Industrial Distributors Sell Service in 2014

As 2014 began, Distribution Resource reached out to distribution executives to get some of their thoughts on what they anticipate in the New Year and what trends they are watching for.

Gallagher Fluid Seals in King of Prussia, Pa., is a distributor of seals, O-rings, and hydraulic and pneumatic packings, among other products. Company president Joe Gallagher says he hears specific demands from his customers—in most cases, requests that haven’t changed drastically over the years.

“Our customers are looking for how they can improve their warranties and provide a product that has longer life. Longer life, less downtime—that’s what we’re seeing,” says Gallagher.

Frank Cantwell, vice president of product management at Ft. Worth, Texas-based Allied Electronics, points to what he sees as a growing emphasis on distributors to be full-service problem solvers whenever possible.

“The demand on distributors to provide a complete solution to the customer across all technologies’ applications in multiple market segments continues to build,” Cantwell explains.

While some companies had a better 2013 than others, there is a cautiously upbeat outlook regarding growth and potential profits in 2014.

“Because we are a multi-product distributor, our goal is to focus on growth for all product categories.  Some will be a bit more robust than others in 2014,” says Randy Breaux, senior vice president of marketing, product management and strategic planning at Motion Industries in Birmingham, Ala. 

“The industries that have been pretty good for us this year, such as pulp and paper, lumber and forest products are primarily related to housing starts,” says Breaux. “We think these will continue to be good.”

Breaux is also optimistic about Motion’s role in the food and beverage industry as well as steel, if automotive stays strong in 2014.

As has been the case especially in recent years, customers want their inventory to be as streamlined as possible. It creates more pressure than ever on some distributors. “Bring it on” is essentially the reaction of Allied Electronics’ president Scott McLendon.

“It brings the value of distribution more into play. It’s good for us. The customer is going to need it when they need it,” he says. “As a distributor, it is one of our core competencies, having inventory available to sell in the quantities that the customers need to buy, and [getting] it to them when they need it. So the less inventory that our customers carry, I think the better for distribution.”

But he cites one important rule: “Availability is king. You can’t sell from an empty wagon.”

Moderate Growth Ahead

Many we spoke to anticipate an increase in hiring, although not necessarily a dramatic one.

“We’ll be looking at one additional person in quality, one additional person in sales, and one in the IT area,” says Gallagher. “Now, that’s not all going to happen at the beginning of the year. We’ll look to hire one in the first quarter maybe, one in the second quarter. That’s what we’re looking at.”

Since Gallagher Fluid Seals has 35 employees, he explains, “adding three is just about a 10 percent increase. So from our standpoint, that’s significant.”

At Little Rock, Ark.-based Carlton Bates (a subsidiary of Wesco International), Chris Wadsworth anticipates some additional hiring, at least on the sales end.   

“You hire where the opportunities are. We’re looking for expansion in the sales group. That’s important. If I could only hire one person [in 2014], it would be in sales,” explains Wadsworth, the company’s general manager. “We definitely look to grow our sales force this year.”

Interestingly, Wadsworth says he’s heard that some offshore manufacturing may well come back to the United States in 2014—something that potentially could also increase hiring.

“I’m hearing a lot [that] some of that is coming back to the U.S.,” he says. “We’re hoping … that you’re going to see some of the manufacturers that may have gone over there coming back—or basically if they are over there, do less [manufacturing] over there and more over here.”

Not that overseas manufacturing as we know it will end, he cautions.

“Now, that doesn’t mean everybody’s going to shut their doors and come back,” Wadsworth says. “But I think we’ll see more [product] built closer to the customer, which means U.S. for U.S. We feel that the trend is going to be coming back to the U.S.”

At Motion Industries, Breaux says that while new hiring will be connected to business growth, the company will also need to fill openings created by retirements.

“We will certainly add people next year to replace those who are retiring,” he says. “We plan to replace them with experienced, dynamic people and keep up with the pace of retirement.”

As far as anticipating growth in 2014, most are reasonably upbeat on their prospects.

“We see [2014] as being another challenging year for distribution.  I think we will see the industry grow in the low to mid-single digit range.  And we’re planning accordingly,” Breaux says. “However, like everyone else in this business, we are ready to see the economy pick up and get back to growth levels higher than that sooner rather than later.  We remain optimistic that this will be the case.”

Allied’s business grew by about 4 percent in the first half of the current fiscal year that ends in March, McClendon says.

“I do expect that our growth will accelerate in calendar year 2014,” he says. “But it’s not going to be any huge double-digit growth or anything like that.  We will be in that mid to high single-digit outlook for 2014. I haven’t heard a supplier yet that is coming out and saying they’re going to grow 20 percent next year. They’re all pretty much in the same range of somewhere between 4 and 8 percent.”

At Carlton Bates, Wadsworth’s thoughts are in line with what Breaux sees at Motion.

 “We poll our suppliers and the feedback from those guys was low single digits, 2, 3, 4 percent. We had some people predicting growth at around 10 percent. No one predicted a down year, which was good,” Wadsworth says. “We’re going to put plans together to hit high single digits. And we feel confident we can do that.”

For all the projections and cautionary tales distribution executives can tell, some things never change. Wadsworth could be summing up the business philosophy he and his colleagues will follow in 2014.

“At the end of the day, it’s really about taking [market] share. We all compete with each other for similar pieces of business, similar industries,” he says. “And you’ve got to carve out your value proposition and basically sell.”