The 2020 Mid-Year Economic Update_long

Commentary: Battlefield on Economies of Scale Shaping Up in Distribution

Ten plus years ago, the Walmart model did much to lean independent distribution channels. As alternative sourcing models emerged, customers stopped subsidizing high service and/or poor performance too much inventory, inefficient channel relationships, maximum margins for unfocused service.

New replenishment paradigms had an impact at every level. Some forward-thinking manufacturers built functional discount programs to reward behaviors to cut down on redundant costs, streamline processes and ultimately stay competitive with growing large-volume channels.

Ten years later, Home Depot seems to be the flag bearer for performing a somewhat similar function as Walmart did to drive competitive efficiencies. Like before, technology has a critical role in defining the playing field. Today the battlefield is shaping up on economies of scale across the supply chain and the globe. High-volume distributors are squeezed as HD wields increasing clout with its suppliers. Small specialty distributors have a harder time getting the attention of larger manufacturers (and some ask if they really want it anyway based on historic treatment).

Some forward-thinking suppliers recognize the profitability value their independent distribution networks offer. And so we see another market equilibrium at play as pressures in one segment increase the value of alternatives.

As an independent distributor, you don’t have to look like Walmart or Home Depot to compete today; you’re likely to lose that comparison anyway. But every one of your employees has to prove your distinctive value niche marketing skills, specific market and customer knowledge, opportunities for joint efforts, how to keep your customer relationships Depot-proof.

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