- Hughes is a highly diversified distributor with water and sewer products accounting for the largest single chunk of business, 27%, followed closely by plumbing/HVAC at 24%. They estimate Hughes captures only about 2% of the total share of markets served, which leaves plenty of room to grow.
- “Growth in new construction can't keep up the way it has,” noted Machaby. Thus, Hughes' long-term growth “must be focused on infrastructure and remodeling.”
- Hughes' acquisition binge in the 1980s and '90s was “tactical,” i.e., buying up companies for growth's sake because they were available. Now, Hughes aims for more strategic acquisition of successful firms that blend with existing operations and shore up weaknesses. The company was said to be looking at around 20 potential targets. Machaby said of last year's blockbuster acquisition: “Todd Pipe was one of the best-run businesses in the industry, and one of our smoothest transitions.” Others were far from smooth. At one time Hughes had to wrestle with 35 different IT platforms, which they expect soon to be fully integrated into the Eclipse system. “It was the hardest thing we've ever done,” said Clyne.
- Like most other major distributors, Hughes will embark on a private branding initiative sourced overseas, but only for selective products with little liability exposure.
Saving American manufacturing
The Hughes executives were followed to the podium by Brass Craft President Todd Talbot, who also addressed the reps in his role as current president of the Plumbing Manufacturers Institute. Talbot pulled no punches in detailing the challenges inherent in his theme of “Selling American Manufacturing.”American manufacturers today are beleaguered by market consolidation, rising costs, government regulation, unbalanced trade, litigation, limited intellectual property protection, and the virtual demise of a “Buy American” mentality. All of it comes together in a daunting obstacle named China.
Talbot cited data showing U.S. manufacturing wages in 2004 averaged $2,160 a month, compared to a measly $120 in China. The latter are rising, but at a snail's pace. Even more worrisome is that whereas U.S. manufacturers spend merely 3% of sales on capital investment, Chinese producers are putting back 20%.
Talbot also referred to data showing the quality gap quickly narrowing. In a key measure of manufacturing quality, he noted that Chinese factories now achieve 97% “first pass yield,” vs. 98% for U.S. firms.
The only hope left for American manufacturers, said Talbot, was to maintain its lead in innovation. “Without innovation, we have nothing but commodities.”
Learning from trial and error
The closing day of this year's conference was highlighted by reps sharing their experiences with one another in a couple of panel programs. Karl Grabowski, Carolyn Crummey and Jeff Young of J & K Sales Associates (Manchester, N.H.), presented an online demonstration on “How to Grow Your Income Without Adding Lines or Raising Commissions.”Succession planning was the subject of a second panel discussion featuring Pete Lewnes (Preferred Sales, Hermitage, Pa.), Sandy Burns (Burns Associates, Severna Park, Md.) and Fred Miller (Fanning & Associates, Denver), all of whom had been involved with mergers and acquisitions. They covered a wide range of pitfalls.
According to Lewnes, money tends not to be the main problem in buying another rep firm. Usually the principals come to agreement pretty quickly. “Melding the two cultures is the biggest issue.”
The Q & A session following the panel resulted in this zinger from AIM/R attorney Dan Beederman, speaking from the audience: “Too many good deals have been loused up by lawyers and accountants.”
AIM/R Executive Director Joe Miller served as moderator of the provocative session, and summed up the experience as follows: “What we're getting here is institutional memory, which proves the value of a trade association. If you stay in the middle of a herd, the lions won't get you!”
- Jim Olsztynski
