Distribution Returns to Growth in 2014
The North American (NA) distribution industry has posted a five percent increase in revenues after experiencing two years of flat growth. Although distributors faced several challenges, including price pressure, currency fluctuation, and margin erosion, a stronger global economy and higher demand from several market segments, including industrial and medical, buoyed the entire industry in 2014.
Sales for the top 50 North American-based franchised distributors grew five percent in 2014, reaching $31.7 billion. This follows a sales decline of one percent in 2013 and a two percent drop in 2012. This surpasses the $31.2 billion in NA revenues posted in 2011.
Despite the good growth, distributors faced several challenges over the past year, including currency exchange rates, margin erosion, industry consolidation, and more compliance demands and requirements from customers that increased their costs.
The number one challenge in 2014 was currency fluctuation, said Lindsley Ruth, chief executive of Electrocomponents plc, parent company of Allied Electronics. “In particular in the European marketplace – buying U.S. dollars and selling in Euros – profitability was significantly impacted.”
The challenge hasn’t waned in 2015. “The currency exchange rate is probably the biggest challenge right now, and, of course, the global economy continues to be a big issue,” said Steve Newland, senior vice president, Americas Sales & Service and Global Sales Operations, Mouser Electronics, Mansfield, Tex. “The European economy is not doing so great. China has reported some of the slowest growth they’veVolumetric Efficiency had in six years so the global economies are not hitting on all cylinders right now.”
Another big issue for distributors has been consolidation. “Industry consolidation in the semiconductor industry is presenting challenges as well as opening up opportunities,” said Ruth. “The opportunity is broad in terms of being able to provide more focus for a consolidated supplier base, and some of the challenges is just working through some of the integration steps and assisting the supply base as they go through that process of integration.”