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In “Out of the Fire,” a feature article in the upcoming issue of Electrical Wholesaling, industry consultants Neil Gillespie and Allen Ray outline a recovery strategy for electrical distributors based on an extensive survey of distributors' growth strategies. Following is an excerpt of this article, which is part one of a three- part series in EW.
We recently surveyed senior executives at distributorships in multiple distribution channels about how they made it through the recession and what they need to do now. Distributors want to dig out of the rubble, but they are reluctant to invest in growth until the national economic picture clears up. We suspect they would rather be sure about the devil they're dealing with before betting the farm again. A few respondents looked like they were on to something, and were looking at their businesses as a number of niches. There's hope in that line of thinking, and we will build on that in this series.
We surveyed distributors, (primarily owners and C-level management) from industrial, electrical, safety, HVAC and several other trades and received a good representation of responses from each channel. They provided their sales and market performance variances from 2009 over 2008, and we further divided these into good performers (-5 percent and better) and poor performers (-20 percent or worse). We discovered 10 major trends in their responses:
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Past growth was largely artificial, and the new planning baseline is -20 percent or worse.
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Distributor reactions were primarily defensive.
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Gross-profit percentage, inventory turns and receivables performance slipped a bit, but net profit slipped a lot.
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Good performers tended to be realists, not unbridled optimists.
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Good performers looked deeper and in more places for answers.
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Good performers cut more salespeople.
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Everyone is afraid of “the weather” (the direction of the nation).
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With growth opportunities, the usual sources won't deliver, and the new sources are still suspect.
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Distributors need to broaden their growth horizons while improving productivity to turn gross margin into profits at an increasing rate.
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Manufacturers executed their usual tactics to curtail expenses.
We also discovered good performers cut more salespeople and that distributors have issues growing on multiple fronts. The old sources of growth probably won't deliver this time, so everyone will have to look in different places.
— By Neil Gillespie, Shamrock Growth Associates, Knoxville, Tenn. & Allen Ray, Allen Ray Associates, Kennedale, Texas
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