Top 50: A Year of Recovery for Distributors
There is no doubt that distributors continue to face the same challenges year after year – rising costs, eroding margins, currency fluctuation, and the global economy. However, in 2014 market conditions slowly started to improve. There was a gradual improvement in the global economy and some increased capital spending. Overall, the supply side was well balanced. Lead times were generally short and there wasn’t a lot of surplus.
This resulted in decent growth of five percent in North America. This follows two consecutive years of flat growth in the North American distribution industry. In 2014, all of the top 10 distributors reported growth, compared to only six in 2013. In addition, of the top 10, six reported growth in double-digit percentages, compared to only one in 2013. Overall, more than three-fourths of the top 50 distributors posted increased sales. Many of these distributors continued to add to their line cards, invested in new sales offices and warehouses, and hired more people.
Distributors also grew their global revenues by seven percent, reaching $66. 2 billion in 2014, boosted by an overall stronger global economy last year. However, many distributors point to currency fluctuations as a big problem, impacting their profitability.
Margin erosion and counterfeiting were cited as two of the biggest issues last year along with industry consolidation, which resulted in some tight supply situations. Other distributors continue to raise cost of compliance and government regulations as growing challenges for the industry.
One consistent trend is distribution’s focus on new products. More than half of the top 50 distributors expect new products to be the number one sales driver in 2015. A distributor’s role is to keep inventory on the shelf, create demand for their supplier partners, and ship on-time to their customers. This has accelerated over the past few years as component manufacturers focus on getting their next-generation products to market even faster.
Distributors also see growth opportunities coming from several sectors including lighting, industrial, medical and transportation. They also have high hopes for emerging markets, particularly the Internet of Things (IoT) to help drive growth in 2015. Thirteen out of the top 50 expect IoT applications to drive growth and ten said energy-efficient lighting will be a big growth driver.
One distributor noted that distribution is well positioned to help accelerate the adoption of connectivity in this market. Distributors can offer customers complete solution packages, similar to what has been done in lighting solutions.