Business Conditions Improving? Not So Fast Say Jan/San Distributors
For the first time in three years, business conditions are improving for distributors, according to McGladrey, an assurance, tax, consulting and professional services firm, which recently released its 2010 Distribution Industry Report.
According to the report, which collected responses from leaders of distribution businesses in sectors such as paper, food and beverage, machinery, and building materials, 23 percent of distributor respondents indicate that their companies are "thriving and growing," a 14 percent increase from 2009.
McGaldrey's survey found the rate of recovery is not uniform, however. Instead, it's dependent on each individual industry segment.
Contrary to the gains noticed by distributors in other sectors, distributors in the jan/san industry say business conditions continue to show only short-lived signs of picking up.
For example, Linda Silverman, vice president of sales and marketing for Maintex Inc., a City Of Industry, Calif.-based jan/san distributor, says her company is currently coming off a robust last two months of August and September. Although the company's profit margins have seen an increase, she says Maintex is not comfortable pronouncing that business is comparable to where it was prior to the recession.
"I would not judge those months as "business starting to pick up" just yet," says Silverman. "We would need to see a longer trend."
Because distributors' margins fell victim to the recessionary environment, Dan Josephs, general manager of Spruce Industries, Rahway, N.J., says too many people are mistaking status quo or a lack of a decline as a sign that things are improving in what has been an unbalanced 2010.
"People are still getting laid off and our customers are just doing more with less supplies and less employees," he says.
Among the survey's other findings, while 45 percent of distributors say they expect their companies to recover this year, 31 percent of survey respondents say recovery will not start until 2011. Another 6 percent do not expect a rebound until 2012 or beyond — something that is expected for the jan/san industry, says Ed Stasiak, vice president of KSS Enterprises in Kalamazoo, Mich.
"I strongly believe that the market will remain stable with little to no growth for 2011 and it will be 2012 before there will be any appreciable true market growth," he says.
Distributors are hopeful that patchy sales will evolve into year-long growth, but the massive hangover from a devastating recession just may continue to hamper margins well into the coming years.
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