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Industrial Distribution Takes on the Perfect Storm

Nov. 4, 2020
During a year when COVID-19, product shortages and supply chain disruptions threatened to diminishes the gains achieved during the economic recovery, industrial distributors are exhibiting resolve and looking forward to a brighter 2021.

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It seems like decades since we published this article on industrial distribution’s bullish outlook for the coming year. In reality, it was barely a year ago that the business outlook was fairly rosy, the world’s economies were for the most part humming along, and issues like trade wars and labor market constraints were the biggest issues keeping industrial distributors up at night.

Similar to 2018, the industrial distribution sector in 2019 was buoyed by overall healthy economic conditions, full project pipelines and a thriving construction market. And while rumblings about a possible downturn started to get a little louder as the year went on, for the most part B2B distributors were optimistic about the future.

My, how a year can change things.

When the global pandemic reared its head in March 2020, it impacted nearly all sectors of the economy. And even after months of dealing with this intruder head-on, industrial distributors continue to grapple with product shortages (i.e., resin, steel products, lighting and PVC pipe were all in high demand and low supply for much of 2020), mandatory shutdowns, labor shortages and slowdowns across some of their prime customer segments. 

Along the way, remote selling became the norm, forecasting at the account level turned into a guessing game for some end-markets, and talent acquisition and development got pretty complicated, according to Alexander Group, which ran numerous surveys in 2020 to get a gauge on distributor challenges and strategies.

Manufacturing Begins its Recovery
According to IHS Markit
, the US Manufacturing PMI edged up to 53.3 in October of 2020 from 53.2 in September. The reading pointed to the fourth straight month of growth in factory activity and the strongest since January of 2019. Despite the rate of production growth slowing, the expansion in new orders accelerated and was the sharpest since January 2019.

“The upturn broadly stemmed from domestic clients as new export orders fell for the first time since July,” IHS Markit reports. “Nonetheless, firms were better able to process new business inflows as the accumulation in backlogs of work eased to only a marginal rate.”

The most recent numbers reveal a slower rise in employment at the manufacturing level, the company adds, with goods producers using more discounting to attract clients during October, with selling prices rising only moderately. “In contrast, cost burdens rose the steepest rate since January 2019 amid supplier shortages,” IHS Markit adds. “Finally, manufacturers indicated greater confidence in the outlook for output.”

A V-Shaped Swoosh
According to MDM Analytics’ most recent forecast, the distribution sector experienced a “sharp rebound” out of the second quarter trough, and was on track for a continued growth pattern through the fourth quarter. “The pattern is great news for all distribution sectors,” it says, “but note that the revised fourth quarter recovery outlook flattens slightly, with a stronger acceleration through the second quarter of 2021.”

MDM says continued growth is forecast through 2021 and 2022, but moderating to mid-single-digit levels. Its baseline annual forecast for 2020 for the wholesale distribution industry is for a 5.6% decrease from 2019, with a snapback in 2021 to a baseline estimate of 7.5% growth.

“The 2020 pandemic recession has brought with it a number of records – unemployment, record decrease in wage and salary earnings, but also a record increase in personal income through government payments, including stimulus payments,” MDM adds. “Consumer behavior shifted dramatically and has played out in the recovery and retail sector performance, with consumer spending shifting from nondurable to durable goods.”

What’s the Outlook?
In its most recent “State of the Wholesale Distribution Industry.” NAW says that the aftereffects of the COVID-19 outbreak will last through the rest of the year and continue to impact B2B across numerous industry segments. “The current situation (as of March 31, 2020) should be viewed as temporary,” NAW said at the time. “Leaders need to deal with the present crisis without losing track of the fact that the long-term view is still viable and worthy of attention and planning.”

Despite the fact that months later COVID remains a front-and-center issue for many distributors, there are still opportunities to be had in the market and NAW’s earlier advice to maintain long-term views remains valid. 

“While growth this year in both ecommerce and total sales is running into pandemic headwinds, sales in some industries have perked up as companies look ahead to a stronger 2021,” DigitalCommerce360 points out, noting that a slowdown in B2B e-commerce sales in 2020 due to the “unevenness in distributor vertical markets disrupted by COVID-19” could reverse itself fairly quickly in the coming months. “We think 2021 will be back to our 2019 level, plus a slight increase.”

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About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.