While we know the construction market is down, here’s more confirmation that distributors that are heavily skewed to construction markets are having a hard time.
The last two days have reinforced the residential market troubles.
- New Housing starts down 12.4% to an annualized rate of under 250,000 home
- Existing home sales plunging to 27.2% in July, down to an annual rate of 3.83 million.
Everyone knows the residential market is down, hopefully we’ve hit its depth as many small distributors have been hurt due to the resi-market and larger companies like Graybar, that were involved with track builders, have also experienced significant declines. The only foreseeable hope for resi-oriented distributors is the remodeling market (but that means competing against Home Deport and or Lowes).
Graybar has also been heavily focused on new commercial construction and datacom, targeting contractors ( and union shops as evidenced by their frequent advertising in Electrical Contractor magazine). Other markets that have experienced significant declines.
Graybar’s ResultsFor 2010’s first six months. Graybar reported $2.13 billion in net sales, down less than $48 million from one year earlier. Q2 net sales, at #1.13 billion, were up $9.3 million (8%). to $1.13 billion. So they are down versus 2009 for the year, but up a little for the second quarter.
Yes they reported a 14% increase in net income, however, that is momst probably cost reductions (branch closings, recognition of personnel cuts in 2009 and other cost savings.)
- They have been hurt re: commercial new construction as well as the residential market
- Their focus on datacom hasn’t made up what they are down-on the contractor side of the business most probably because they have historically focused on selling these to contractors and for new construction (and not the MRO business).
- They haven’t been as successful as many others regarding energy and renewable initiatives.
- While they have trumpeted government contracts, the business generated isn’t enough to replace the contractor business or they are not capitalizing or capturing the spend.
To illustrate the point, many distributors followed the same path of chasing new home construction and new commercial construction and didn’t seek to diversify fast enough (or maybe it wasn’t their sales philosophy). We’ve reported about various other distributors, such as WESCO, that focused their efforts on industrial and utility markets. Many who became exposed to the energy efficiency segment or niches like renewables or natural gas have also prospered. As you plan for 2011 and beyond, investing in diversification maybe one of the few ways to achieve sustainable growth and profitability.
But the real problem is not measuring against 2009 sales, but understanding where your company is in relation to 2007/2008 sales (before the bubble burst). The long road to recovery may mean that large corporations will retreat from market areas (geographically and customer segments), which invites independent distributors to seek markets that are under served by the retreating national.
Are you diversified? How are you experiencing the results of diversification or allocating resources to niche market segments? And as a manufacturer, to see national chain performance being stagnant (Rexel, Graybar, possibly others), where are you focusing your energies or are you following the herd?
But size does matter. According to Robert Reynolds Jr, chairman, president and CEO, “Because of the company’s strong financial position, we can continue to focus on working to the advantage of our customers and expanding our presence in key markets”. How strong a position? The company’s June 30 balance sheet shows a six-month increase of $69M in merchandise inventory ($378M).Long term debt is $73.5 Million, down from almost $81 million six months earlier.
9 Comments
What you are saying is that most of us are benchmarking against the wrong year.
Wow, if makes for a much different figure….we are not any where close when we look back to same figures in 2007.
That is an eye opener!
Thanks for the tip.It will be a long road back.
Independent Distributor in the greater ST. Louis area.
Fellows this is a good post.
WOW is right!….That does give me a more realistic view of where my company is at. While it is depressing…it gives me a more accurate view.
I’ve been kidding myself.We have a ways to go to actually get back to where we were at in late 2007.
Distributor in the South East
Diversification is great and important, but equally or even more important is during these tough economic times is making sure you’re treating your people right. Business is conducted by PEOPLE and it’s a fact that people perform better when they’re treated fairly, with respect and dignity. Some managers get overwhelmingly focused on the “business” during economic downturns that they tend to ignore (or mistreat) their employees who, coincidentally, are the ones responsible for their organization’s own survival.
Unhappy employees leave bad managers. Employee satisfaction and loyalty is at an all time low right now and putting many businesses at risk. In work environments that were marginal in the good times, situations are exacerbated by bad managers who don’t know how to treat their people. There is a tremendous number of impending departures right now – and they’re on the rise. Where employees stayed with their employers in 2009 due to the perception of the job market, in 2010 their pain is beginning to exceed their risk threshold. This is causing many employees to start earnestly looking elsewhere and they are finding new jobs. Start watching your voluntary departures; it’s likely that they will trend upward for the next 18 months or so.
Satisfied, committed, and loyal employees are the key to satisfied and loyal customers. When employees are truly “engaged”, it is contagious to your customers. Loyal customers contribute to profitability through repeat purchases, higher share of spend, referrals (internal to their organization and external), openness to new products, first call, last look, etc.
Employee satisfaction and loyalty leading to customer satisfaction and loyalty quite possibly may be the number one untapped mine for wholesale distributors. As they say, it takes more effort to acquire a new customer than it does to keep an existing one – diversity is great, but truly taking care of your employees can result in deeper penetration and enhanced profits where you already are doing business.
Understanding our core business has been important us for some time. We really want to maximize our base business and at the same time reach out other markets that we can sell efficiently with maximum gross profit.
Your observations about nationals retreating is right on. We have seen opportunities even before they retreated. Some of their operations were marginal at best.
The beauty of nationals retreating is that some really good people become available.
Gee, Graybar actually admitted they stubbed their toe. Good for them. It actually proves what I have always believed and that is they really may have to act like everyone else…..instead of being so down talking.
Fellows (Allen) this observation about diversification is a good.As you probably know it takes cash for new ventures…we are trying work on that issue right now. Do you’ll have any suggestions?
Great comment about employees being engaged. In this economy, it’s the people that will make the difference in your business. Great post, great comments.
Just an observation about Graybar: Good people but a very sloppy operation. People cost alone causes them to spend more money than the average distributor does. Makes you wonder where they get all that money to carry their operations.
But then they probably made it up when they went SAP as a ERP system…….don’t think so.
SAP + sloppy operations + people cost probably are the reasons why they went out to sell some more stock.
I disagree somewhat with benchmarking yourself against the 07/08 year. My company is totally different from its’ former self. We have reduced our personnel, shifted our market focus slightly to capitalize on some local trends and reduced our inventories greatly. I do not expect the local economy to ever get back to the exaggerated levels of 07/08. We as a company, believe it is in our best interest to base all growth and operating strategies upon our current levels and modest forecasts of the the next two years. It is important to review the past, 07/08, and do a one time comparison so we lean from the mistakes and triumphs, but to continually benchmark yourself against a bloated figure such as that can make your planning unrealistic and somewhat depressing. Study the past, plan based upon the current conditions and move on.
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