The outlook for 2016 is about as fragmented and polarized as can be, which means that it is likely a year in which you create your own luck. Listen to one set of economists and the consumer will drive a growing economy with continued employment growth. Listen to other analysts tuned more closely to the industrial sectors and the picture is more pessimistic. If you didn’t attend our 2016 MDM Industry Outlook webcast last week, a recording is available here: www.mdm.com/2016Outlook
There has been a great deal of value destruction in the current business cycle, and many distributors are feeling the impact. But it’s important to keep perspective. The emergence of alternate channels through e-commerce and the focus on B2B market potential has consultants, media and service providers of every kind whipping up a frenzy. That does the industry no good.
The shifts taking place are disruptive and, as we distilled in the webcast, require a remodeling of traditional distribution business models to more adaptive ones. Most distribution companies aren’t broken; they are simply misaligned to the current technology-infused acceleration of change.
Our research identified a few key themes that characterize how market leading companies are differentiating. Specifically, the key levers are focus, culture and technology, with data a critical thread for how to move these levers. Distributors need to sharpen their approach to these areas if they hope to do more than just ride the economic cycle.
As to industry trends, e-commerce and the resulting shifts in purchasing behavior are arguably affecting the largest and smallest customer segments the most. At the top end of the market, Amazon is setting the bar for transactional efficiency and transparency. There are more e-tailers entering B2B markets and fighting for share. And vending and other national programs continue to tighten the profitability of these segments to those with the scale to compete.
At the small customer end, price shopping and alternate sourcing present a challenge to maintain profitable positions – and national distributors have built some strong footholds here as well.
So for the bulk of distributors, what’s the play for 2016? The sweet spot to consider is the midmarket customer segments, where there is still opportunity to build strong, profitable value packages this segment is willing to buy – service, cost savings, productivity enhancement.
For most sectors of distribution, it’s important to remember that less than a third of the market is “owned” by the largest national brands. That fragmentation is why there is still opportunity to be created in 2016 and beyond – in spite of the noise.