Tom Gale, Author at Modern Distribution Management - Page 22 of 28
Posts By Tom Gale

Nearly every distributor took a beating in 2009. A few are still getting kicked while they’re down. If you’re a competitor to Airgas or HD Supply, that turmoil couldn’t come at a better time.

Case 1: Airgas is in a fight for its life. In February, Air Products made a hostile bid for Airgas. It has been getting more hostile since. The investor analysis by Air Products is at www.airgasoffer.com. And here are the documents Airgas has produced for its investors to fight the offer.

Indicators the past month have largely been positive across most distribution sectors. And at industry meetings, executives are looking forward instead of down. That’s a great change from a very tough year. At the same time, I have not heard anyone say we are out of the woods.

From our surveys, we found that many distributors were forced to use layoffs to stay viable, and many more did everything in their power to avoid layoffs or use them as creatively as possible.

Grainger’s investments into e-commerce 10 to 15 years ago don’t look like large gambles today, but as our lead article by associate editor Jenel Stelton-Holtmeier illustrates, it was in fact a large dollar amount for what the adoption rate was at the time and also the company’s culture. I was publicly skeptical at the time, questioning whether it was bleeding edge rather than leading edge. How smart was I?

As the timeline illustrates, Grainger’s online sales took off with the dot-com era by 1999. It has continued to scale up along with the Internet.

Tenney Campbell, the well-known owner of a fluid power distributor, died in mid-January. He was ahead of his time in many ways. He will be remembered as a person who had an impact in this world beyond so many friends among fluid power distributors and manufacturers. He sold his California business to Berendsen Fluid Power in the mid-1990s. He continued to work for the company a few years in the capacity of corporate curmudgeon.
 
His role in those few years was to “create heat, smoke and discontent” among the company’s management, according to distribution consultant Mike Workman, who called Tenney a longtime friend and mentor.
Eight years ago, we were in the thick of the last industrial recession. Most distributors enjoyed a good run during the last half of the 1990s; sales were strong. Then the bottom fell out, and the channel compressed.
 
Distributors focused on profitability survived and were well-positioned for the several years of strong growth. It’s interesting to note that many economists (as well as General Electric’s CEO at the time, Jeffrey Immelt) predicted a long-term low- or even no-growth environment in 2002. And then most distributors enjoyed the best stretch of growth in their history.

Recovery from the recession, if indeed that’s the proper term for what’s going on today, has turned out to be almost as dangerous and difficult as the recession itself. The traditional down-and-up cycle which distributors by time honored tradition have been programmed to expect just hasn’t happened this time around. Instead of the neat, sharp snap-back of pent-up demand, the re-hirings, the gearing up we’ve been conditioned to look for, there has been little, if any perceptible shift away from the cautious, tight-fisted buying policies evolved in the depths of the recession.

The first few days of 2010 have already produced a number of announcements regarding deals in distribution and manufacturing sectors. There are a relatively high percentage of distressed sales, but some healthy companies are in play, as well. There are some excellent opportunities to build value in this part of the cycle. It’s a fundamentally different M&A landscape than just a few years ago when valuations were sky high, and distribution markets were the hot ticket for investment funds.

Oliver H. Van Horn Company, New Orleans, LA, saw its headquarters wiped out with Hurricane Katrina in 2005. The 100-year-old fourth-generation family company’s traditional market literally disappeared that day. The company reshaped itself to deal with the reality of its circumstances, and found new ways to add value in the wake of disaster. They have been rebuilding since, only to encounter a financial hurricane a few short years later. This publication has worked consistently to avoid hyperbole since its founding 1967. But this has been a hyperbolic year.

Where previous recoveries were marked by a “bounce,” this one is forecast to be flat. Topline growth alone won’t hide weaknesses this time. But there are many well-run distribution companies that positioned for profitability even before the downturn. Today they have healthy balance sheets. They have more flexibility (and cash) to respond to market opportunities and pick up share this year. An MDM survey in November examines what distributors and their suppliers are doing to improve profitability as we enter this slow-growth recovery over the next 12 months.

In MDM’s 2010 Economic Forecast for Wholesale Distribution Webcast, Adam Fein painted a not-so-rosy picture of what this recovery is likely to look like. For a number of reasons, not many distributors will feel much of a bounce. It will be more like a grind to find growth in new areas as we emerge from the worst recession since World War II. While he agrees with many other economists that technically the third quarter will probably be the official end of the recession, 2010 is still going to be a slow-growth year for many distributors.

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