The economic challenges facing the distribution industry mirror the troubles plaguing other industries.
“If you turn on the TV or open a newspaper, it seems like there is no business to be had,” says Steven H. Gross, CPA, a principal with Skoda Minotti. “So the challenge is how do you actually go out and get business in an economy where it seems to be all doom and gloom.”
The solution seems simple, but it’s not easy to achieve. Companies must figure out how to increase revenue and cut costs — no small feat.
Smart Business spoke with Gross about how the distribution industry is handling the recession.
What types of challenges does the distribution industry face today?
When people pick up the newspaper, they read that today is worse than yesterday. It causes fear in people. They don’t want to spend on anything that isn’t absolutely needed. In some other industries, like the beauty industry, the effect is that someone gets their hair cut every 12 weeks instead of every six weeks. They may not be losing customers, but their customers are spending less.
This hurts distribution businesses because they are closely tied to the retail industry. Retail sales dropped 7.6 percent compared to last year. As a result, several sectors had declines in sales; however, health and personal care products have increased over last year and medical supplies are expected to increase due to H1N1, so there is opportunity out there.
As sales lag, though, distributors that finance their inventories are more sensitive to interest rates since they are holding inventory longer than usual. This, too, affects various sectors differently. Sectors where inventory turns over quickly, like groceries and clothing, are less affected.
What must those companies do to adapt and succeed today?
One thing distributors can do is focus on managing their inventories more efficiently. While it is important that they don’t run out of product, they may be able to lower the level of inventory they carry compared to sales by taking a closer look at the delivery and fulfillment processes. They can also look into offering just-in-time delivery services, especially if they have industrial customers, or order fulfillment services, which are useful to retailers that don’t want to maintain an inventory.
Another way to keep inventory under control is through Internet sales. If your inventory levels are high, that gives you an opportunity to sell through less traditional means.