The following analysis by long-time industry expert Al Bates examines key profit drivers in wholesale distribution across 40 lines of trade monitored by the Profit Planning Group. This article looks at historical data from the past five years, and particularly trends in 2011, the last year for which full data is available. The pattern that year is a marked deviation from what was seen in previous business cycles.
This article provides insight into this trend and provides recommendations to improve profitability, including the single most important issue distributors should address in 2013.
Prior to 2011, distribution firms followed a somewhat predictable pattern in relationship to the economy. As the economy entered a recession, sales and profits tumbled. Coming out of the recession, both sales and profits improved dramatically. This pattern changed in 2011 (the last year for which information is available). Sales increased sharply, but profits did not. To understand why, it is necessary to examine the key profit drivers of distribution – the factors that put profit on the bottom line the quickest.