The 2008 Slowdown

The non-profit NAW Institute for Distribution Excellence just released my 2008 Wholesale Distribution Economic Reports, so it’s a good time to check up on the economic situation facing the wholesale distribution industry.

A WORD FROM OUR SPONSOR

I created these reports to help executives, analysts, and investors better understand the wholesale distribution industry. Each of the 19 separate Wholesale Distribution Economic Reports supplies a wealth of detailed channel benchmarking data for 112 sub-sectors of the wholesale distribution industry including: revenue and employment growth trends; the number and size distribution of companies; gross margins; wages; and many other operating statistics. All data are presented using a single, internally consistent format to permit direct comparisons among the sub-sectors. I also include a discussion of key economic trends related to the sector.

Here are direct links to the four most popular reports:

Industrial Distributors

Building Material and Construction Wholesale Distributors

Hardware, Plumbing, and Heating Equipment and Supplies

Electrical and Electronics Wholesalers

A YEAR OF VARIATION

Revenues of wholesaler-distributors grew by 8.6% in 2007, marking another year of strong overall performance. However, the performance of individual sub-sectors varied more than in previous years due to the distorting effects of price changes. The chart below shows the final revenue growth figures for 2007 in the 19 major industry sectors. (Click the chart to enlarge.)

The ongoing surge in commodity prices – especially food, metals, and oil – continues to ripple through wholesale distribution and the supply chain. For the first time in recent memory, grocery and foodservice wholesalers posted double-digit revenue gains, although growth is much more modest when adjusted for price changes. U.S. citizens are findings their budgets squeezed due to food and fuel inflation while poorer countries are facing societal disruption due to food prices. The Wall Street Journal reported on Monday that soaring food prices have led to rioting in Egypt, Cameroon, Ivory Coast, Senegal, and Ethiopia.

In 2005, the revenue-boosting benefits of product price inflation benefited wholesaler-distributors of building materials. But today construction materials are undergoing the painful process of deflation, which wreaks havoc with a wholesaler-distributor’s income statement. Some sectors are actually shrinking after revenues are adjusted for price inflation.

2008 AND BEYOND

Looking ahead, growth in the wholesale distribution industry will moderate in 2008 as the U.S. economy slows down or even enters a recession. I agree with The Economist magazine (The Great American Slowdown), which reckons that the recession may not be particularly severe but that the recovery could take longer than usual until growth resumes.

As I warned last December in my 2008 Economic Outlook audio conference, the residential construction boom will take at least a few years – not a few months – to unwind. Both home sales and residential construction activity are unlikely to rebound until mid-2009 and possibly later. Overall manufacturing activity has entered a cyclical downturn although pockets of strength remain. Export growth is accelerating and will cushion selected sectors.

Check out Strategies for Surviving a Slowdown, which has the (unfortunate) distinction of being my most popular post. If you purchase any of the 2008 Wholesale Distribution Economic Reports (hint, hint), please drop me a line and let me know what you think.