MDM’s proprietary U.S. distribution revenue forecast shows 2023 in decline -0.8%, remaining flat, or slightly under, overall, and then creeping to a slow, mid-level single-digit growth of 3.5% in 2024, shared MDM’s CEO Tom Gale in a July 13 webcast.
For the 15th year, MDM has joined experts in the wholesale distribution industry to take a pulse of where the U.S. is midway through the calendar year, highlighting key trends and diving into the latest forecasts. The 2023 Mid-Year Economic Update webcast — now available to watch on-demand — also features the latest data and insights from the 2Q23 Baird-MDM Industrial Distribution Survey.
David Manthey, Baird’s Senior Research Analyst covering Industrial Distribution and Environmental Services, said the U.S. Treasury Yield Curve, which is an important indicator of the broader market and economy has a clear inversion. An inversion has been a signal that has preceded a recession in every case over the past 50 years, Manthey said.
“On the distribution team here at Baird, we are not in the soft-landing camp,” Manthey said. “We think there will be a recession.”
Leading Economic Indicators
Industrial Manufacturing: The ISM Purchasing Managers’ Index (PMI) hit a cyclical peak of 64.7 in March 2021 and has fallen ever since.
“In theory, we could be closer to the end of this downturn than the beginning,” he said. Part of the reason, he said is because “pricing has been so strong and holding up the revenue growth for those companies [public distributors], even though the volumes have been moderating.”
Residential Construction: Existing home sales continue to languish, but remodeling activity continues to be at high levels.
Non-Residential Construction: Leading indicators of commercial construction are mixed. Dodge contracts remain strong while commercial real estate loan demand has weakened.
Manthey said through Baird research, reshoring/nearshoring will add roughly 1% to broadly industrial supply categories or MRO categories over the next 10 years to industry growth.
“It’ll also add to construction to some extent, and it’ll add to a number of other service and product categories,” he said.”
2Q23 Baird-MDM Industrial Distribution Survey Results
Manthey also shared results of the Baird-MDM 2Q23 Survey, which collects responses from roughly 500 private wholesale distributors across 18 different product categories.
Premium subscribers can find a wealth of economic data snapshots, forecasts and distributor commentary from the Baird-MDM 2Q23 Survey in MDM’s 2Q MarketPulse Report, which will be available to download later this week. But here are some highlights:
- Sales growth turned negative for the first time since the fourth quarter of 2020.
- Volume growth is down in the first half of 2023. “As volumes continue to tail off, as pricing diminishes over time, we’re seeing what we would expect to see: which is revenue deceleration, which probably continues into the second half of 2023,” Manthey said.
- Forecasts for 2023 sharply lowered for the third consecutive quarter and are now almost flat.
- 15 of 18 product categories underperformed respondents’ expectations weakened from 90 days ago.
Themes Shaping the Competitive Landscape of Whole Distribution
Closing the Technology Gap
After having to “paper over” and create technology solutions to address some of the COVID-19 pandemic-induced supply chain challenges to wholesale distributors, many businesses are now accelerating their digital transformation, said Ranga Bodla, Vice President of Field Engagement and Marketing at Oracle NetSuite, the webcast’s longtime sponsor.
“While we’re largely past many of the issues that surfaced back in March 2020, I think one of the big things that it exposed was a huge hole from a technology perspective in many of the distributors and other businesses that we talked to, particularly in having flexibility in how they run their business when you have these massive disruptions,” said Bodla, who has over 20 years of combined product management and marketing experience in the software technology industry.
Bolda said regardless of sector of business type, all businesses are in the growth mindset.
Digital-First Hybrid Sales Model
MDM’s latest research has shown that distributors at any stage or phase in their journey are on a path to creating a hybrid sales model using more analytics.
“The core outside sales model was really showing some cracks in terms of its ability to meet changing needs of customers, particularly with the impact of digital and the rise of Amazon and other disruptive players who came into the market,” Gale said.
Gale says he believes the distributors that have historically been transactional and ERP-centric are transforming to customer-centric.
For more insights into hybrid sales models and other trends driving the wholesale distribution industry, register and tune into MDM’s free one-day 2023 Profitability Summit on July 19. And don’t miss the annual SHIFT conference to be held Sept. 18-20 in Denver.