Commentary: Key Issues Emerge for 2010

I'm finally hearing a few themes emerging for this recovery as I attend meetings and talk with wholesale distribution and manufacturing executives. Consensus: At least until third quarter next year, businesses will be grinding for growth. Companies are still focused internally on cost reduction, but they are looking ahead more than they were two months ago and adjusting to this "new normal." Six months ago slightly down looked OK. At least for now "flat" is the new up. There are a lot of mixed signals.

I’m finally hearing a few themes emerging for this recovery as I attend meetings and talk with wholesale distribution and manufacturing executives. Consensus: At least until third quarter next year, businesses will be grinding for growth. Companies are still focused internally on cost reduction, but they are looking ahead more than they were two months ago and adjusting to this “new normal.” Six months ago slightly down looked OK. At least for now “flat” is the new up.

There are a lot of mixed signals. While August sales surprised many distributors positively, September was spotty across a range of markets. Still, 3Q looks to be the starting point with 4Q shaping up for a potentially stronger spike. But then volatility is likely to continue the next three to four quarters as consumer spending stays weak due to unemployment. The big unknown is how much exports will help drive domestic manufacturing.

A positive note we’ve discussed in these pages in the past year – small but growing indicators that manufacturers are bringing some production back onshore and distributors in select markets are beginning to see that impact. The economics and costs of distant supply chains are different today than five years ago.

This past year has forced soul searching and dramatic redefinition for how distributors can stay viable and profitable. More companies have been forced to address process improvements and growth opportunities. We’re hearing about increased investment in information technology to gain specific returns in better inventory management and forecasting, better control of pricing, and more sophisticated customer segmentation to determine the best growth opportunities.

These next few quarters could be challenging for distributors with new bank covenants in place and less flexibility to finance inventory increases to meet demand spikes. Related to that, some distributors are refocusing their sales and marketing efforts on their most productive lines. They are reducing their vendor base to those that aren’t over-distributed, are reliable partners in uncertain times, necessary to customer needs, and profitable.

Reminder: MDM’s Webcast events – one per month this quarter – will address the issues above and help you plan 2010. Brent Grover presents Strategic Pricing for the “New Normal” on Oct. 29, Adam Fein presents his 2010 Economic Outlook for Wholesale Distribution on Nov. 19, and Bill McCleave leads a discussion of how to position to take market share in the year ahead on Dec. 9.

Details are at www.mdm.com/events.

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