Global Fastener News

1997 FIN – Nash: Number of Distributors Declining

November 27
00:00 2013

 

November 21, 1997 FIN – “The economy is in super shape, unemployment is down, interest rates are stable, many of the companies here are enjoying stronger-than-expected sales and profits and inflation has all but disappeared, “president Tedd Nash told 4,000 attending the Specialty Tools & Fasteners Distributors Association meeting in New Orleans.
But despite the rosy economic picture, the number of distributors is dwindling, Nash said.
Nash, of Stoney Creek, Ontario-based E.N. Tool & Supply, cited Arthur Anderson estimates of 430,000 distributors in 1982, 270,000 this year and 170,000 in 10 years.
“But the reality is that 1997 has seen more mergers than any time in memory,” Nash observed. “Even our contractor customers are caught up in the action. In the last year four publicly traded consolidators bought over 100 HVAC and electrical contractors with sales totaling $750 million.”
“At best, this raises the probability that purchasing will no longer be locally controlled,” Nash warned. “It raises the possibility of major contractors bypassing distribution to purchase direct. It could mark the start of a huge change within our primary customer base.”
However, “Wall Street is excited because of what they believe consolidators can realize through economies of scale of central management,” Nash said.
In the hardware industry, True Value and Servistar merged to form a $4.5 billion Truserv, and Hardware Wholesalers Inc. took over the 900-member Our Own Hardware group, Nash noted.
“What is at stake is the possibility that the only survivors left in any distribution channel will be full-line giants or very focused niche players,” Nash acknowledged.
And manufacturers will find it tough to replace major accounts, he added.
There are not as many mergers among STAFDA distributors, but there are more business failures and fewer startups, Nash reported.

Six Years of Increases
Nash said the good news is that the majority of STAFDA distributors have posted six straight years of sales increases and an average sales volume of $9 million.
“The top 25% of STAFDA distributors are doing exceptionally well, “Nash reported. “These ‘high performers’ had a return on assets of 20.1% in 1996 and a profit-before-tax of 6.7%.” “Typical” members average only 7.5% return on assets and 2.6% pretax profit.
High performers have a higher gross margin – 35% compared with 32.6% – pay their people better, and have 20% more line items per invoice, 20% higher sales per customer and 26% more sales per SKU.

Moving Slowly on Technology
Nash said he is surprised by “how little we rely on technology compared with our distributor cousins in other channels.”
“Most members have not been causght up in the mad rush to automate. Very few of us use bar codes, even thought the majority of products we buy come in bar-coded boxes. Almost none of us are pro-active in promoting Electronic Data Interchange and most customers and vendors are not asking for it anyway.”
“The collapse of Industrynet earlier this year probably poisoned the well for now, where business-to-business catalog transactions on the Internet are concerned,: Nash said.
Though Nash encouraged STAFDA distributors to use technology, he recommended, “treading carefully in building organizational dependence on technology and not to chase every new management fad.”
“The strength of our members is to be more nimble and adaptive than the larger companies against whom we compete,” Nash said. “The simpler the better when it comes to taking care of customers. That part of our business will never change. If we stay focused on basic sales excellence and manage key assets like people, inventory and receivables, we should all be around to celebrate the new millennium together.”

Trouble at the Big Boxes
There is good news for STAFDA distributors inthat “all is not well with the ‘big boxes.'”Nash noted. Consumers complain about long checkout delays, too big and confusing, out of stock items, lack of qualified help, parking lot congestion, etc. at the D-I-Ys
“The irony is that over the years big boxes have taught customers to expect more both in service and prices,” Nash said. “Now, caught in the scramble for market share, they are paying less attention to the service aspect so critical to their early success.”
The Home Improvement Research Institute has found the percentage of customers preferring stores with advice and product information over those with merely low prices has increased 6% in the last two years to 63%.
“The convenience someone like Home Depot offers in the way of one-stop shopping, still preferred by 60% of respondents, is being nullified by the hassle factor.” Nash noted.
“If price was all it took to sell products, we’d all be driving Yugos,” Nash pointed out.
“We can prove the importance of value-added by simply analyzing our own buying habits. Why do we shop at a particular sporting goods store, or dine at a favorite restaurant, or go to a certain barber, drug store, dry cleaner, etc.? Because their prices are lower?” Nash asked. “Of course not. We go to these places because they treat us right, we trust them, they are more convenient, their service is better, they really know their products, etc. Aren’t those all the same reasons customers should prefer to buy from us? If we can stay within 7% to 10% of discounter’s prices, we can usually offset that with value-added service.” ©1997/2012 Fastener Industry News.
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