Recently, several wholesale distribution industry groups published growth numbers for their members including the National Association of Wholesale Distributors1 and several industry-specific wholesaler associations such as auto parts, health and beauty, furniture, industrial, food, etc. Interestingly, these sectors have had some mostly steady growth in the last decade which has outperformed many other sectors of the US economy. And this year and next year are no different.
We have been covering many of these sectors2 and many of our customers and readers hail from them. Once considered the ‘middlemen,’ Wholesalers (WSD) have emerged as innovative and an essential part of the global economy.
Source of Their Value?
One of the known facts about the WSD market is that often they don’t require as much capital outlay to launch as manufacturers or retailers do. So they can provide a presence in geographies where their suppliers can’t go. However, they do need product expertise. And they do need expertise in the terrains and customers they serve. That lower capital outlay does not necessarily translate to profits, since as the ‘middleman’ they are expected to help reduce supply chain costs — not add to them. This is foundational. But they provide more strategic value in terms of market process and supply chain know-how.
In the last decade, as businesses have turned over, expanded, contracted, and outsourced, some pretty smart people were let go from some pretty big firms. In fact, they were very talented people who not only knew their sectors, products, and customers, but also had connections to the source markets. In other words, retail buyers, manufacturers’ procurement managers, or sales managers were able to become the next generation of distributors. And many of them did. In addition, international businesses have been seeking and hiring these people to ‘rep’ them in their target markets.
In many businesses, the new generation is taking over from their parents — literally.
These groups, plus the simple fact that progressive WSD have to be good listeners — to both suppliers and customers — have created a wealth of experience, expertise, and creativity to really transform the WSD into a growth sector. And one more thing they knew was the value of the virtual business model. They had technology inclinations that maybe some of the older wholesalers did not have. These are the 21st century wholesale distributors.3
Smart Moves for Wholesalers Now
So, it is 2013. The durable goods market, already over $2.25 trillion, will grow another $10 billion in the next two years (US economic data).4 And nondurables, now $2.72 trillion, will grow $20b to $40b during that time period (NAW data). That represents a lot of eating, drinking, face-creams, aspirins and paper! Economists are forecasting growth ahead for the US and Asian economies. If you are the WSD, you want to capture your fair share of that growth.
So what moves should WSD make to keep pace or even forge ahead from their competitors, and/or win the right to continue to play a growth role for the companies they represent and/or sell to?
There are many best and well-used practices. But more and new ideas are emerging. Here are a few of the important ideas we gleaned from our conversations with WSD managers:
- Forge alliances in developing markets — we know that relationship management clinches the deal and also gets you new ones. WSD have to be the ones on the planes exploring new sources, better sources, gaining firsthand knowledge of trade dynamics.
- Risk management — learn to be the ‘go-to guy’ when other sources fail. You might wind up being the only guy after the crisis. This requires deep knowledge of supply and transportation routes and providers, what things really cost, and who is most reliable to call upon. And with risk concerns on the rise, methods to support your position in your market would be wise.
- Virtualize the business model — old idea, new generation. Expand and innovate without the capital outlay. Create and reinforce partnerships.
- Go consumer — many WSD can also create consumer etailing businesses. There are many interesting models from licensed and brand-name products to create post-season discount and liquidation sales.
- Home delivery and in-home services — Wholesalers may need to provide this or up their game here if they do already. Appliances, furniture and even medical device delivery and installation are areas that come to mind, but require expertise to support. With the same day delivery buzz going on, WSDs are in a prime position to support this service.
- Service and repair — many organizations are looking to outsource maintenance to product experts. But of course, for many product sectors local responsiveness is just not possible. WSD can assume this high-margin role.
- Become an inventory management master! Not just for your own business, but for your customers.
- Support the small business customers — this can happen through many capabilities such as online catalogues, inventory look-up and location, social networking and ‘how-to’ advice.
- Logistics expertise — precise shipping and, possibly, same-day delivery to provide services on behalf of the brand and manufacturers you support. This is most often enabled by technology. Online networks for sourcing and transportation management can be leveraged without purchasing the big data centers. This approach allows young or growing WSD to compete against some of the larger players without the big IT expense.
- More self-service for trading partners. Most customers, especially those who purchase repeat items, will be quite willing to use web-based self-service.
For more ideas and practices please see the references below.
References and Reading:
1. NAW Org — Return to article text above
2. ChainLink Research: Wholesale Distribution — Return to article text above
3. You can read this research at Wholesale Distributors Meeting the 21st Century
— Return to article text above
4. Auto, furniture, hard goods, etc. have had a few pretty good years, so the growth rate is expected to be a bit more modest going forward. In fact, the excellent growth rate that US retail experienced in 2012 had a lot to do with auto sales. — Return to article text above
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