Commentary: The Next Phase of Repositioning

In our latest Webcast on June 9, the "2009 Mid-Year Economic Update," Dr. Adam J. Fein examined the latest quarterly data and trending to give a clearer picture for what the remainder of this year and 2010 might hold for distributors. I recommend you listen and view the slides of this one-hour free event, by going to www.mdm.com/conferences.

Here are Dr. Fein's key points, each of which he discussed along with outlooks on housing and construction markets, as well as other major wholesale distribution sectors:

• The recession is not over, but we are at or near the bottom.


• The latest economic data shows many sectors are either stabilizing or getting worse at a slower rate.


• While the 2009 outlook for many wholesale distribution sectors has worsened, we are still on track for recovery in 2010.


• The recovery will probably be slow compared to historical norms. However, there is a credible scenario developing for unexpectedly rapid growth in 2010/2011.


• Be prepared for significant economic volatility and new risks associated with the coming economic recovery.

The real value of Dr. Fein's presentation was the concise way he put the macroeconomic trends into perspective for specific wholesale distribution sectors. He also provided some economic scenarios for wholesale distribution executives to consider as the recovery progresses. With as much continued volatility as Dr. Fein and other economists predict, this type of scenario planning is more important than ever.

Based on the data and reports MDM continues to hear as this second quarter comes to a close, this first half of 2009 will go down as the two worst consecutive quarters for many wholesale distribution companies serving industrial and construction markets. The third and fourth quarters will likely stabilize and show some improvement for some of the leading sectors, but widespread recovery won't start until 2010.

I've had countless conversations with executives who said they planned on a 5-10 percent revenue drop for 2009, but have seen double that number. The past six months have been focused on defensive work to stay viable, and there have been dramatic shifts in sales, customer behavior, banking and credit relationships. No matter what industry, everyone is focused on the present. Where customers used to replace, they are now repairing to hold onto cash. With some hope, the second half can shift companies to a rebuilding phase, repositioning to serve the customers and markets you can grow."