The 2020 Mid-Year Economic Update_long

Commentary: In the Face of Consolidation, Have a Laser-Like Value Proposition

Machine tool sales have long been a fairly reliable leading indicator for other industrial distribution sectors on sales trends. In a similar fashion, the metals distribution sector may be worth watching to gain some insight into consolidation activity in wholesale distribution channels.


While many MROP markets were still struggling for profitability and cash flow over the past few years, there have been a few high profile deals on a global basis among steel producers as well as distributors.


The global pressures at the customer level essentially drove a chain reaction in North American distribution. That channel is getting more polarized, with the mid-sized companies particularly squeezed by the increasing global reach of its larger competitors. So the metals distribution landscape is changing radically as the industry is booming.


While the capital-intensive nature of the steel industry creates some unique factors, there are many parallels in other distribution sectors, extending beyond industrial into construction markets and elsewhere. The metals industry boom the past few years provided a lot of fuel for consolidators. There now is a healthy amount of fuel built up in most other distribution sectors. Yet the level of fragmentation in many distribution product sectors will likely dampen any wildfires.


What’s the most valuable lesson from the current transition in metals markets? I’d vote for how critical it is for distributors (as well as manufacturers selling through independent channels)
to have a laser-like value proposition.

If customers and suppliers aren’t completely clear about how valuable you are to their success compared with your competitors, you are more vulnerable to the global factors outside your control.

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