, China’s continued economic woes and even El Nino have helped downgrade most economic forecasts. Refocus on the Core, part of MDM's 2016 Distribution Remodel series, looks at how companies such as are reacting to this “unusual confluence of events right now,” as described by Jim Miller, a principal and founder at Supply Chain Equity Partners.
Many distributors – especially those with exposure to oil & gas markets – are reeling from the downturn. They are reporting double-digit revenue and earnings losses, and some companies are laying off scores of employees.
“All you’re left with at the end of the day is, ‘I used to sell $100 widgets at a 20-30 percent markup and I’m now selling $40 widgets at a 20-30 percent markup,’” Miller says. “That math blows through the financial statements and the distributors have to react to it.”
Read more about how this shift in focus is helping distributors continue to grow in Refocus on the Core.
