Keep fingers crossed while you grit your teeth.
“What’s going on out
there?” That question often gets put to me during conversations with industry
people, because I’m perceived as being positioned to get a good reading of the
industry’s pulse. Here’s what I’ve been saying lately in
We’re scraping bottom. Things haven’t gotten worse for quite awhile but
recovery is measured in millimeters. Most manufacturers and distributors are
making a little money, but it’s all on the savings side rather than sales
growth. Almost everyone has made deep cuts and been operating as lean as anyone
can remember. With little fat left to cut, prosperity requires growth in demand
and only tiny signs of encouragement appear here and there in that regard.
A January business conditions survey of the Omni buying group membership found
that 76% of them decreased inventories in the last half of 2009 compared with
2008, while only 8% reported increased inventories. The survey did not measure
the depth of the cutbacks, but talk to manufacturers and reps and you get the
impression wholesalers have taken a machete rather than a scalpel to
inventories. In fact, a recurring theme in conversations with distributors is
the fear they won’t be able to capitalize on a sudden surge in demand if one
should come about. Right now, that looks remote and most are content to eke out
tiny profits from downsized companies and depleted shelves in the worst economy
most have seen during their entire business lives.
The Omni survey tells how bad things have been. Based on responses from 119
distributors (46% of the membership), a whopping 88% of them reported decreased
sales in the last half of 2009 compared with the prior year, while only 2% said
sales had risen. The few who somehow managed to boost sales reported that they
rose on average only 4%, while those reporting downturns cited an average
decline of 20%. The bad news was fairly uniform across all five of Omni’s
geographic regions, as well as throughout the spectrum of
residential-commercial-industrial markets, with new construction and industrial
sectors the hardest hit.
A similar tale of woe came out of the North Central Wholesalers Association,
whose last quarterly business conditions survey in December 2009 found the 33
participating members reporting an average 15.7% sales decline in 2009. The
pain seemed to be subsiding as the year wound down, with sales dropping an
average of “only” 6.7% in December 2009 vs. December 2008. Such is what passes
for good news these days.
Omni’s survey revealed a glint of optimism in that 32% of those surveyed
expected sales to increase during the first half of 2010, compared with only
19% who predicted further declines. The remaining 49% said they expected sales
to remain about the same.
There was considerable regional variation in this part of the Omni survey. Only
16% of distributors in the buying group’s Region V (Western and Mountain
states) had an optimistic outlook, while 28% predicted further sales declines -
more than in any other region. The brightest prospects were registered by
wholesalers in Region III (Southeast), where 47% of respondents predicted sales
to increase in the first half of this year, and none predicted a
As for inventories, even that best case scenario in Region III found only 21%
of wholesalers saying they are likely to stock more merchandise, compared with
18% who indicated further cutbacks and 63% seeing inventory levels as staying
Wishful thinking may be playing a bigger role than market research among those
who see fortunes improving during 2010. Home building is still several years
away from full recovery and most commercial construction markets are just as
sick. I’ve heard some contractors say that there’s been a noticeable upsurge in
bidding, but most of those projects are contingent on developers squeezing
money out of stingy lenders.
Economic forecasting has a lot in common with predicting the weather.
Meteorologists have a pretty good feel for what’s going to happen when a
particular air mass is heading their way. What trips them up is a sudden shift
in the pattern that their computer models fail to see. That’s when an area gets
clobbered by a foot of snow rather than the predicted
Likewise, just as our economy collapsed unexpectedly, one can hope that
conditions are churning below the surface that will give rise to a vigorous
recovery that nobody now foresees. Let’s cross our fingers while we grit out
Are Ill Winds Shifting?
March 1, 2010