The Economic Outlook for Distribution: Preparing for Recovery

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Adam J. Fein's July 2009 presentation at the AFFLINK Summit 2009

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The Economic Outlook for Distribution: Preparing for Recovery

  1. 1. The Economic Outlook for Distribution: Preparing for Recovery p g y Adam J. Fein, Ph.D. Pembroke Consulting, Inc. www.PembrokeConsulting.com www PembrokeConsulting com AFFLINK Summit 2009 July 20, 2009 © 2009 Pembroke Consulting, Inc.
  2. 2. Key Points The recession is not over, but we are at (or near) the bottom. Many sectors are either stabilizing or just getting worse at a slower rate. • The 2009 outlook for AFFLINK’s core wholesale distribution sectors is poor, but they are on track for recovery in 2010. Be prepared for significant economic volatility and channel risks during the coming economic recovery recovery. • Some of your distributors will not survive, but the winners will be t b stronger and more productive. d d ti • Customers will increasingly adopt supply chain programs such as national accounts and private l b l products. ti l t d i t label d t 2 © 2009 Pembroke Consulting, Inc.
  3. 3. Today’s Recession in Perspective Total Change in Employment (Peak to Trough): Current Recession vs. 10 Postwar Recessions 0 ecline from start of recession 1980 1969 1990 -1 001 73 20 r 197 1960 -2 81 m 198 1953 -3 2007 (so far) 957 Peak % de 19 -4 1948 -5 5 ? P -6 3 © 2009 Pembroke Consulting, Inc.
  4. 4. Employment situation is grim but improving 400 10.0% Monthly Change in Non-Farm Jobs, SA, 000s (Left scale) 200 9.0% 9 0% 0 8.0% -200 7.0% -400 6.0% National U N ti l Unemployment R t l t Rate -600 (Right scale) 5.0% -800 4.0% 2006 2007 2008 2009 2 2 2 2 4 © 2009 Pembroke Consulting, Inc.
  5. 5. Job losses in core AFFLINK End-Markets Change in Number of Jobs (millions): Ch i N b f J b ( illi ) December 2007 through June 2009 Hotel and Office-based* Manufacturing Foodservice Health care +0.6 -0.3 -1.9 -2.2 % Change -7.4% -14.0% -2.4% +3.6% * Information, Financial, Professional, and Business Services 5 © 2009 Pembroke Consulting, Inc.
  6. 6. Employment losses are stabilizing Initial Claims for Unemployment Insurance* National Unemployment Rate (SA, (SA thousands) 700 11% 650 10% 600 9% 550 8% 500 7% 450 6% 400 5% 350 4% 300 250 3% 2005 2006 2007 2008 2009 2010 Apr-08 Oct-08 Apr-09 Jan-08 Jan-09 Jul-08 Jul-09 * Through week of 7/11/09 6 © 2009 Pembroke Consulting, Inc.
  7. 7. Consumer confidence bouncing off historic lows 125 onfidence e 100 Inde of Consumer Co 985=100) 75 (19 50 ex 25 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: The Conference Board 7 © 2009 Pembroke Consulting, Inc.
  8. 8. Horrible Results for Wholesale Distributors % change in revenues, 2006:Q1 to 2009:Q2 Industrial Distributors Commercial Equipment and Supplies Wholesale Distributors Quarterly change from year ago Office Product Wholesalers and Paper Merchants 20% 15% 10% 5% 0% -5% -10% -15% -20% 006:Q1 Q2 Q3 Q4 007:Q1 Q2 Q3 Q4 008:Q1 Q2 Q3 Q4 009:Q1 Q2 20 20 20 20 8 © 2009 Pembroke Consulting, Inc.
  9. 9. Interpreting Inventory Adjustments Total Value of Wholesale Inventory ($B, SA) $450 -$41.7B $425 (-9.4%) $400 Inventory-to-Sales Ratio for Wholesale Distribution Nominal Real $375 1.40 Jul-08 Aug-08 Sep-08 Nov-08 Dec-08 May-09 Jun-08 Oct-08 Jan-09 Feb-09 Mar-09 Apr-09 1.30 1.20 1.10 1 10 1.00 08 08 09 09 09 08 08 08 08 08 09 09 Jun-0 Oct-0 Jan-0 Mar-0 Apr-0 Jul-0 Aug-0 Sep-0 Nov-0 Dec-0 Feb-0 May-0 9 © 2009 Pembroke Consulting, Inc.
  10. 10. Macroeconomic forecasts are stabilizing U.S. Real GDP (Q Q ) (Q4/Q4) 2009 U.S. Real GDP (Q4/Q4), 2.7% 2.7% by month of forecast 2.4% 2.3% 3% 2% 1% 0% -1% -2% 2% May-08 Jun-08 Aug-08 Sep-08 Nov-08 Dec-08 Jan-09 Mar-09 May-09 Jun-09 Jul-08 Oct-08 Feb-09 Apr-09 -0.8% -1.3% 2005 2006 2007 2008 2009F 2010F Source: Wall Street Journal survey of economic forecasts 10 © 2009 Pembroke Consulting, Inc.
  11. 11. The Credit Crunch is Easing Federal Reserve Quarterly Survey of Senior Loan Officers (Commercial & Industrial Loans to Businesses with Sales below $50 million) 100% Increasing Spread over Bank Cost of Funds 75% Tightening Loan Standards Net % of Banks 50% B 25% 0% -25% -50% 2007 Q2 Q3 Q4 2008 Q2 Q3 Q4 2009 Q2 2 2 2 11 © 2009 Pembroke Consulting, Inc.
  12. 12. Signs of life in a depressed construction market Value of Construction Put in Place (Seasonally adjusted at an annual rate) $700 Monthly % Change in Value $600 2% 1% illions $500 0% -1% 1% US $ Bi $400 -2% -3% $300 -4% Oct-08 Sep-08 Feb-09 Mar-09 Apr-09 May-09 Nov-08 Dec-08 Jan-09 $200 003 004 005 006 007 008 009 20 20 20 20 20 20 20 Private Residential Private Non-Residential Public 12 © 2009 Pembroke Consulting, Inc.
  13. 13. Residential housing market is stabilizing New Home Sales Vacant Non-Vacation Homes for Sale (millions) (millions) 1.50 2.50 1.25 2.25 2.00 1.00 1.75 1 75 0.75 1.50 0.50 1.25 0.25 1.00 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009 Number 3 per. Mov. Avg. ( p month Moving (Number) g Average ) g g Number 4 Qtr Moving Average g g 13 © 2009 Pembroke Consulting, Inc.
  14. 14. Residential construction recovery in early 2010? New Housing Starts (single ( i l & multi-unit) lti it) lions 2.25 mill 2.00 2 00 1.75 1.50 1 50 1.25 1.00 1 00 0.75 0.50 0 50 2001 2002 2003 2004 2005 2006 2007 2008 2009F 2010F 14 © 2009 Pembroke Consulting, Inc.
  15. 15. Manufacturers face a global demand collapse… Value of Shipments Global demand drove export-led Nondefense Capital Goods less Aircraft (% Change from Year Ago) manufacturing growth 15% • Computers 10% • Electrical equipment 5% • Industrial machinery 0% -5% The first worldwide depression since 1930s -10% -15% Vehicle sales are at their lowest -20% level since early 1980s -25% 2006 2007 2008 2009 Value 3 month Moving Average 3 per. Mov. Avg. (Value) 15 © 2009 Pembroke Consulting, Inc.
  16. 16. … but new orders show signs of recovery. 60 10% New Ord 55 5% ders, Nonde 50 0% ers Index 45 -5% (le aircraft ess M New Orde efense cap 40 -10% 35 -15% ISM pital goods orders t) 30 -20% 25 -25% s 20 -30% 2007 2008 2009 2 2 2 New Orders, Nondefense capital goods orders (less aircraft), % change from year ago (3 months moving avg) ISM New Orders Index 16 © 2009 Pembroke Consulting, Inc.
  17. 17. Core* Wholesale Distribution Revenue Growth, 2006:Q1 to 2010:Q1 Quarterly change from year ago 10% Forecast 5% 0% -5% -10% -15% 2006 2007 2008 2009 2010 * Core Revenues excludes (a) Oil and Gas and (b) Agricultural products 17 © 2009 Pembroke Consulting, Inc.
  18. 18. Who Will Win in Your Channel? The skill to manage a business well despite a crisis The will to invest when others are pulling back Th till The to fund growth strategies g g 18 © 2009 Pembroke Consulting, Inc.
  19. 19. Channel Survival and Recovery Strategies Distributor Strategies Customer Strategies • Improve internal productivity • Adopt self-service (by cutting) technologies • Improve internal productivity • Leverage strategic sourcing (by spending) relationships • Manage customer • Improve supply chain p profitability y p productivity y • Make strategic acquisitions • Shift to private label of people and companies products 19 © 2009 Pembroke Consulting, Inc.
  20. 20. Our Thrifty Future? U.S. Personal Savings Rate (6 month moving average) 12% 10% 8% 6% 4% 2% 0% -2% 1979 1984 1989 1994 1999 2004 2009 20 © 2009 Pembroke Consulting, Inc.
  21. 21. Additional Resources for Channel Data 2009 Wh l Wholesale Di t ib ti l Distribution Economic Factbook 2009 Wholesale Distribution Economic Reports www.naw.org/wder g http://www.mdm.com/subscribe/factbook2009.html 21 © 2009 Pembroke Consulting, Inc.

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