We have seen key shifts in the distribution channel over the past year, one of the worst economic downturns since the Great Depression. Based on MDM's coverage over the past year, we have put together a list of the top five shifts in the distribution industry in 2009. Read about 2009 in more detail in the Dec. 25, 2009, issue of MDM.
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Doing More with Less
In the MDM Reader Survey, distributors and manufacturers report making many changes to improve or preserve profitability in their businesses, including: wage cuts, budget reductions, furloughs, hiring freeze, and increased focus on lower-cost marketing and online marketing and transactions. For many distributors, it was the first time they've had to make such dramatic cuts.
Massive Inventory Reductions
Adam Fein outlined in his recent MDM Webcast, "2010 Economic Forecast for Wholesale Distribution," that inventory levels have dropped significantly over the past year as distributors have faced decreased demand and increased need for cash. Hear why Fein says inventory may play a key role in the recovery in this audio clip from his Webcast.
The recession has had a significant impact on channel relationships. One impact has been supplier consolidation. Customers have reexamined each of their supplier relationships and in some cases pared down their supplier base from hundreds or even thousands to only a few. Distributors have also gone this direction, trimming the number of brands they carry. This process is likely to continue into 2010.
Deal Flow Slows
The past two years of Mergers and Acquisitions have been quiet compared with the boom years of 2005 and 2006 in M&A. Tight credit markets slowed deals considerably, and acquisitions of distressed companies were most common. Some top companies have been able to sell for premium valuations, but those have been few and far between compared with a few years ago. A key takeaway from this: Strategic buyers such as Grainger and Airgas have made a few acquisitions in the past quarter, increasing the speed of consolidation in the industry once again.
Distributors Explore New Markets
MDM Publisher Tom Gale wrote last year in his Dec. 25 perspective column in MDM Premium that new industry sectors often "rise from the ashes" in tough times, including alternative energy. The downturn forced many distributors and their suppliers to consider new markets and added the need for these companies to diversify their end-markets. One new focus has been "green" products and services.