Consolidation. That's the mantra I kept hearing. That's the reason for all the missing wholesalers.
Some truth to that, no doubt. One can't deny there are fewer wholesalers around now than, for instance, in 1983. That was the last year of my first term on the staff of Supply House Times. In our write-up of the 54th Annual Wholesale Distributors Association Convention that year, we reported a record 1,146 registrants.
For the first time in 18 years I went back to a WDA Convention, held in Ft. Worth, Texas, March 8-10. Tallying both pre-registered and late registration lists, I counted 166 wholesaler personnel, 250 manufacturers and 156 reps. Add the spouses and guests, and I won't quibble with the 700 attendance figure reported by WDA. That means registration was down almost 40% compared with the 1983 convention. All of the shortfall came from wholesaler ranks. In fact, there's reason to believe manufacturer and rep attendance may have increased a bit. Two questions arise:
A. What happened to all the wholesalers?
B. Why do manufacturers and reps continue to give such strong support to a conference where sellers outnumber buyers by more than 2-to-1?
Let's deal with B first. This year's WDA conference booth list showed 122 companies displaying. The highest total reported by Supply House Times in the early 1980s was 110. What's that tell you?
It says, loud and clear, wholesalers still matter! Every last one of you, whether big or small, old or new, imaginative or set in your ways, are still prime customers of PHCP manufacturers. That's why manufacturers and their reps set aside precious days and hard-earned money to spend quality time with you.
Sales and marketing folks earn their living putting on a happy face, but I detected a little less festive atmosphere among their ranks than I recall from the "good old days." As one manufacturer sarcastically put it, "This is a great convention. Too bad there aren't any wholesalers around."
An exaggeration to be sure, but nonetheless it begs Question A. Why the big drop-off in wholesaler attendance?
Consolidation, that's why, everyone said over and over.
Normally, I would take them at their word. Normally, I'd concede they know more about this industry of theirs than this interloper who's been away almost two decades. Except, I know something the vast majority of them don't. That's because I was one of an all-too-select group of people that bothered to attend an important program held at this year's WDA convention. It was one of only four education programs slated (repeated in morning and afternoon sessions), which may in itself partly explain the declining attendance.
Adam Fein of Pembroke Consulting called his presentation "Winning Strategies for a Changing Channel." About a dozen people showed up for the morning session. Judging from the number of golf bags exiting the hotel, I suspect the afternoon event didn't pack them in the aisles either, though I can't say for sure because I was hanging out at the "E-Commerce for Beginners" program, which drew even fewer people than Fein's.
Fein is the same fellow who dazzled the audience at last fall's ASA Convention with his report on "Winning Strategies for a Consolidating PHCP Industry." His WDA presentation elaborated on that one. It was an informed perspective on this industry's situation, put together by people who have actually taken time to tabulate and study data rather than merely spout rumors and opinions. The handful of us who gathered cobwebs at Fein's WDA program heard some things about this industry that defy conventional wisdom. Most notably -Pembroke Consulting counted 133 mergers and acquisitions among PHCP wholesalers from the second quarter of 1996 through mid-year 2000.
Not insignificant activity, but Pembroke counts upwards of 3,000 PHCP wholesalers doing business in the country. If those figures are correct, consolidation has touched fewer than 5% of PHCP wholesalers in the last five years. Moreover, of those 133 consolidations, some unknown number of supply houses has sprung from the debris left behind of wholesaler personnel thought superfluous by the acquiring firms.
Does this data present a picture of an industry doing a Cheshire Cat act? Or does it argue that consolidation is more a hedge clipper than a power mower?
No, everything can't be blamed on consolidation. It doesn't explain, for instance, the ennui demonstrated toward WDA's education programs by the parties who did attend, or the episodes of self-doubt that I'll detail in a moment.
Supply House Times' coverage of WDA conventions decades ago was filled with reports of overflow crowds at spirited discussions. One convention panel in 1983 brought together wholesalers, reps and manufacturers to hash out their differences and tell how they would make for a better distribution industry. There were also seminars on property taxation, warehouse management and cash flow management.
Best of all that year was a meeting of the WDA Young Executives Committee, which seems to have disappeared somewhere in the passage of time. The group invited one of the all-time giants of this industry to speak, and while I don't know this as a fact, I'm pretty sure they didn't pay a dime to acquire his services, not even travel expenses. The speaker was Charlie Horton, founder and then owner of this magazine. He delivered a typically thought-provoking address titled, "Don't Become A Management Mandarin." I wish we had room to rerun it here. In fact, space shortage be damned, I'm going to make room to run a truncated version, because what Charlie Horton had to say way back in 1983 is every bit as relevant to today's wholesalers as it was then.
Something's gone wrong with this industry that I'm sure has my old boss Charlie thrashing around in his grave. It's not just consolidation; it's not just declining convention attendance. It's the lack of engagement in one's industry, leading to the disappearance of a sense of community. Wholesalers seem to be looking at their role as merely a job rather than a calling. It's a demoralization exemplified by two conversations I engaged in at the convention's Friday night party.
God bless those WDA-ers for not forgetting how to throw a first-class bash. This year's version wasn't quite as raucous as those I attended in the days when Bill Tipton would somehow convince the hotel to let him bring a live steer onto the premises - or did he even more implausibly sneak the critter in? In any case, you'll never hear me complain about Texas barbecue, a country band and a chance to mingle with industry citizens letting their hair down. I never tattle on who said what to me in these settings, but I must share some unattributed remarks that occurred in a couple of back-to-back encounters with wholesalers. One was an old acquaintance, the other someone I'd just met.
The first wholesaler forlornly told me of waiting for a call that has never come from one of the big boys. "I'd sell in a minute if someone would make me a decent offer," was the way it was put. Moving on about the room, I chatted next with an individual who let on that he had deflected some acquisition feelers several years ago. Now he was full of angst wondering if he did the right thing by saying no.
Don't misread me here, friends. It would be fatuous to suggest that none of you should ever sell your business. It's just that this decision should bring joy whether you exercise it or not. Selling out ought to provide the wealth and security you deserve in compensation for your honorable career. Choosing not to sell means you have determined your business to be worth even more than somebody else thinks it is, and if that doesn't bring a smile to your face, what will? Even not having the opportunity to sell should be viewed as a challenge more than a setback. Any number of your colleagues can tell you what you need to do to make your company saleable. That's yet another good reason for coming to the convention. And if you still end up going it alone, it simply means that you have the chance to prosper in good company among some 3,000+ independent PHCP wholesalers who provide an indispensable service within the American stream of commerce. You might even take a bit of solace in the underwhelming performance of the industry's giants that is forcing some of them to start laying off people in bunches.
C'mon, wholesalers, snap out of it! Nobody in this industry has reason to wallow in malaise. Yours is a noble business within a great industry, and the vast majority of you enjoy prosperity that would be the envy of 99% of the people in the world. Your business has weathered the worst of the competitive storms from retailers and consolidators. It's a great time to be a wholesaler. Keep your head up and get engaged to make this industry even better than it is.
Don't Become A Management MandarinExcerpted from an address to the Young Executives Committee of the Wholesale Distributors Association, Feb. 20, 1983, by Supply House Times founder Charlie Horton.
American business is over-managed today - too many people involved, too many committees, too many memoranda, too many long-range plans and projections, too many staff specialists with tunnel vision; plus an army of consultants. For all their ponderous apparatus of management, they can't hire a secretary or decide whether to pave the parking lot without calling in a consultant. They are so caught up in the process of management that they lose sight of the purpose of it all ¿
What's all this got to do with being a young executive? Plenty! ¿.
1. There is no substitute for knowing your business from the warehouse floor up. If you have never worked in the warehouse, then do so. If you have never collected bum accounts, do so. And if you haven't called on the trade for at least five years, then do so; otherwise you will never be qualified to run a supply business.
2. Remember that this is a proletarian business we are in. Our customers and employees are working folks. Don't allow yourself to lose rapport with them. Don't ever think you are above them, because nobody is. Never lose the common touch. Don't become impressed with yourself or your status as an executive.
3. Don't lose sight of the fact that wholesaling is a small business, typically with fewer than 50 employees. Even a big supply organization has only a couple of hundred. So think small. Don't seek to emulate the management methods of big organizations. You don't need it, you can't afford it, and it won't work for you. Be glad you are small. A big organization requires a large management structure to control and direct it. But you don't need a cumbersome bureaucracy, a complex table of organization, or highly formalized procedures. You don't need to write a lot of memos and hold a lot of meetings.
4. Keep it simple. Keep it pragmatic. The best management system is the simplest one that is sufficient for the size of the enterprise. If you go to AMA seminars - and I can think of far better uses of your time - be aware that they are structured for large companies. Don't regard everything you hear there, or read in management magazines, as Revealed Truth. A lot of it is baloney ¿.
5. Speak English, for God's sake! Beware of those silly buzz words and the murky gobbledygook so alluring to those caught up in the management cult. Stay in the real world, with the real people, and use the real language so that they will have some chance of comprehending what you are trying to tell them.
6. Don't confuse methods with objectives. Good management is what you do, not how you do it. You set challenging but realistic goals. You track performance; you organize and motivate the troops. You develop people, including, most emphatically, successor management. You improve the efficiency of the organization and strengthen its competitive position in the market. And always, always, always, you strive to sell more and make more money - not "enhance profitability," but make more money.
That's all there is to it, and I've seen it done brilliantly by wholesalers that didn't finish high school and wouldn't know what a computer report is if all 400 pages of one fell on them.