2010 Distribution Landscape Report: Strategies for Growth by Market Leaders

To no one's surprise, last year turned out to be a terrible one for distributors. One distributor we talked to called 2009 a "survival" year, noting he was just happy that sales at his distributorship were off only 10 percent due to the deep recession. Other distributors have not been as fortunate with many companies reporting sales down more than 20 percent.

Many distributors survived 2009 through a series of steps they hope will position them for growth this year. These are the market leaders detailed in a special report compiled by editors at Modern Distribution Management.

In looking through this list, it is interesting to examine how many of these companies grew over the years through a variety of strategies, many of them expanding through acquisition.

Wolseley, for example, the largest distributor on our list, has been a major acquirer of companies over the years. It is known for its major purchase of Ferguson Enterprises and for its expansion of Stock Building Supply, which sells building materials and supplies.

Stock, which had started in business originally as Carolina Builders Corp. nearly 100 years ago had been purchased by Wolseley in 1985 and grew rapidly. The deepening plunge in the housing market caused Wolseley to sell a majority interest in Stock Building Supply to The Gores Group, a private equity firm. Stock itself has since been in an acquisition mode by expanding in certain targeted geographical markets.

Another company that grew through acquisition is Airgas under the direction of its chairman and CEO Peter McCausland who founded the company in 1982. Since it founding, Airgas has made more than 400 acquisitions and more are planned. That is if Airgas, which has more than 1100 locations, itself is not purchased.

This year could be the most important one in Airgas' history. Air Products and Chemicals Company has made an unsolicited bid to take over Airgas, which is rebuffing the attempt. Recently Air Products submitted a slate of three nominees for election to Airgas' board of directors. Stay tuned.

Meanwhile Kaman Industrial Technologies has made three acquisitions since the beginning of the year including a national distributor in Mexico. Kaman executives told financial analysts at the beginning of last year they would be active in making acquisitions in its industrial distribution segment. That certainly seems to be the case as Kaman, once known mainly as a power transmission distributor has greatly expanded its product lines and offerings. Just this past week, Kaman announced a new distribution agreement to carry tools produced by a major manufacturer.

Last year the company did not make any major purchases but made a few in 2008, including a hose and accessories distributor in Puerto Rico.

While these companies have expanded through acquisition, Fastenal has grown by opening stores throughout the country. Fastenal traditionally has increased its amount of stores by 7 percent to 10 percent per year. Last year, it increased the number of stores by only 3 percent. Fastenal says it expects to go back to its 7 to 10 percent number by the end of this year. It now has nearly 2,400 stores in operation.

Farrokh Khalili of Canadian Bearings points out that large U.S. distributors are growing in Canada, mostly through acquisition.

One example of that expansion is Motion Industries' growth in Canada. In March, Motion bought BC Bearing Engineers Ltd. in Vancouver, British Columbia, Canada.

As we look ahead to the remainder of 2010, hopes are that the economy will continue to grow, at least if you believe many economists. A number of distributors have reported a sharp increase in business for the first four months of this year and one used the word "scary" as to how fast his business has increased.

With all this in mind, it will be interesting to see next what will happen if mergers and acquisitions increase rapidly as what many industry observers expect.

This could change the make up of MDM's list and pose a threat to many small to medium size distributors in the marketplace, particularly for those that haven't carved out a niche for themselves or are hampered by cash flow problems.

Only time will tell.