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I’ve been using a saying attributed to Warren Buffet this spring in presentations to groups about current markets: “It’s only when the tide goes out that you learn who’s been swimming naked.” At this point, the more appropriate saying might be: “You can drown when the tide rises above your head.” The Ch. 11 bankruptcy protection filing by Alamo Iron Works on April 5 was triggered by what the company alleges was non-payment of $1 million for work by a large customer.
This is not likely to be an isolated incident. Increased sales are great, but I’m hearing about difficulties with supplier lead times, financing inventory and cash flow.
I’ve been using a saying attributed to Warren Buffet this spring in presentations to groups about current markets: “It’s only when the tide goes out that you learn who’s been swimming naked.” At this point, the more appropriate saying might be: “You can drown when the tide rises above your head.”
The Ch. 11 bankruptcy protection filing by Alamo Iron Works on April 5 was triggered by what the company alleges was non-payment of $1 million for work by a large customer. The two firms are in court over the matter. As the article in this issue details, the owners of Industrial Distribution Group have negotiated the purchase of Alamo’s assets, subject to approval by the bankruptcy court.
This is not likely to be an isolated incident. Increased sales are great, but I’m hearing about difficulties with supplier lead times, financing inventory and cash flow.
None of this is new as an economic rebound takes place. But there is a difference in terms of the depth of the recession and the severity of tighter credit conditions. Combine those conditions with increased exposure to major customers, and the conditions exist for a crisis.
In our Webcast with Adam Fein on Apr. 29 (Download here), he emphasized the need to recalibrate expectations for growth to match an expected long and slow recovery. Some of the companies most at risk this year are the ones that cut costs during the downturn without fundamentally restructuring the business model at the same time. Today they are essentially standing on the ocean floor as the water rises above their heads. They don’t have the tools or the updated cost models to float in this new environment.
There was a lot of optimism at the Industrial Supply Association annual product show last week. March and April were the first real back-to-back strong performing months for many suppliers and distributors there in a long time.
There are a lot of companies making innovative changes to their business models and the value proposition they deliver. One of the fundamental truths about distribution is the value it can bring as innovators for customers and suppliers.
The recession created the conditions for innovative changes; some distributors recognized opportunities to meet the changing needs of customers more efficiently. It is certainly disruptive, but the entrepreneurial and adaptive distributors tend to be the most resilient.
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| Digital Strategy Manager | Border States Electric | Fargo North Dakota |
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