Of course, 1999 has some variables that weren't as much of a factor a year or two ago. The Asian economy is still staggering, with imports from those countries flooding into the United States as their local customer bases have withered. The industrial PVF segment has been the hardest hit: The American Supply Association reports that average sales-volume increase for PVF distributors was only 4.6%, compared with 7.7% for plumbing wholesalers. Many in industrial PVF see a direct link between the alleged dumping of steel products by Asian manufacturers and the depressed pricing of the materials they themselves sell. That is certainly the position of the American steel industry, which is filing anti-dumping lawsuits and pressuring the federal government to take more action to protect domestic steel manufacturers.
Companies whose sales consist largely of stainless-steel products have been hit with a double whammy as the lowest prices in recent memory presented an additional obstacle to profitability. More than one wholesaler has noted in the past year that he has had to sell a lot more product just to stay even.
Sharing the wealthMeanwhile, plumbing and HVAC distributors have benefited from the boom in residential construction that has accompanied the expanding economy. According to the U.S. Department of Commerce, 1998 saw nearly 1.2 million housing units started. Supplying those projects has kept the PHC wholesalers busy -- and profitable. Mortgage rates are up slightly from earlier this year, but the National Association of Home Builders still expects the roll to continue, predicting that 1999 housing will reach almost 1.8 million.
However, the biggest single influence on the PHCP business continues to be consolidation. Hughes Supply (Orlando, Fla.) expanded its roster by a whopping 54 locations. Ferguson Enterprises (Newport News, Va.) added 36, and that's not counting its taking up the reins at Familian Corp. (Pomona, Calif.), which, with its 101 locations, ranked No. 9 in the Premier 150 last year.
The direct effect of consolidation on our annual listing of the largest wholesalers in PHCP is the disappearance of some names and the addition of others. The 1998 Premier 150 was the last appearance by such well-known wholesalers as Baker Distributing of Jacksonville, Fla. (No. 39 in '98); Gemaire Distributors, Deerfield Beach, Fla. (No. 42); Heating & Cooling Sup-ply, San Diego (No. 63); and Comfort Supply, Houston (No. 78). Although they still operate under these names, these four companies are now subsidiaries of Watsco and contributed substantially to its jump to No. 3 on the 1999 roll from No. 6 last year and No. 12 the year before.
Other firms have disappeared from the list. Ferguson bought Fields & Co. (Lubbock, Texas), which ranked No. 85 last year, and L&H Plumbing & Heating (Lakewood, N.J.), the former No. 92. Hughes' growth is more diversified, with many of its acquisitions coming from outside the PHCP industry through wholesalers of pool supplies and building materials, as well as such firms as Kamen Supply (Wichita, Kan.), which filled the No.125 slot last year.
There is no indication that the consolidation will slow down, and it's not just the big guys who are doing the buying. The Premier 150 companies reported a total of 296 new locations among them for last year, and several acquisitions and/or mergers have already been announced so far this year. For example, Homans Associates (Wilmington, Mass.) makes its Premier 150 debut at No. 147, but this first appearance will also be the company's last: Watsco bought Homans in January.
Movers and shakersJust how much do the hyper-acquisitive Hughes, Ferguson and Watsco skew the overall growth numbers for the PHCP industry? Not as much as you might think, or at least in the direction you might expect, considering the 10 largest companies account for 34.4% of the overall sales volume for the Premier 150.
As a group, the "Big 10" saw revenues increase by only 10%, compared with the jump of 25% for the entire list. In fact, if you eliminate the 10 largest companies from the calculation, the increase in sales for the remaining 140 firms was an astonishing 35%! So the top performers in our business are not necessarily the highest-profile companies.
This finding also relates to the significant percentage of Premier 150 companies that have been acquired over the past several years. For the most part, the big consolidators are not interested in turnaround projects. They are buying up wholesalers that are already highly suc-cessful and have the growth to prove it.
Another indicator of success is the movement of a company within the Premier 150 list. Thirty-eight firms jumped 10 slots or more, with the biggest upward push by Gensco, which moved from No. 68 to No. 40. Others that moved up 20 places or more are Homans, breaking into the top 150 after coming in at No. 174 last year (an illustration of the attractiveness of successful firms as acquisition targets); Aces A/C Supply (Houston), up from No. 138 last year to No. 113; and Arizona Refrigeration (Phoenix), now at No. 101, up from No. 121. All are HVACR distributors. Able Distributing (also of Phoenix) posted the most notable position gain among plumbing wholesalers, up to No. 91 from 110. Among industrial PVF distributors, Smardan-Hatcher of Santa Barbara, Calif., gained the most ground (to 98 from 117), followed closely by Industrial Piping Specialists of Tulsa (to 111 from 128).
Facing the new milleniumWe feel certain of at least a few things as 2000 approaches. One is that the world will not end at midnight on New Year's Eve. Another is that consolidation will continue in PHCP distribution, just as it will in banking, manufacturing, telecommunications and virtually every other industry. Another factor in consolidation in our business is succession. Many PHCP wholesalers were founded in the 1940s and 1950s by entrepreneurs who now are retiring and looking for an exit strategy.
In the case of companies that have already been passed to a new generation of owners and managers, those now behind the wheel are searching for ways to ensure the continued existence of the family's business. They are beginning to form alliances and consolidations of their own, such as Supply America Group (see Supply House Times, April 1999, page 9) and North American Distributors to maintain a measure of independence.
So we are confident in saying that, while distribution will continue to change at a rate that accelerates every year, it will still be vigorous and vital well past the turn of the century. The business will look different and undoubtedly function in very different ways, but the ingenuity and entrepreneurial spirit that built the industry guarantee its future.
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