The 2020 Mid-Year Economic Update_long

Opportunities and Challenges in a Shifting Distribution Market

Tracking industry and customer data can provide distributors with a window into future planning as the market continues to shift during the coronavirus crisis. Channel Marketing Groups David Gordon suggests elements to consider, ranging from pricing pressures to the availability of talent.
Warehouse manager checking his inventory in a large warehouse

In talking with distributors and manufacturers, it is clear that many are actively in the planning and pivoting mode, moving from survivability to thriveability. They’ve stabilized their business financially, emotionally (from a staff viewpoint) and operationally. Now, more financially secure companies are identifying ways to take share.

Coinciding with this activity is the phased reopening of the economy. The electrical industry, in most markets, has been fortunate that a vast majority of states allowed some construction to continue and much industrial also continued, thereby enabling some commerce to occur. Even if there is a spike in hospitalizations, it is expected this will continue to some degree. The benefit is financially secure distributors, well positioned in key customers and markets, have had a revenue stream to support their efforts, albeit at a reduced rate. The key is managing and planning, simultaneously.

Consider the Surrounding Market

Did you know that there were 214,740 hotel rooms under construction in 2020? However, Hoteldesign.net reports that the industry expects these projects to take longer than projected, as there isn’t demand for the hotel inventory. Further, nine projects that were in final planning moved to deferred status, as did 21 others that were in the planning status. Another eight projects were stopped. Note, 28% of the rooms are for New York, Las Vegas, Orlando and Los Angeles/Long Beach. Consider this a construction indicator. If the project isn’t funded, it could be delayed or abandoned. This is the concern that many in the construction trades have for Q3, Q4 and 2021 Q1.

Dodge Data & Analytics’ April Momentum Index is for the construction sector looks backward from a planning viewpoint but could be indicative of future spend. In it, all of the indices declined. Overall, it declined 6%. The commercial building segment declined 7.6% and the institutional market declined only 3.2%. Education and government declined less, most likely due to these types of projects being funded. The Momentum Index is viewed as a 12-month predicator of future non-residential building spend.

Also see: “New Podcast: How Innovation Can Help Distributors Map New Growth Strategies.”

Dodge also released an update on public bidding opportunities. It was up 9% (as of April 21) from the prior seven days, which could be an indicator or people going back to work from their initial reaction of lockdown. There are almost 16,000 projects in the database. However, Dodge mentions that “projects are being moved out.”

As for the impact on distributors and manufacturers, get ready for perpetual quoting/bidding — multiple rounds, lots of excess work with contractors/GCs hoping pricing declines. Lots of chasing after a smaller and smaller set of funded opportunities.

Business Confidence Index Can be a Precursor of Spend 

Businesses, in general, need to feel optimistic about their future for them to be confident in spending money. While they may have needs (i.e. MRO expenditures, preventative maintenance, emergency work), are they investing in their future? A business confidence index infers that capital expenditure monies would be allocated. Look to your state or regional Federal Reserve information for the business confidence index for your area, and perhaps back-test information versus sales performance. Look for trends.

Taking the next step, there is the possibility of creating a customer confidence index for yourself. And for those serving contractors, an index can ask for their anonymous insights into a couple of key areas that could be correlated to longer-term activity.

Consider the implications of the price of oil. While many immediately think of the impact in Texas, South Dakota and selected other markets, the economic implications ripple into other segments. Low oil prices reduce spending in these areas, and hence investment into commercial construction as well as result in layoffs. These drive down consumption and that consumption impacts companies that are outside of the oil-producing areas.

Further, companies that make equipment for oil producing areas are not always in those areas. So, if you sell to industrial or OEM companies, know what your customers make to understand their business dynamics. This is the importance of understanding SIC/NAICS codes for your customers (and if your salespeople have time, they should be learning this, if they haven’t already). Macro business drivers will translate into considerations in their planning processes.

There are opportunities and there are challenges coming as the market shifts. Things to consider include (in no particular order):

  • Business process automation to enable cost-effective scalability
  • A changing salesforce and how to manage them (let alone where are they)
  • Reconfiguring offices
  • Price pressures
  • Role of e-commerce
  • Availability of talent
  • Performance-based marketing
  • Tiering of customer benefits as well as customer (and read “distributor” segmentation)
  • RSM and rep dynamics (In the age of virtual, what are the skills needed of an RSM?)
  • Communicating value proposition to strengthen position (build a moat) and enable customer acquisition/conversion
  • Engaging unassigned accounts/mid-small accounts (either perceived or actual)
  • How to make employees feel safe

\"DavidDavid Gordon is the president of Channel Marketing Group and has worked with companies in multiple industries on marketing strategy and execution, organizational and culture development, internal communications, employee motivation and change management. A version of this blog ran on electricaltrends.com. Email him at dgordon@channelmkt.com.

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