Wholesale Distribution Industry Overview

With annual sales of about $6 trillion, the US wholesale distribution industry now includes about 300,000 companies. For the period between 2010 and 2015, the output of the US wholesale distribution industry is forecast to grow at an annual compounded rate of 6 percent. A respected industry overview cited the industry’s growth over the last decade as having been ‘above average’ as compared to other industries. If this sounds less than enthusiastic, here’s the reality check they provide: during that 10-year period, while distributor revenue grew nearly 50% - with computers, electrical goods, and machinery leading the pack - retailers showed 40% growth, and the US economy saw 30% growth. Considering that the decade in question included the ‘ugliest financial disaster since the Great Depression,’ and that the US economy still managed to show 30% growth on average, we’d say ‘above average’ works well enough.

According to current information, of four primary wholesale ‘industry indicators,’ three look to be positive. These include: total US wholesale sales (up 14.6% in June 2011 compared to June 2010), US tourism spending on all tourism goods and services (impacts wholesale revenues and increased 7.8% in Q1, 2011 vs. 2010) and total US manufacturers’ shipments (rose 11.6% in the first six months of 2011, compared to the same period the previous year). Not-so-positive is the fourth indicator: The average US retail price for diesel and regular gas rose 28.7% and 31.3% in the week ending 8-15-2011, compared to that same week in 2010.

In addition to ‘strong growth,’ three additional industry trends include, increases in labor productivity - in spite of labor fluctuations including the recession when jobs fell 6% - due to efficient logistics and sophisticated computer systems, industry consolidation to take advantage of economies of scale in purchasing power and transportation, and finally, more international suppliers due to low freight costs and prices for some foreign goods; this strong, pre-recession trend is expected to resume going forward.

Industry opportunities that recur in comparative reading include, internet sales possibilities for distributors who can develop online catalogs to extend their markets beyond traditional limitations, logistics services potentially offered to customers for inventory management, just-in-time delivery and fulfillment services, and, the additional revenue to be realized from adding processing services for appropriate industry segments where materials can be further manipulated to fill manufacturers’ or possibly other distributors’ needs, or individual products can be pre-packaged into specialized groups prior to shipment to retailers or other distributors, etc.

Challenges to the wholesale industry, in addition to fuel prices, include three key items: competition from manufacturers and large retailers who bypass distributors by selling directly, the impact of fluctuating interesting rates upon already-tight profit margins, and the fact that distributors’ businesses tend to be impacted by the economic conditions of the geographic areas they serve. While we’re on the subject of geography: challenges to international growth for wholesalers include the logistical concerns that go with multiple locations as well as the integration of records, orders, etc., and the increasing need for heightened and more highly sophisticated security. These concerns are mirrored for foreign sources of supply to US manufacturers and distributors, also.

Import / Export issues are in industry news. (Key markets for US exports are Canada, Mexico, China, Japan and the UK.) Notable new info in this arena – outside of the troubles in Japan – includes: First, Canadian wholesalers lost almost 10% in operating revenue in ’09 vs. ’08 due to the economic meltdown. Canada’s previous trajectory showed consistent growth since ’03. Second is this more recent development: The two-year US/Mexico trucking dispute has been resolved, allowing US wholesalers whose goods move by truck to Mexico relief from over $2 billion in Mexican penalties over 100 categories of our exports. Mexico had imposed sanctions after the US stopped freight deliveries by Mexican drivers coming in to the US due to safety concerns. Interesting statistic – roughly 70% of NAFTA imports / exports move by truck.

In terms of what pundits call the competitive landscape, tech vendors take note: While technology is helping the wholesale distribution industry increase efficiencies to improve its bottom line (inventory management and order fulfillment for example), technology is also helping manufacturers and retailers looking to rob business from distributors by improving supply chain efficiencies. The distributor/manufacturer/retailer dance gets more complex as distributors work to increase revenue by adding services that are helpful for - and billable to - manufacturers and retailers, in addition to net-new logistics services for clients and possible independent online catalog sales… Increasing complexity with technology as a key enabler.

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