Looking Towards 2010

We wanted to title this “Looking Forward to 2010”, however, we debated on the word “forward” given the forecasts that we’re seeing. Consider:

• “There is so much uncertainty about the first half of next year that until you have a sense about the momentum in the first quarter there will be reluctance to do anything.” Laurence Meyer, vice chairman of Macroeconomic Advisors LLC and a former Fed governor said in a WSJ article.
• In meetings with clients over the past couple of weeks:
• New housing starts are forecasted at 675,00-750,000, and the client, who is residentially focused, doesn’t expect starts to exceed about 1.2-1.5 million for the next 5 years!
• According to Green Street Advisors, 2010 apartment starts are expected to be 98,000, down from 204,000 in 2009; 188,000 in 2008 and projected at only 109,000 in 2011. And another report puts 2010 completions at only about 64,000!
• In reviewing electrical industry data with a client, within their territory, 2013 electrical sales are projected to be below 2008 electrical sales in all market segments. Presuming that there will be some inflation during the next 4 years and commodities will increase, this means less units sold.
• Another client sees only federally funded projects occurring in their market
• The lead story in today’s WSJ is entitled “Jittery Companies Stash Cash”, with cash at 11.1% of assets. This means many companies have cash to invest, or may be waiting for greater economic clarity.

We’re hearing from clients that some banks only desire to fund new inventory and/or A & B items, recognizing that new inventory and fast movers are more representative of a businesses success. C and D items may have no, or limited, inventory valuation.

Some distributors are concerned that continued losses will break their loan covenants, creating sticky conversations with their bankers (and possibly increased lending costs).

It’s a murky market, but there are opportunities. Companies need to:

• Evaluate their cash position
• Move towards profitability (banking conversations are easier when they see progress)
• Have a plan to be profitable (here again, banks need confidence in order to invest)
• Improve productivity and throughput … do more with less
• Re-evaluate relationships (distributors with manufacturers and vice versa to ensure that they are mutually beneficial and profitable)
• Identify niches where there are growth opportunities (there are some in every market)
• Consider how you can focus your resources to take profitable share in your core business

And while much data is national, remember, the electrical industry is a local business. Every market is different. What are you “feeling” for 2010? What metrics are you considering?