This is a part of the 2017 Distribution Trends Special Issue. The annual feature was researched and written by MDM based on interviews with dozens of distributors, industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this issue.
2017 Distribution Trends Special Issue
After a challenging 2015 and 2016, revenue growth in the industrial sector is expected to pick up in 2017 and 2018, as domestic manufacturing activity increases. Several large industrial distributors have reported over the last six months that they're seeing more capital expenditures by manufacturing customers, usually a sign that these customers expect to boost activity.
"It sure feels as if 2017 is getting off to a better start," Michael DeCata, president and CEO of Lawson Products, says. "We'll see how it finishes, but it's pretty encouraging."
Automation and machine learning are driving a shift in manufacturing that may change product demand. According to a report by International Data Corp., one of the two fastest-growing subsectors for the robotics industry is process manufacturing. Overall, spending on robotics is expected to reach $188 billion by 2020. Because the industrial sector is closely tied to manufacturing, distributors may see a shift in the types of products necessary to meet the higher-tech demands of these customers.
Oil & gas prices are stabilizing, but recovery is still a work in progress for distributors that serve those markets (directly and indirectly). Companies with high exposure to this end market – or in geographies heavily reliant on it, such as Texas – reported steep revenue declines in 2016, some losing nearly a third of their annual revenue. Rig counts are on the rise, though, so new opportunities may open up in 2017 and 2018.
Customer demand for e-commerce grows, but users want more than just shopping and buying. Customers want an overall better experience, and different customer segments have different expectations. Grainger's launch of Gamut.com, for example, was touted as a move to meet the specific needs of engineers and maintenance professionals – in other words, customers looking for more technical information than other segments.
A majority of industrial respondents (51 percent) to our recent MDM market trends survey noted that access to more technical information (including product specifications and application information) was the top customer request from their online platforms.
Amazon continues to be a factor in driving e-commerce consideration and development, but its effects are being seen offline, as well. Industrial distributors, particularly smaller independents, noted that customers are requesting faster delivery and longer payment terms, driven in part by the terms they can get from Amazon and big-box stores like The Home Depot.
These shifts in demand can have a broader impact on a distributor's operations, requiring a rethinking of how to manage logistics and cash flow.
Acquisition and divestments continue to change the sector's landscape. Big-box stores continue to stake a larger claim in the industrial/MRO sector, with Lowe's following The Home Depot's lead and acquiring distributors. For gases and welding equipment distributors, activity was marked by the merging of giants. Air Liquide acquired Airgas – significantly increasing the French gases company's presence in North America – and Linde and Praxair announced an agreement to merge.
On the other hand, HD Supply continued down its streamlining path. The distributor has made five divestments in recent years, the most recent being the announced sale of its waterworks division. CEO Joe DeAngelo notes that the company made the moves to reduce debt and sharpen focus on the areas where it sees the greatest growth potential.
Merger & acquisition highlights in 2016:
Lowe's, Mooresville, NC, acquired RONA Inc., a Canadian retailer of hardware, building materials and home renovation products, and Central Wholesalers, an MRO distributor in the Mid-Atlantics and Northeast.
Praxair, Danbury, CT, and Linde Group, Munich, Germany, closed 2016 by restarting their on-again/off-again merger negotiations. In May 2017 the two companies finally agreed to merge.
Ohio Transmission Corp., Columbus, OH, expanded its geographic footprint with the acquisitions of C&C Industrial Sales, Gallatin, TN; Midway Industrial Supply, Minneapolis, MN, and PumpTek LLC, Monroe, OH.
Average growth for companies on the Industrial Market Leaders list: -2.6%, primarily due to steep declines in oil and gas.