This is a part of the 2016 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.
2016 Distribution Trends Special Issue
Soft end markets are taking a toll, but improvement is in sight. The Fastener Distribution Industry's May index was 50.1, up for the third consecutive month but above the expansion threshold (50) for the first time in 2016. At the midway point of 2015, the FDI was in the mid-50s, down significantly from over 60 in late 2014. Uncertainty about the business landscape in light of the presidential election is weighing heavily on the industry, according to Casey McIlhon, executive vice president of sales, Assembled Products, Des Moines, IA, and 2016 president of the National Fastener Distributors Association. The fasteners industry is following general state of the economy with certain sectors performing "OK, like automotive and commercial products," McIlhon says. "But the general industrial space is lagging, so that's putting some pressure and concern on our sales volumes and employment trends." Although the oil & gas and agriculture sectors should continue to be a drag on the industry, the NFDA projects a stronger 2017.
Look for pricing to rise. With the instability of raw material prices in China, distributors are starting to respond. "There is a price increase coming," says Mike McGuire, editor of American Fastener Journal. "People should have been buying earlier, but with the uncertainty over the election and interest rates, they're hesitant to buy now, so they're caught in the middle. Prices are going to go up, definitely." Pricing increases could further transform the sector, which has shifted in recent years, according to McGuire. "Distributors are now brokers," he says, meaning they might call four or five suppliers to get the best price and "they don't sell the stuff off the shelf. They're very careful about inventory levels and I'd say overall they (inventory levels) are decreasing. Whoever marks (prices) up the least gets the order."
M&A is leading to heightened focus on customer engagement. As consolidation continues across the industry, distributors are increasingly emphasizing their value proposition to increase their attractiveness as a potential acquisition target or to position themselves against new, larger competitors. "Companies have to stay sharp, looking at how they're servicing customers because it is a very active environment," McIlhon says. "We're seeing a lot of mergers and acquisitions happening continually as we have over the past several years. It keeps distributors out there on their toes. The competitive landscape is changing."
That landscape features a new player, Optimas OE Solutions LLC, which formed when electrical distributor Anixter International Inc., Glenview, IL, agreed to sell its OEM supply – fasteners segment to American Industrial Partners for $380 million. McGuire predicts more "small guys are going to go out of business and the medium guys are going to be gobbled up by the bigger companies – both on the manufacturing side and the distributor side," he says.
Talent remains a problem, especially for fastener manufacturers. While fasteners manufacturers are struggling to attract young employees, the NFDA is finding a bit more success as it aggressively pursues new means of engaging the next generation. It partnered with Young Fastener Professionals – itself a newer organization – to teach companies how to deal with millennials. "Interacting with them, rewarding them, empowering them and developing them is something that we've spent a lot of time on recently," McIlhon says. A formalized mentorship program called Advance Individuals through Mentorship (AIM) pairs younger employees in the field with fastener veterans to develop a "solid leadership pool for years to come," McIlhon says.