The wholesale distribution industry continues to grow faster than the rest of the economy, and there are signs that this positive trend will continue, according to Economist Bridget Strand. Strand joined Tom Gale, president of Industrial Market Information, and Ranga Bodla, director of industry marketing for NetSuite, for the 2014 Mid-Year Economic Update. This article is a summary of that webcast.
Industry gains in 2013 outperformed the economy as a whole, and demand for construction jobs in 2014 could help stabilize more growth.
Economist Bridget Strand, Ph.D., said that the revenue increases were driven by a backlog of orders in certain end-use industries, as well as by new investments focused on process improvements through technology. Strand spoke in the recent MDM Webcast, the 2014 Mid-Year Economic Update.
“If we focus on core industrial and construction distribution sectors, the 2013 revenue numbers show how market recovery in industrial sectors is clearly outpacing construction markets,” Strand says.
Construction revenues, adjusted for product inflation, were down 2.2 percent in 2013, but things are different this year.
“The housing sector,” Strand says, “it’s one of our largest drivers of economic growth, and it’s coming back.”
In the first half of 2014, construction spending was 8.2 percent above the same period in 2013.
Four other things are propelling the economy toward a more secure place, Strand says. Corporations have more money and their profits are expected to grow. The debt ceiling, sequestration and tax issues from 2011 and 2012 are lessening, and global monetary and fiscal risks have also decreased. Lastly, consumer spending is high, which drives demand.
“Technology prices have also come down as competition has increased,” Strand says. “This is seen in the large change in revenues for the computer equipment and software distributors.”
Computer equipment and software distributor revenues increased 33 percent last year. That sector had -1 percent growth in 2012, which accounts for the high percentage change. The next highest increase was for furniture and home furnishing wholesale distributors, at almost 17 percent.
Five sectors saw double-digit growth last year, including industrial distributors, electrical and electronics, computer equipment and software, agricultural and furniture and home furnishings.
The growth of these sectors is bringing opportunities into 2014. There is more demand than supply for manufacturing and construction contractor jobs, which is an opportunity for distributors to find and fill skill gaps through training.
Changing demographics in the labor force is slowing technology adoption, Strand says, and increasing the need for skilled workers. But at the same time, there is a shift in what new workers want in a workplace.
“As you’re seeing a shifting of the workforce, you’re seeing a lot more millennials in the workforce and representing a much larger portion of the workforce,” says Ranga Bodla, director of industry marketing for NetSuite. “And the engagement that they require and demand is very different.”
That difference, he says, means that business owners and managers will have more success with new approaches for managing this workforce.
Other challenges include the transportation sector: Infrastructure is aging and could increase the need for alternate channel fulfillment models. And, as always, there is uncertainty around energy prices, Strand says.
This recovery cycle has been slower and more drawn out that those seen in the past, says Tom Gale, president of Industrial Market Information. But there are also other key differences in this recovery that make it an interesting one with new opportunities for distributors, particularly in the M&A space, he says.
“In prior cycles, strategic buyers have had an advantage over financial buyers,” Gale says. “…This time, it’s never been so competitive between financial and strategic buyers. It’s a very different atmosphere.” Because the environment is so competitive, distributors considering being acquired have a unique opportunity to capitalize on that competitive atmosphere – so long as they’ve invested in their companies over the past few years, he says.