Survey shows distributors concerned about political indecision, uncertainty over new regulations

Uncertainty about government regulation and its impact on business growth has become a top concern of executives in the wholesale distribution industry, according to results from the
2013 McGladrey/NAW Institute Distribution Monitor. The survey was sponsored by McGladrey LLP, the nation’s leading provider of assurance, tax and consulting services focused on the middle market, and the NAW Institute for Distribution Excellence, the long-range research arm of the National Association of Wholesaler-Distributors (NAW).

According to this year’s survey results, distribution executives have positive outlooks for the near future, with 87% reporting that they are optimistic about their own business’ growth prospects in the coming year, and 75% reporting optimism for the wholesale distribution industry in general. Sixty-three percent of executives also said they expect to add jobs in the next 12 months, with an average expected increase of 4.4%.

Despite these positive outlooks, survey respondents indicated that they expect their growth to be limited by a variety of issues. While these executives remain somewhat concerned about traditional business factors like materials pricing and the direction of the economy, the top four (out of 17) most commonly cited threats to growth were related to government policy. Government regulation (72%) and health reform implementation (72%) were tied for the most commonly cited threats to growth, while with the increase in payroll taxes for Social Security and Medicare (71%), and the federal deficit (69%) close behind.

“Wholesale distribution companies are growing, and the vast majority expects to continue growing in the coming year.” said Patrick Larmon, Bunzl Distribution USA, Inc. and 2013 NAW Chairman of the Board. “However, these results demonstrate that distributors still face headwinds on the path to growth, and many of them can be traced back to Washington. Uncertainty about government regulation and the impact of policies like health reform have become a major challenge for these executives.”

While hiring is expected to increase, most distribution executives expect a variety of employee costs to increase substantially in the next 12 months. In particular, while wages and other benefits are expected to increase at an average rate of around four percent; executives expect health care costs to rise by an average of 11%.

Distributors are also anticipating significant increases in materials and components costs, and in several areas, concern about these costs is on the rise. Ninety-two percent of executives expect increases in transportation/fuel costs, compared to 77% in 2012; 84% of executives expect increases in energy/utilities costs in 2013 (an average of 4.5%), compared to 70%in 2012; and 83 percent of executives expect increases in costs of inventory/materials/components in 2013, compared to 73% in 2012.

Distribution executives are increasingly aware of the risks associated with business information and data, though they continue to report relatively low levels of risk. Approximately 70% of distribution executives report that their information/data is at little or no risk, a drop from 79% in 2012. At the same time, distributors are taking steps to manage IT-related risks, with 62% of distributors reporting that they have an IT risk management process, and 72% indicating that they regularly monitor systems to find threats and attacks that might have occurred.

“Since the Monitor began accumulating data in 2005, the management of thriving companies has been a topic of interest, said Bob Jirsa, partner – assurance services and industrial products, distribution for McGladrey. “Over the years, the survey results have made it clear that successful distributors are investing in their futures and are more likely than others to put a percentage of their revenue in a number of areas, including continuous improvement, training and productivity, information technology, measurement procurement, acquisitions, and international expansion and exporting.”

For more on best practices of thriving distributors and/or more details about responses from distributors, see the 2013 McGladrey Manufacturing and Distribution Monitor on the McGladrey website.