• As companies built up personal protection equipment inventory, people learned to live with the new reality and demand softened, PPE shrank as an overall percentage of revenue.
• With COVID-19 and its variants still raging, it’s possible the industry could face another rush of PPE sales — though it’s too soon to tell.
• If demand does again spike, companies are better prepared, but supply chain congestion could rear its head.
Like many distributors whose core business didn’t include personal protection equipment, Bulbs.com pivoted to offering those products last year as COVID-19 began ravaging the economy and businesses began scrambling to protect employees.
Mike Connors, CEO of the Worcester, Massachusetts-based electrical distributor, said the company started sourcing and selling masks, gloves and sanitizer to help customers address their workplace safety needs while it continued to tend to their lighting needs. Even though the company’s traditional business has been soaring in 2020 and 2021 due to increased residential and commercial demand, Connors says PPE did provide a nice boost to Bulbs.com’s top line.
Now, with COVID-19 cases spiking and variants across the country, it seems plausible that PPE sales would mirror those trends. “Have we seen an increase in demand for PPE?” Connors says. “The answer is ‘not yet.’ I have watched demand … and there’s nothing unusual happening.”
Connors notes that the dip in PPE sales has been between 70% and 90% “from the peak demand that we had last year. This includes masks and gloves. All the other ancillary things that we had — thermometers and sanitizer and some other things — are more easily procured from specialists in that area. But we have yet to see another surge in any of the COVID-related products.”
As cases climb, Connors is aware that those numbers could tick up once again. If they do, though, the PPE sales environment will have a different feel than last year when consumers and businesses alike were clamoring for all manner of PPE and demand far exceeded supply. That’s because the U.S. in September 2021 is a much different place than it was in April 2020. Simply put, distributors and customers alike are better prepared, and they can credit the lessons of the last year and a half for the changing landscape.
Public companies and PPE
The PPE sales swing has been well-documented at public companies like W.W. Grainger Inc. and Fastenal Co., whose executives share their businesses’ shifting sales mix with analysts on earnings calls.
Take Grainger. On the Chicago-based distribution giant’s last earnings call, CFO Deidra Cheeks Merriwether said the company saw “decreased demand for PPE products” but those products are still outpacing pre-pandemic sales. … Accordingly, pandemic sales declined approximately 28% versus 2020,” she said. “However, that’s an impressive 27% increase versus 2019. We estimate July 2021 will be down about 28% over July 2020, in line with what we saw in the second quarter of this year.”
Fastenal is another company that’s seen its PPE fortunes rise and fall. During the peak of the pandemic, sales of those products skyrocketed. In the second quarter of 2021, along with a slowdown in cases came a slowdown in PPE sales. “Lower-margin COVID-affected PPE mix retreated to pre-pandemic levels,” CFO Holden Lewis said on the company’s 2Q earnings call, adding that the company saw a “shift away from PPE surge buyers last year and toward traditional buyers.”
Lawson Products is another publicly traded MRO and industrial distributor in Chicago that has, like many other companies in this space, been keeping tabs on PPE supply to ensure that customers receive their orders of gloves, masks and other protective gear in a timely fashion. Because of that, the company has operated in a slightly different PPE sales cycle than many, notes Shane McCarthy, SVP supply chain, product management and marketing. “Nine months ago, our U.S. and Canadian reps worked closely with clients on PPE forecasting against subsequent COVID waves to help them get ahead of a potential spike in demand or limited resources,” he says. “So our PPE sales were actually higher earlier in the year. An exception is nitrile gloves. We continue to supply health care clients of course, but as food service, automotive collision repair, janitorial services and general industry ramp back up, we’re delivering the nitrile gloves they need too, often at discounted prices for all of these industries.”
Public companies’ third-quarter earnings reports won’t be out until late October, and some businesses declined to share their sales mix until the quiet period is over and their financial performance has been made public. In other words, it’s too soon to tell if another rush on PPE is imminent. But while next month’s slate of earnings reports might provide some clues, they aren’t the only gauge for PPE demand, which is becoming harder to assess the deeper this country plunges into the lingering pandemic.
Other issues at play
Any discussion of PPE supply and demand must include the topic that’s stymied all industries: supply chain congestion.
While PPE supply was notoriously deficient in the spring of 2020, suppliers appear to have caught up with demand in the ensuing months. In some regards, PPE is faring better than some products, like computer chips. “Although broadly the global supply chain still has many products held up and in short supply, the global supply of nitrile gloves has gotten much better,” McCarthy says. “Supply was very tight in 2020 and through the first half of 2021, but we now have the glove inventory to readily meet the demands of our customers.”
Yet another issue that plays a role in the apparent softening of PPE demand is the labor shortage at end customers across the distribution ecosystem. “One area suppressing demand is a shortage of labor across the spectrum of our customers,” McCarthy says. “We know that if our automotive and industrial customers could find and hire more repair technicians their production activity and consumption of consumable parts would increase. With the shortage of new car inventory, there is definitely a need for automotive technicians to repair the vehicles currently on the road.”
These aren’t the only levers being pulled by macroeconomic trends, making it clear that the PPE craze of last summer might never be repeated. For one, companies are more prepared — on all fronts — when it comes to a resurgence of the pandemic. Take Connors’ company, Bulbs.com. Earlier this year, when a warehouse employee tested positive for COVID-19, the entire warehouse staff had to quarantine. So, Connors and his front-office workers took on shifts moving and loading boxes until the warehouse workers could return. “I said we need to have every employee work three hours a day in the warehouse until they come back with a negative test,” Connors says. “Several of our people already spend time in the warehouse, so it wasn’t rocket science. I’ve packed orders before, and I told our staff, if I can go over and pick and pack orders, you guys can do it too.”
That kind of approach has been shared across distribution, and it shows how companies have adapted to the “new normal” of COVID-19. Colleagues step in where they’re needed, something that might not have been possible before the pandemic.
Moreover, if mask mandates are reinstated — at businesses, in municipalities, etc. — most people have their own PPE, and many companies have stockpiles of N95 and KN95 masks, perhaps even some face shields. In other words, the likelihood of a rush on PPE ordering has decreased. If there is one, it probably won’t be as frenzied. “There are a couple of factors here,” Connors says. “One, I think the utility closets are probably filled with far more masks than a year and a half ago. Two, the stress level and the reactionary spectrum are a little bit different because people have been dealing with it now for a long time. The propensity to overreact, I think, has clearly subsided.
“There’s just far more knowledge, and that experience helps us all.”
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