The Outlook for Wholesale Distribution in 2013 A Survey of Key Business Objectives and Challenges Among Wholesale Distribution Companies in partnership with
Executive Summary By far, the economy was the biggest concern for distributors in the 2012 survey from NetSuite in partnership with Modern Distribution Management. Other key concerns included: margin erosion, tax issues, employee recruitment and retention, the impact of e-commerce on the brick and mortar model, Obamacare and the consolidation of the industry. The presidential election of 2012 in particular had a profound impact on investment in the second half of the year, with many companies saying they would put off hiring new talent or expanding into new geographies until after the election. Overall, distributors across sectors expect more moderate growth for 2013 as compared with expectations in the fi rst half of 2012. The 2013 revenue outlook for distributors is 3.4 percent growth. But while we ve certainly seen ups and downs over the past couple of years, distributors now have an increased focus on using technology to build effi ciencies and grow profi ts in 2013. Technology has leveled the playing fi eld for many small and mid-sized distributors who are looking to expand their reach through e-commerce and gain better visibility to target the right customers for growth. And this year s survey shows more distributors are considering newer technologies, such as cloud solutions, for their business than last year. This report highlights these trends and what distributors are planning to do in the new year to stay ahead of the curve in a challenging market. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 2
Methodology The economic outlook for wholesale distribution included on pages 4 and 5 come from MDM s quarterly distribution survey in collaboration with Robert W. Baird & Co. That survey includes responses from more than 500 distributors and manufacturers across distribution sectors. Learn more about that survey at mdm.com. The remaining survey results presented in this white paper are the result of an online survey of readers from Modern Distribution Management (www.mdm.com). Modern Distribution Management is the premier source of research on the wholesale distribution industry and offers news, blogs and premium newsletters to executives in wholesale distribution businesses or that sell through or to wholesale distribution businesses. This NetSuite survey was completed in October 2012. More than 150 respondents in wholesale distribution and manufacturing responded to the survey, with most identifying as wholesaler-distributors. Nearly 80 percent identifi ed as a manager or above in their companies, with 42 percent being the owner or the executive of their companies. Size distribution of respondents was diverse with 12 percent of respondents with less than $2 million in annual revenues; 21 percent with $2 million to $10 million; 31 percent with $10 million to $50 million; 20 percent with $100 million to $500 million; and 15 percent over $500 million in annual revenues. Sector representation was also diverse, with Industrial coming in as the largest with 63 percent of respondents. Respondents could name more than one sector, so totals will not equal 100 percent. Other sectors represented by respondents include Safety Products (37 percent); Electrical & Electronics (28 percent); Building Materials & Construction Products (27 percent); Janitorial Supplies (23 percent); and HVACR/Plumbing Products (20 percent). Others included Pulp and Paper, Grocery and Foodservice, Oil and Gas Products, Pharmaceutical, Chemicals and Plastics, and Consumer Products. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 3
Growth Outlook Distributors have lower expectations for growth going into 2013, as compared with past survey results. Distributors expect revenues to grow 3.6 percent in 2013. The annual forecast is less than what respondents predicted in MDM s second-quarter distribution survey, when they said they expected 5.2 percent growth in 2013. In line with lowered expectations, about a third of respondents expected to decrease inventories in the fourth quarter 2012. One reason for the caution: the election. Forty-four percent of respondents to the MDM- Baird survey said they had deferred business decisions until after the election, including hiring and investment spending. 4Q12/2013 Revenue Outlook for Distributors: +2.4%/+3.6% Source: Third-Quarter MDM-Baird Distribution Survey 2013 NetSuite The Outlook for Wholesale Distribution in 2013 4
Sector Breakout The greatest increase in revenues is expected by cutting tools businesses in 2013, with expectations of 8.1 percent growth. Janitorial/sanitation distribution reported an outlook of 7.8 percent growth in 2013. Fasteners and rental equipment segments were next in line, with expectations of 7.5 percent and 7.3 percent growth, respectively. The weakest sectors in the 2013 outlook were building materials (+1.7 percent), welding hardgoods (+1.7 percent), PVF-industrial & energy (+0.7 percent) and roofi ng (+1 percent). Some segments such as PVF-industrial & energy have been affected by pricing, negatively impacting overall revenue growth. 2013 Revenue Outlook for Distributors by Sector Sales Forecast: 2013 vs. 2012 Cutting Tools 8.1% Jan/San 7.8% Fasteners 7.5% Rental Eqmt 7.3% Plumbing 6.1% Gases/Cylinder Rental 5.1% MRO 4.3% Mech/Power Trans 4.2% Safety 4.1% PVF - Water/Sewer 3.1% Pool & Spa 2.8% Electrical 2.4% HVAC 2.1% Datacomm 2.0% Building Materials 1.7% Welding Hdgds 1.7% Roofi ng 1.0% PVF - Ind/Energy 0.7% Overall 3.6% Source: Third-Quarter MDM-Baird Distribution Survey 2013 NetSuite The Outlook for Wholesale Distribution in 2013 5
Key Business Priorities Revenue growth topped the list of business priorities for companies again this year, with 55.1 percent of respondents. This was followed by increasing profi tability (53.6 percent) and customer retention (45.7 percent). Inventory management and employee training were also top priorities for many of this year s respondents. While the fi rst three priority items track closely with last year s survey results, reducing business costs fell in the results to No. 6 from No. 4, indicating a desire to improve effi ciencies rather than slash expenses. Many distributors are looking to avoid adding new resources even as markets continue to improve. But concerns over slowing revenue growth and rising costs are contributing to distributors desire to build on the bottom line. What are your top business priorities for the next 12 months? Revenue growth Increasing profi tability Customer retention Better inventory management Employee training Reducing business costs Reducing paperwork, data entry, etc. Better visibility Improving supply chain communication Improving cash fl ow 20% 40% 60% Respondents were asked to choose three. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 6
Plans for Building Revenue The most common way distributors are planning to grow revenue in the next 12 months is by selling more to existing customers (55.8 percent), whether it be products they sell now or by expanding into new product areas such as safety or janitorial supplies. As one respondent noted: By improving inventory, our existing customers can purchase more from us, and we can eliminate the need to go to other distributors or channels. Last year s survey revealed a similar approach by many distributors, with respondents prioritizing existing customers and new product groups over new geographies. As with last year, e-commerce continues to be a big growth area for many distributors large and small in the coming year. Thirty-fi ve percent plan to improve their e-commerce capabilities to drive revenue growth in the next year. We need to make it easy for people to do business with us the way they want to, a distributor explained. How are you planning to build revenue over the next 12 months? Growing revenue from existing customers Adding new products or categories Improving e-commerce capabilities Adding new sales channels Expanding sales team Improving product availability Adding new geographies/ territories Adding new locations Expanding internationally 20% 40% 60% Respondents could choose up to two. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 7
Plans for Cutting Costs Productivity was the name of the game in this year s survey. Rather than lay off staff or cut salaries as we saw in 2009, distributors are now more focused on getting more out of the resources they have (59.4 percent). This continues a trend we saw last year. Employee costs have been cut to about bare bones, wrote one respondent to the survey. One way to do this is to streamline or automate processes, noted by more than 50 percent of respondents. We are working to make better use of our employees time, helping them to prioritize and be more focused on how they spend their time, said one. Another wrote that they are working with vendors to fi nd better ways to buy product and reduce physical cost and handling. As a strategy, reducing transportation costs was noted by fewer respondents in this year s survey (less than 20 percent) than in 2011 (36 percent). Minimizing inventory investments was also noted by fewer than 20 percent this year, compared with 29 percent last year. How are you planning to cut costs over the next 12 months? Improving employee productivity Streamlining/automating processes Reducing product costs Reducing overhead No plans yet Reducing transportation costs Minimizing inventory investments Outsourcing Cutting IT budgets Laying off staff 20% 40% 60% Respondents could choose all that applied. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 8
Technology Plans The top four technologies distributors are considering in the next 12 months is consistent with last year s results. E-commerce and Customer Relationship Management (CRM) technologies were each noted by 44 percent of the survey respondents as priorities in the next 12 months, roughly equal with last year. Cloud computing and mobile for sales were chosen by about a third of respondents each. Fewer distributor respondents (20 percent) are interested in Warehouse Management Systems (WMS) than last year (24 percent). The desire to improve effi ciencies in the sales process seems to be driving the desire to explore these technologies over the next year. One distributor wrote in the survey that they are looking at these technologies due to customer desires for easy access to information as well as more effi cient procurement processes. Another said: Mobility in sales will help drive sales to us from our customers that need something from a job site, or when they are not in their offi ce. Which new technologies, if any, do you anticipate exploring in the next 12 months? E-commerce Customer Relationship Management (CRM) Mobile for sales Cloud computing or SaaS Pricing Warehouse Management Software (WMS) EDI Other Demand planning Finance/accounting software 10% 20% 30% 40% 50% Respondents could choose all that applied. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 9
What is your timeframe for upgrading technology in your business? By the end of 2013 In the next 2 years More than 2 years No plans to upgrade technology Already in process Which of these devices do you use in your business? Laptops Smartphones (iphone, Android, Blackberry) Desktop computers ipad Other tablets 20% 40% 60% 80% 100% Respondents could choose all that applied. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 10
Cloud Computing More than 40 percent of respondents view Software as a Service, or cloud computing, as a potential fi t for their businesses, up from less than 30 percent in last year s survey. This indicates an increasing acceptance of the benefi ts of cloud computing for small and midmarket distributors across industries. And about a third are unsure of the benefi ts of cloud computing, fewer than last year. Respondents noted the following benefi ts of using cloud-based solutions for their businesses: Reliable backup Flexibility Accessibility Ability to outsource non-core business Improved communication Less administration Better data storage Ability to ramp up quickly when needed Are you interested in cloud computing as an option for your business? No I don t know Yes 2013 NetSuite The Outlook for Wholesale Distribution in 2013 11
The NetSuite Wholesale Distribution Edition The NetSuite Wholesale Distribution Edition is the only cloud-based integrated business suite designed expressly for wholesale distribution. It gives WD businesses a complete, web-based suite that allows them to: Get complete information by monitoring and managing their businesses with the ultimate customizable business dashboard, featuring built-in best practices for wholesale distribution. Convert leads to orders, orders to shipments and shipments to revenue with NetSuite s advanced warehouse, inventory management and order fulfillment capabilities. Gain a real-time, 360-degree view of customers and provide better customer service through NetSuite s seamless integration of CRM with fi nancials and other back-offi ce systems. Grow revenues, enter new markets and improve channel partner engagement with tools for partner relationship management (PRM) to expand your sales presence. Manage webstores and online business with NetSuite s e-commerce solution, tightly integrated with accounting, fulfi llment, inventory, CRM, PRM and more. Leverage demand planning to optimally manage inventory seamlessly. For more information, please visit www.netsuite.com/wholesale. 2013 NetSuite The Outlook for Wholesale Distribution in 2013 12