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When the dust settles and people get beyond the easy explanation that roll-ups don't work in this industry, what are the real lessons to be learned from these watershed events? The article on p. 5, the first of two parts, goes beyond the surface factors of a bad economy and too much debt taken on through acquisitions in looking at the case of Questron. Rob Cornog analyzes how several well-known distributors have managed their cost structures and balance sheets in relation to the economic cycles over the past four years.
The article provides some analytical tools any distributor can use to view the business and plan for the future. It underscores why aggressively managing costs and capital are so crucial to success in an increasingly tighter margin environment.
Some commentators trumpet the fact that this industry is not consolidating as fast as it seemed a few years ago, that this is a people business where relationships with customers and vendors are critical. This newsletter often takes the stand that a national chain or consolidator can't replicate the local-level service capabilities that an independent distributor can. But that doesn't mean that you can do business as usual. This latest economic cycle has reinforced that you have to operate a much leaner and more efficient business to stay competitive and healthy.