Commentary: Key Takeaways from Distributors’ 1Q Outlook

Likely thanks to the COVID-19 vaccine coursing through me, I have a building sense of optimism that I have not felt in over a year now. It would appear that the same goes for the majority of respondents to the latest quarterly MDM-Baird Industrial Distribution survey. Out of approximately 500 respondents, 88% of comments mentioning March 2021 performance were positive. Distributor confidence in overall 2021 performance is up as well. As of the first quarter, year over year outlook is up 9.9%.

You’ll see in this issue’s feature story, “Distributors Optimistic about Strength of Post-COVID Recovery,” positive sentiment is expressed across individual sectors as well. That said, there are enduring and developing challenges to address as we approach the second half of the year.   Here are three points worth following that came out of this quarter’s survey data:

1. Pricing inflation is a factor

Pricing concerns came up across all of the sectors surveyed. As one industrial distributor respondent put it, “Everybody is having price increases, especially on imported items. Freight has more than doubled overseas. It’s definitely an inflationary environment.”

When asked, “With the potential for above-average inflation (raw materials, freight, labor, etc.) ahead, do you see this translating into

higher gross profit/net income dollars for your business?” it was close between yes (48%) and no (52%) responses. Those responding “yes” reasoned that customers will pay whatever it takes, inflation increases the value of inventory and they expect a strong history of passing any price increases onto the customer will continue. Those who responded “no” feel distributors are at the mercy of suppliers due to end-user pushback, competitive pressures among fellow distributors limiting their ability to raise prices and the cost of commodities hurting their margins.

2. Supply chain issues present a risk

Fluke Suez Canal blockages aside, COVID-19-related shutdowns from last year are still having an impact on raw materials, as seen with recent news about shortages in everything from computer chips to plastics. Indeed, supply chain concerns came up frequently in distributor survey responses.

The industrial sector reports extended lead times and building backlogs. It’s having an impact on growth ability. Said one industrial respondent, “Upward trends would be better if we could deliver material.” The same goes for the electrical sector, where a respondent reported, “PVC, conduit, breakers and panels are some of the biggest problems in sourcing products right now.”

3. Room for technology improvement

When asked, “What challenges do you face with integrating new technologies into your operations and workflow?” responses were not surprising: old-school mentalities, existing software integration issues, resistance to change — the usual issues. The good news is, we’re here to help. Join us for our Digital Distributor Summit on Tuesday, June 29, where we’ll address these challenges and much more. Visit mdm.com/the-digital-distributor-summit/ for all the details.