Volume 14, Issue 8- October 2013
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/ National Association of Wholesaler-Distributors (NAW) Institute Distribution Monitor.
Distribution executives in general have a positive outlook for the near future, with 87 percent reporting that they are optimistic about growth prospects of their own businesses in the coming year, and 75 percent 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 percent.
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 percent) and health reform implementation (72 percent) were tied for the most commonly cited threats to growth, while with the increase in payroll taxes for Social Security and Medicare (71 percent), and the federal deficit (69 percent) close behind.
“Wholesale distribution companies are growing, and the vast majority expects to continue growing in the coming year,” says Patrick Larmon of Bunzl Distribution USA Inc. and 2013 NAW chairperson of the board.
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 percent.
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 percent in 2012; 84 percent of executives expect increases in energy/utilities costs in 2013 (an average of 4.5 percent), compared to 70 percent in 2012; and 83 percent of executives expect increases in costs of inventory/materials/components in 2013, compared to 73 percent 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 percent of distribution executives report that their information/data is at little or no risk, a drop from 79 percent in 2012. At the same time, distributors are taking steps to manage IT-related risks, with 62 percent of distributors reporting that they have an IT risk management process, and 72 percent indicating that they regularly monitor systems to find threats and attacks that might have occurred.
The survey was sponsored by McGladrey LLP, 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).