Thursday, April 25, 2013

Don't Let the State of the Economy be an Excuse

The State of the Economy – a down and dirty analysis

Everybody always wonders how the economy is impacting business.  The topic comes in Numero Uno in the cocktail chat at most distributor association meetings.  No distributor to distributor phone conversation excludes the topic.  We are in some uncertain times.  In general I have heard stories of great Januarys followed by pathetic Februarys or some permutation of the story.   

Privately held distributors often won’t provide sales data for the record and sometimes exaggerate when asked.  Yet I believe most of us are still interested in what’s going on.  With this point in mind, we thought about providing a short recap of the publically held companies in our sector.  They are required by law to report sales so the information is real.  While there is a difference between their business model, territory and scope, I think it gives us a subtle insight into the economy.

Grainger
Up 4% compared to the same period in 2012.  This is a difficult number to contrast as Grainger is in a constant state of expansion in products and territories.  Here is an interesting little tidbit for distributors out there. The company's gross profit margin increased 0.8 percentage points to 45.2 percent versus 44.4 percent in the 2012 first quarter, primarily driven by the United States segment.”   If your team is dropping their prices because of price competition from Grainger you better inspect the data.

Fastenal
Sales growth of 4.9% with the highlight announced… “during the first three months of 2013, we installed 4,352 new machines.”   We took a tongue in cheek look at this vending machine thing here.

AIT – coming May 2nd

Motion Industries
Down 2%  (EIS – their sister electrical supply division was down 5%)

Wesco
Up overall, but organic sales were down 3.4%.  Using some hocus-pocus of numbers of days in the quarter and other stuff for the financial world, they are saying down between 1.8% and 2.2% let’s just say down 3.4%.  For those of you wondering about gross margin at Wesco here is what they reported.

Gross profit of …. 21.1% of sales, for the first quarter of 2013 improved 120 basis points compared to 19.9% of sales, for the first quarter of 2012.

We believe the gross margins of these companies are trending upwards as they apply more sophisticated pricing process to their business.  If your organization does not have a similar plan, we recommend you give us a call.  We are not in the pricing business – but we have studied it pretty thoroughly and have some recommendations for you.

A final note: What does this have to do with on-boarding?

The answer is probably nothing.  However, we feel you should share this information with your new sales guys.  There are two messages. 

First, if you are a knowledge-based, value creating distributor you should be outperforming these national players.  Why?  Well for one thing you are most likely doing more for your customer.

Secondly, gross margins are going up.  Distributors are making more money.  And, my guess is none of their customers are sharing that message.  They need to hear it from somebody.  You are hearing it from me.


As a footnote – these guys are not distributors but since a number of the distributors subscribing to this series serve the automation and electrical space.  And, because they enjoy such a large marketshare in the US it might be good to note this comment from the Rockwell Automation Quarterly announcement - Rockwell said U.S. sales rose 2.5 percent in the quarter.

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