2017 is setting up a market stability that we haven't seen in many years. That's the good news. But, of course, I can't leave well enough alone. There are also good arguments that 2017 will be a tipping point for wholesale distribution, as our recent reports in MDM have outlined.
The tipping point won’t be a moment in time; it won’t happen overnight. This tipping point will be felt by distributors and suppliers at very different rates based on the unique market characteristics across all 19 wholesale distribution sectors in the US and the types of customer segments served.
But it’s important to talk about the canaries in the coal mine.
There is one key driver for everyone: customers. And markets are converging on one segment – mid-market customers. Every company defines what the mid-market is for them, but it ranges from companies of 10 employees up to 500 – and for some it's even up to 1,000. These mid-market customers are the competitive prize driving convergence.
I’m not a big fan of the term “convergence,” but it describes more accurately what is happening today than any other term. It includes what every business is seeing in terms of digital impacts and how a multichannel approach to sales and marketing is a critical competitive shift driven by customers.
Convergence is taking place across all sectors of the channel, in technology and to the very nature of what a productive workforce looks like. Customers are driving how their suppliers position to capture and engage their attention and business. These are fundamental shifts.
In our 60-minute Industry Outlook webcast last week, I outlined examples of how both Grainger and Staples have developed multichannel strategies to target small- and mid-market customers. Both have reduced store locations and strengthened digital channels. Staples’ strategy is to move from being an office products retailer to a solutions partner for mid-market customers. It’s aggressively growing its product portfolio and already expanded its share of safety, jan/san supplies and increasingly broader MRO and facility maintenance product categories.
Amazon also continues to expand and impact channel dynamics as both a convergence driver and enabler as a digital utility or platform across every sector.
The key question in 2017 is how to protect and grow core customers. In a scenario with improving market conditions, there will be more powerful competition for the sweet spot of mid-market customers. We’re in a continuing cycle where there is a growing gap between companies adapting to these trends and those that aren’t.
Some talk about a tipping point where that gap becomes a cliff for non-adapters. All of these factors combine to offer a two-sided story – good growth is more likely than the past few years, but competition will be tougher from all sides.
For a modestly optimistic economic outlook for 2017, I recommend that you watch our 60-minute on-demand webcast of last week. Dave Manthey of Baird shared his economic snapshot and outlook for key markets across industrial, electrical and building products and facilities maintenance sectors. He also reviewed upbeat results from our fourth-quarter survey of more than 500 distributors.
