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
Volatility in oil and gas had a big impact on key players in the industrial sectors. Companies with high exposure to this end market – or in geographies heavily reliant on this end market, such as Texas – reported steep declines in revenue in 2015. This part of the industry is still trying to find its footing, but many signs point to a slow but positive shift in the second half of 2016.
Distributors noted in the 2016 MDM Market Trends Survey that they are looking for new markets of opportunity, but no single end market bubbled up as a target for growth among survey respondents. Options listed covered everything from aerospace to health care to gases & welding equipment. Even oil and gas was identified for future growth.
Diversification is critical for long-term success, but many large distributors are discovering that too much diversity can also be a negative. As a result, more companies are looking for ways to refine their offerings while still meeting customer needs. For some distributors, such as HD Supply, this has meant selling off divisions to focus on a core business line; for others, it has meant finding new partnerships, including master distributors. This realignment is expected to continue.
Tactical elements, such as managing costs and ensuring regulatory compliance, have overtaken strategic moves for many distributor human resource departments. This has shifted the responsibility and focus for talent to management. "(Human resources) have morphed into paper pushers, benefits experts and deadline police," noted one distributor respondent to the 2016 MDM Market Trends survey. "The trend is away from helping executives and managers recruit, develop internal talent, manage the problem children, training and safety."
Finding – and keeping – talent remains one of the most critical challenges for industrial distributors. As veteran workers age out of the workforce, the industry struggles to bring in new workers. Millennials currently make up about 26 percent of the industrial wholesale trade workforce, compared to 35 percent of the general workforce, according to the U.S. Census Bureau's Current Population Survey. Baby boomers and the silent generation still account for nearly half of the workforce in industrial distribution.
E-commerce remains a priority, as more tools become available to distributors of all sizes. "E-commerce is a very important piece of a distributor's strategy," says Todd Washburn, vice president of supplier development for NetPlus Alliance. "Most distributors need to have some online presence for product information to at least direct customers to them, if not offer a complete online shopping option."
The focus on technology investment has widened as companies start to bring IT personnel out of the shadows and into the boardroom. Distributors are still cautious adopters, but many more have embraced the value of software as a service models (or the cloud) as a way to build their technology infrastructure. And it has allowed distributors to improve how they communicate internally and externally.
New technology has also enabled better use of data throughout the distribution company. More distributors are using analytics to help them improve customer interactions, prospecting and even internal process management. Visualization tools, such as Tableau, make that data more understandable and accessible to the broader company, says Mike DeCata, president and CEO, Lawson Products, Chicago, IL.
Merger & Acquisition highlights in 2016:
HD Supply continued to streamline its operations, selling its Power Solutions business to Anixter.
Airgas' acquisitiveness was overshadowed by its acquisition by Air Liquide. The acquisition was announced in 2015 and completed in 2016.
Applied Industrial Technologies, Cleveland, OH, looked to expand its fasteners business with two acquisitions in 2015: S. G. Morris Co. and Atlantic Fasteners.
BlackHawk Industrial continued its acquisitive growth, completing six acquisitions for the year, including Packaging Inc., Pioneer Tool Supply, Jarvis Supply and Specialty Tool Inc.
Motion Industries completed several acquisition in 2015, including Oil & Gas Supply, Lake Erie Abrasive & Tool, Miller Bearings, Specialty Motions and Moss Rubber and Equipment.
Wurth Group entered into the safety products market through its acquisition of Northern Safety and Industrial.
Stellar Industrial Supply expanded off the West Coast with the acquisition of Impact Industrial Supplies in Tampa Bay, FL. The industrial distributors also made acquisitions in California and Arizona.
Get more distribution M&A news at www.mdm.com/acquisitions.
Average growth for companies on the Industrial Market Leaders list: 0.1%, primarily due to steep declines in oil and gas.