Tom Gale

Tom Gale has been an MDM researcher and industry analyst for 30+ years on independent distribution channel trends, consolidation, technology and competitive landscape. He is a frequent speaker and moderator on these topics at company, marketing group and association meetings in North America and Europe.

Finance

Commentary: Dust Won’t Settle on HD Supply

Be careful not to get a sugar high from the HD Supply spin-off announced this past week. After a deal of this magnitude, it's easy to get excited about what it means once the dust settles. But the dust won't settle on HD Supply. If anything, the non-contributing or distracting units will be shed and a leaner, more focused business will emerge. It was not purchased to be gutted or dismantled. The remaining entity, while smaller in size, will likely continue as the lead consolidator in a narrower band of distribution verticals.

The deal will have a large impact in a few sectors, and virtually no impact in others beyond the perceived valuation halo effect. Some had anticipated the price for HD Supply might cool slightly due to the weakness of residential markets in North America. ...

June 25, 2007

Perspective

Commentary: Fine-Tune Your Company’s Value Offering

Defining and selling value is a critical skill set in markets where customers have a range of sourcing options. Yet how well does your company analyze its market position in terms of value? How well are your associates trained in communicating and delivering this key differentiator that keeps you ahead of competitors?

The article on page 4 of this issue explores how manufacturers, distributors and sales representatives view the state of&nbsp ; value-add." It offers some tools to analyze your company's ability to perform extended value activities in key customer segments.

Survey results indicate that value-add definition and communication is just as tough a battle as five years ago. But there seems to be a broader recognition of its importance to staying competitive. ...

June 10, 2007

Economic Trends

Commentary: Prepare for Market Turns With Better Visibility

The mainstream media is poised to shout recession" from the rooftops, particularly as June tends to be a slow news month. We have heard consistent reports of flat to slowth growth, but no one is talking about cliff diving in manufacturing sectors. Some markets have stayed strong into May.

Even distributors into the tough automotive sectors are not exactly surprised, and have seen strong orders in other areas such as heavy equipment and aerospace. And while residential markets remain bleak, those distributors with commercial or industrial construction customers have seen those markets stay strong.

No one likes volatile market conditions, but if there is any consistency, it is that while some traditional markets are down, others are emerging to temper the damage. And ...

May 25, 2007

Perspective

Identifying core value a core competency

When a distributor loses focus on its relationships with core customers and suppliers, the company opens a door to competitors, new and old. It's often not a case of mistreatment as much as benign neglect or not keeping up with shifting needs at the customer.

Increasingly, new competitors from different product sectors have found some good growth in other distributors'back yards with tangential products. And in some cases they can pick up some of the longstanding business that wasn't in their core by packaging a better value proposition. But too often distributors tee up those opportunities and don't recognize that it's happening.

That model is at full force as more cross-channel competition grows, and consolidators look to package as much volume as possible into their ...

May 10, 2007

Sales & Marketing

Commentary: Channel Conflict Appears When Visibility Disappears

Channel dynamics, as our lead article explores, have arguably never been more complex or more fluid. One of the core concepts as this article came together was the need to have a clear line of visibility from manufacturer to end-user customer. With so many variables at play, visibility seems to be one of the few constants.

Channel conflict appears when clarity disappears, whether in communication, policies, discount structures or behaviors. There is no right answer, yet there are great examples of consistent and clear approaches that are working.

Ten years ago, the hot issue was how integrated supply was radically altering traditional channel relationships. Power was shifting to the customer. The redundancies and inefficiencies of traditional channels were ripe for ...

April 25, 2007

Sales & Marketing

Is Channel Management an Oxymoron?

Our cover story this week in Modern Distribution Management on channel management has been a fascinating subject to research. There are some significant role shifts taking place. We gained a lot of input from innovators in manufacturing and distribution, including many more beyond those quoted in article.
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It was also a difficult topic to get beyond the generalizations, stereotypes and misperceptions that in fact too often form the basis for relationships and ultimately policies in many companies. For some people, channel management is an oxymoron, because they are using the same pricing and marketing formulas in place 10 or 20 years ago. But we found others who are finding some good ...

April 11, 2007

Sales & Marketing

Commentary: The Slippery Subject of Channel Management

Channel management is a slippery subject. The most jaded observers might argue the term has largely become an oxymoron, as stories of mismanagement and dysfunctional practices seem like commodities.

But as the lead article in this issue outlines, distributors and manufacturers are finding ways to leverage the current shifts in markets to focus and define their value. Channel participants are grappling with many complex issues -converging channels, private label brands, new product programs, new discount models.

The key emphasis today is active management. One size can't fit all. Those who gain some understanding of how customers are shifting in their sourcing needs and problems, and then build programs and policies to meet those needs, find a competitive differentiator ...

April 10, 2007

Finance

Value Lessons from HD Supply

Value Lessons from HD Supply
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What's the value of a $12-billion distribution roll-up of a couple dozen companies, roughly doubling in size the past two years, consisting of a highly diversified portfolio of both branch-based and catalog models, in more than half a dozen product categories?
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Rumors are floating $9-11 billion as a potential price. With HDS estimated EBITDA somewhere around $1 billion, that puts the valuation in the range of 9-11X EBITDA. Home Depot paid around 12X EBITDA for Hughes Supply a year ago. But this is definitely a seller's market. HD may feel some Wall Street pressure to jettison the unit quickly, but it also is in the catbird seat. As reported by the Financial Times and <a ...

March 22, 2007

Finance

HD Supply Ship About to Sale

While countless offices in this country have the NCAA Men's Basketball Championship pool sapping the life out of productivity this week, I'm guessing there are at least a few pools estimating the date of sale for Home Depot Supply. I don't know what the Vegas odds are, but the probability is close to 100 percent in my book that we see a deal happen. Here's why I think it will be sooner rather than later.

Home Depot CEO Frank Blake said that it was important to determine a course of action for HD Supply so that the company didn't have a foot on the dock and a foot on the boat, as MDM reported on the company's refocus on retail.

Let's get out the spyglass and look at that statement. If ...

March 14, 2007

Perspective

Commentary: Time to Review Your Review Process

As this first quarter comes to a close, it's a good time to evaluate the annual plan created in September, or in January for those who subscribe to JIT strategic planning. This is when most plans start rotting on the shelf. The end-of-quarter flurry is too hectic to perform a disciplined review. Then a new cycle starts.

Perhaps you know where you are on the most important scale - your own internal sense of behind, on or ahead of plan year-to-date. Your sales force is crystal clear where they are. Most of the time that's good enough. But with as volatile as current markets, customers, competition and the economy are, your company might benefit from a more formal review process with your entire executive team. Consider a different approach to the typical rearview mirror ...

March 10, 2007

Research & Analytics

Commentary: The Let’s-Make-A-Deal Decade in Distribution

Last week saw a feeding frenzy of rumors in distribution, with action on both sides of the Atlantic. The biggest hunters suddenly became the hunted.

The history of independent distribution channels has repeatedly provided pointed lessons that size, more often than not, is the real giant slayer. It is tough to institutionalize flexibility and strong service levels - the hallmark of local distribution - across states, much less international borders. The next few years may tell whether there is an opportunity to create a global platform that doesn't self destruct on its own growth plans.

Some might say too much money is overheating valuations and expectations. The surprise is that the M & A market in distribution (and overall) remains hot in 2007, with most expecting ...

February 25, 2007

Companies

Commentary: Don’t Count Out HD Supply for the Long Haul

As reported by The New York Times this week, it did not take long for private equity firms to call the new HD CEO and wave some serious money (some analysts estimated $9 billion for a division doing about $12B in revenue in 2006) to take the HD Supply distraction off his hands. That is how the mainstream media and some analysts are painting it.

At one level, it wasn't surprising based on the departure of the chief exec last month and the arrival on the board of an activist investor none too happy with the company's wholesale foray into distribution.

For many independent distributors with some memory, it sounds eerily like another lesson in the properties of oil and water. There have been multiple failures of manufacturers trying to run profitable distribution ...

February 10, 2007

Economic Trends

Commentary: Don’t Look in the Rear-View Mirror

As the lead article in this issue illustrates, the inflation threat largely driven in 2005 by energy price hikes has moderated, particularly the last few months of the year. Wholesale prices rose 1.1 percent in 2006, compared to 5.4 percent in 2005. But wholesale prices except food and energy - the core inflation rate - moved up 2 percent in 2006 following a 1.4 percent gain in 2005.

Distributors need to look more closely at the stats in their own sectors, as there are a lot of mixed signals. Materials for durable manufacturing increased 13 percent in 2006; prices for materials/components for construction increased 4.3 percent.

But as these pages pointed out (Adam Fein article in Nov. 10, 2006 MDM), distributors really need to watch steroid revenue growth produced ...

January 25, 2007

Free

Commentary: HD Supply Strategy Bigger Than One Guy

Hype and speculation tend to follow an industry consolidator. The announcement last week that Home Depot CEO Bob Nardelli was ousted from his position over pay issues and lagging stock gains generated an inordinate amount of buzz. Some even claimed it is a repudiation of the Home Depot model itself and its relatively recent strategy to aggressively grow the wholesale distribution division.

Hardly. All we know versus a week ago is that HD has $210 million less to fund acquisition activities that instead went to Mr. Nardelli's severance package (Wouldn't you like to be chastised like that?). Now that will really slow the acquisition pace of HD Supply….

What's lost in the shock value of the pay deal is that Home Depot's net income in the most recent quarter, ended ...