Last week was the annual NAW Summit in Washington, DC, a unique and valuable venue that has maintained a consistently solid value proposition across the 22-year span I have attended. It offers great networking across a broad cross section of wholesale distribution industry executives.
ITR Economics’ Alan Beaulieu kicked off the event with an upgraded outlook for the economic climate over the next few years. Beaulieu is forecasting slightly slower growth rates in 2015, but an overall positive increase in GDP and industrial production index for the next two years. The future looks pretty bright for U.S. distributors.
That’s in marked contrast to the gyrations since 2008, though several conversations in the hallways offered a distinct cross current to this optimism. Part of it was weak performance of certain customer segments. But many conversations also centered on competitive pressure and shifts in market share rather than economic conditions.
Maybe we are moving into the next normal, for lack of a better label. The new normal was the long slog out of deep recession; this next phase is more about the impact of strategic investments made by both traditional and not-so-traditional competitors during that journey from the abysmal.
This supports our research over the past year: Traditional distribution markets are under attack from all sides. For example, national distributors slammed the product line extension pedal to the metal while building multichannel capability. Grainger is the leading example. They also invested in sales and marketing in traditional and nontraditional ways to drive demand.
The other major competitive shift can be seen in the roll-ups and consolidation of smaller, more locally focused distributors. They gained an injection of national support at all levels and, as a result, can be more strategic in targeting certain segments and territories.
The final tier of market share battle comes from the “new” entrants into traditional distribution channels. Amazon and other pure e-commerce players are part of it. But we are at the beginning of the B2C-to-B2B blending. The most visible example is Staples, which has increasingly expanded its safety and jan-san product portfolio. They, like many others, have done the research and see the potential of B2B markets.
Companies that haven’t adapted to these new competitive pressures in a proactive way – multichannel e-commerce, stronger customer service, streamlined operating models – won’t find the next normal lasting very long.