The 2020 Mid-Year Economic Update_long

E-Commerce, Improved Economy Drive Distribution Industry Growth

McGladrey-NAW Distribution Monitor: Growth expected to improve in next year.

Driven by advances in e-commerce and an improved economy, the U.S. distribution industry is growing, according to the 2014 McGladrey Distribution Monitor. The annual report, presented by McGladrey LLP and the NAW Institute for Distribution Excellence, shows that 74 percent of distributors reported an increase in sales over the past 12 months, with an average increase of 7.5 percent. Those numbers are expected to improve in the coming year, as 91 percent of distributors expect to increase sales an average of 8.9 percent.

“At 5.5 million employees, wholesale distribution accounts for approximately one in every 20 jobs in the United States,” said Dan Blaylock, 2014 chairman of the board for the National Association of Wholesaler-Distributors. “Because the industry is so important to the vitality of the U.S. economy, identifying and understanding the various strategic management challenges that the distribution community faces is one of the great priorities of our time. Business intelligence, such as that provided by the McGladrey Monitor, helps provide a road map to navigate to solutions.”

“According to the U.S. Census Bureau in April 2014, sales of U.S. merchant wholesalers totaled $450.2 billion, up 7.8 percent from April 2013,” said Karen Kurek, leader of industrial products for McGladrey. “Total inventories of merchant wholesalers were $530.6 billion for the same period, up 6.7 percent from the year before. These figures confirm the results of the 2014 Monitor, which clearly finds good news across the distribution industry.”

Monitor results show that 39 percent of distributors describe themselves as thriving in 2014, an uptick from 32 percent in 2013. A lower percentage of distributors say they are holding steady or declining than in 2013. Sixty nine percent of distributors expect their profits before interest and taxes to increase over the next year.

Two-thirds (66 percent) of distributors expect to add jobs in the U.S. over the coming year, with an average expected workforce increase of five percent.

When asked about potential impediments to growth, distributors most often cited competition from other companies (65 percent) as the biggest threat over the next 12 months. However, nearly as many distributors (63 percent) cited government regulation as a limiting factor on growth, and 59 percent said they expected taxation to limit their growth over the next twelve months.

When asked about specific regulations and their impact on growth, implementation of the Affordable Care Act was by far the most commonly cited limiting factor. Sixty-eight percent of distributors said they believe the implementation of the law would limit their growth over the next 12 months. The only other regulation cited by more than half of respondents was state regulation (53 percent). Federal (60 percent) and state (61 percent) taxes were also identified as potential threats.

Four out of five distributors plan to increase their investments in information technology in the next 12 months, with investments rising by 13 percent on average. IT is a driving force at thriving distributors; executives in those companies expect to increase IT spending by 16 percent on average.

“Ten years ago, technology was a tool that could give a distributor a competitive advantage; today, the ubiquity of enterprise resource planning, customer relationship management and other software tools have made technology much more commonplace—and necessary to stay competitive,” the report notes. “Advances in business analytics and the use of data are changing the way distributors are doing business.”

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