Jim Olsztynski 0000-00-00 00:00:00
Are Ill Winds Shifting? “What’s going on out there?” That question often gets put to me during conversations with industry people, because I’m perceived as being positioned to get a good reading of the industry’s pulse. Here’s what I’ve been saying lately in response. We’re scraping bottom. Things haven’t gotten worse for quite awhile but recovery is measured in millimeters.Most manufacturers and distributors are making a little money, but it’s all on the savings side rather than sales growth. Almost everyone has made deep cuts and been operating as lean as anyone can remember. With little fat left to cut, prosperity requires growth in demand and only tiny signs of encouragement appear here and there in that regard. A January business conditions survey of the Omni buying group membership found that 76% of them decreased inventories in the last half of 2009 compared with 2008, while only 8% reported increased inventories.The survey did not measure the depth of the cutbacks, but talk to manufacturers and reps and you get the impression wholesalers have taken a machete rather than a scalpel to inventories. In fact, a recurring theme in conversations with distributors is the fear they won’t be able to capitalize on a sudden surge in demand if one should come about. Right now, that looks remote and most are content to eke out tiny profits from downsized companies and depleted shelves in the worst economy most have seen during their entire business lives. The Omni survey tells how bad things have been.Based on responses from 119 distributors (46% of the membership), a whopping 88% of them reported decreased sales in the last half of 2009 compared with the prior year, while only 2% said sales had risen. The few who somehow managed to boost sales reported that they rose on average only 4%, while those reporting downturns cited an average decline of 20%. The bad news was fairly uniform across all five of Omni’s geographic regions, as well as throughout the spectrum of residential-commercial-industrial markets, with new construction and industrial sectors the hardest hit. A similar tale of woe came out of the North Central Wholesalers Association, whose last quarterly business conditions survey in December 2009 found the 33 participating members reporting an average 15.7% sales decline in 2009. The pain seemed to be subsiding as the year wound down, with sales dropping an average of “only” 6.7% in December 2009 vs. December 2008. Such is what passes for good news these days. Omni’s survey revealed a glint of optimism in that 32% of those surveyed expected sales to increase during the first half of 2010, compared with only 19% who predicted further declines. The remaining 49% said they expected sales to remain about the same. There was considerable regional variation in this part of the Omni survey. Only 16% of distributors in the buying group’s Region V (Western and Mountain states) had an optimistic outlook, while 28% predicted further sales declines — more than in any other region. The brightest prospects were registered by wholesalers in Region III (Southeast), where 47% of respondents predicted sales to increase in the first half of this year, and none predicted a decline. As for inventories, even that best case scenario in Region III found only 21% of wholesalers saying they are likely to stock more merchandise, compared with 18% who indicated further cutbacks and 63% seeing inventory levels as staying the same. Wishful thinking may be playing a bigger role than market research among those who see fortunes improving during 2010. Home building is still several years away from full recovery and most commercial construction markets are just as sick. I’ve heard some contractors say that there’s been a noticeable upsurge in bidding, but most of those projects are contingent on developers squeezing money out of stingy lenders. Economic forecasting has a lot in common with predicting the weather. Meteorologists have a pretty good feel for what’s going to happen when a particular air mass is heading their way. What trips them up is a sudden shift in the pattern that their computer models fail to see. That’s when an area gets clobbered by a foot of snow rather than the predicted dusting. Likewise, just as our economy collapsed unexpectedly, one can hope that conditions are churning below the surface that will give rise to a vigorous recovery that nobody now foresees. Let’s cross our fingers while we grit out teeth.
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