Behind the Numbers: 3 Factors Driving the Results of the Top Industrial Distributors

Transcription

1 Behind the Numbers: 3 Factors Driving the Results of the Top Industrial Distributors Highlights from the 2017 MDM Market Leaders lists Modern Distribution Management and mdm are registered trademarks of Gale Media, Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call

2 Table of Contents 1. E-Commerce 3 2. End Markets: Energy Slump 7 3. Mergers & Acquisitions 12 Additional Resources 15

3 1. E-Commerce: Rapid Growth, Big Investments

4 E-Commerce: Rapid Growth Sales through e-commerce* channels are growing more rapidly than overall sales for the largest distributors, including Grainger, which continues to invest in and prioritize e-commerce. Sales through e-commerce now make up nearly half of Grainger s sales and nearly 60% of MSC s sales. Sales Change: 2015 to 2016 Overall E-Commerce* Grainger (#1) 2% 16.4% HD Supply (#2) 4.4% 5% MSC Industrial Supply (#9) -1.6% 4.2% *E-commerce includes traditional online sales, as well as EDI and other electronic channels.

5 E-Commerce: The Need for Speed While some of the top distributors maintain a clear edge over the competition with their e-commerce presence, some, like Wolseley and Applied, have recognized the need to invest more heavily to offset losses in other channels. E-commerce now accounts for 20 percent of sales for Wolseley (#16, soon to be rebranded Ferguson) and is continuing to grow faster than the distributor s other channels. This year, we are going to step up our brand building with the further $11 million investments, Wolseley CEO John Martin said. Fresh off a disappointing fiscal 2016 that saw sales decline 8.4 percent and profit plummet 74.4 percent, Applied Industrial Technologies (#10) is looking to regain its footing with a new website designed to give customers a "better user experience," President and CEO Neil A. Schrimsher said. That website has since launched at applied.com.

6 E-Commerce: Must-Read Resources MDM Special Report: The 2017 State of E-Commerce in Distribution: An annual benchmarking report tracking the adoption and impact of e-commerce in wholesale distribution. It also provides next steps for distributors of all sizes based on 2017 results. Selling to the Next Generation: More millennials are in B2B buying positions, and they shop and buy differently than preceding generations. This article examines those changes and how to adjust to meet these new demands. MDM Special Report: The Sales Gorilla in the Room: How customers buy is challenging the traditional role, function and purpose of the distributor field sales position. In light of this shift, this series focuses on the future of field sales, including its role, function and purpose for the successful distributor. More on e-commerce can be found at mdm.com/topics/20151-e-commerce

7 2. End Markets: Energy Slump

8 End Markets: 2016 Oil & Gas Effect Overall, sales growth among the largest distributors in 2016 was anemic. Oil and gas in particular was weak, causing double-digit declines for distributors serving those markets. Sales Change: 2015 to 2016 Overall MRC Global (#7) -32.9% DistributionNOW (#11) -30% DXP Enterprises (#19) -22.9%

9 End Markets: Oil & Gas Rebounding in 2017 Distributors that were hit hardest by the oil & gas slump find reason for optimism this year. Oil and gas, which is the remaining 49 percent of DXP (#19), found a bottom in the third quarter of last year and is showing signs of gradual improvement, said David R. Little, CEO and chairman. For the first time in two years (as of May 2017), Applied Industrial Technologies (#10) reported sales to customers in the oil and gas sectors increased and significantly at that, growing 51 percent year-over-year. The divestiture of our oil country tubular goods product line is the culmination of our strategy to reduce our exposure to upstream drilling volatility and to focus on growing our higher margin product lines, particularly our valve, valve automation and instrumentation business, Andrew Lane, MRC Global (#7) president and CEO, said.

10 End Markets: Must-Read Resources MDM-Baird Quarterly Distribution Survey: Robert W. Baird & Co., in partnership with Modern Distribution Management, conducts a quarterly survey of more than 500 distributors and manufacturers to gauge business trends and the outlook for the distribution industry in diverse sectors. Here is a summary of fourth-quarter 2016 results and first-quarter 2017 data Distribution Trends Report: Get original, research-backed insight into trends affecting the distribution industry, including end-market health and the impact of pricing. The Trends Report also provides a look at how distributors are strengthening their businesses to fight back against ups and downs in the economy. More on economic trends can be found at mdm.com/economy

11 3. Mergers & Acquisitions: A Flourishing Market

12 M&A: Challenging the Status Quo Consolidation continues to pick up across distribution sectors, and in the past two years, we ve seen deals that have shaken the status quo, including Air Liquide acquiring Airgas and Lowe s entering the B2B space with a series of acquisitions. Initially it could be a unique opportunity to increase market share and establish advantages for our customers to work with independent distributors. Ultimately, however, the pendulum will swing back to price pressure, a respondent to the quarterly MDM-Baird survey said on the potential impact of the deal.* *Source: MDM-Baird Distribution Survey The move to acquire Maintenance Supply Headquarters by Lowe's this year is just the latest in a string of big-box store acquisitions. In February 2016, Lowe's announced it would acquire RONA Inc., a Canadian retailer and distributor of hardware, building materials and home renovation products. And then in November, it acquired Central Wholesalers, an MRO distributor in the Mid-Atlantic and Northeast.

13 M&A: Focus on the Core While each month brings multiple deals in the distribution industry, some of the largest distributors on the MDM Market Leaders lists are focused more on divestment than acquisition to hone their focus and sharpen their bottom lines. Over four years, HD Supply has shed several of its divisions, large and small, to key in on its facilities maintenance business. Before 2012, the distributor was focused on five core leadership lines of business. It sold its industrial pipes, valves and fittings business to Shale-Inland Holdings in 2012 and its Power Solutions business to Anixter in Now HD Supply is made up of three core lines facilities maintenance, waterworks and White Cap. But not for long: It agreed to sell its waterworks business unit in June 2017.

14 M&A: Must-Read Resources MDM Special Report: The 2017 State of M&A in Distribution: The merger and acquisition market has cooled a bit since 2015, but it remains strong and is forecasted to flourish in 2017 as private equity deploys capital and strategic buyers buy growth in improving conditions. Here s what s on tap for the rest of the year. Navigating the M&A Landscape: Distributors on either side of a deal should strategically prepare now for the opportunities that will arise in the M&A market. Buyers must carefully examine how a targeted asset fits, and sellers must ensure maximum value before entertaining offers. More on M&A, including the latest deals in distribution, can be found at mdm.com/topics/85- distribution-manufacturing-m-a

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