PERSPECTIVE: Fein: Distributors Sold $20.4 Billion in Fasteners in 2005

John Wolz

A total of 3,750 North American fastener distributors sold $16.5 billion of fasteners in 2005, according the 2006 Wholesale Distribution Economic Factbook. Other distributors sold another $3.9 billion in fasteners for a total of $20.4 billion.\
Adam Fein of Pembroke Consulting Inc. estimated that last year”s distributor sales for the handtools & fasteners category increased 8.7% over 2004.
The 3,750 distributors received $21.7 billion in total revenue, with 76% coming from fasteners.
Fein told FastenerNews.com he compiled the book because statistics are so difficult to find in the $3.6 trillion U.S. wholesale distribution industry. He provides data on revenue and employment, the number and size of distributors, gross margins, wages, and other operating statistics for 111 sub-sectors of the wholesale distribution industry.
One of the motivations for compiling the book was the resurging acquisition activity. “We get called so much from private equity and investment firms looking to acquire distribution companies,” Fein explained.
Pembroke”s numbers are based on information collected by the Census Bureau, the Bureau of Labor Statistics and the Bureau of Economic Analysis. Some data were collected as part of the 2002 Economic Census and statistically adjusted based on Pembroke”s proprietary analyses of the wholesale distribution industry.
Fein finds the Economic Census “provides the most reliable information about economic activity because it has participation rates of 90% to 100% and is validated through confidential sharing of company data with the Census Bureau.”
“The figures may differ from data reported in trade association reports, which typically have lower participation rates than the Census,” Fein explained.
The 128-page book is available from Philadelphia-based Pembroke Consulting for $1,250.
Total revenues of wholesale distributors grew by 8.9% for the year, exceeding Pembrooke”s 2005 forecast of 7.7%. Fein attributed the growth primarily to higher-than-expected commodity prices.
” Many distributors report higher revenues but shrinking employment due to increased productivity. Distribution employment growth was only 1% over 2004 “as wholesale distributors benefit from product price inflation and the application of technology to operations.”
” Despite an uptick in consolidation activity in 2005, most distributors are small and medium-sized private companies. Less than 1% of the country”s 270,000 wholesaler-distributors have annual revenues above $100 million.
” Total revenues for wholesaler-distributors of building and construction materials grew by 6.7% in 2005 to $147.5 billion. “This is one of the few wholesale distribution sectors not to have experienced any year-on-year sales decline during the past five years due to the strength of the housing market and the rebound in commercial construction,” Fein explained.
Private residential construction grew more than twice as fast in 2005 as non-residential construction. Home building growth has been slowing due to rising mortgage rates. Public construction activity is up almost 12% from last year due to the federal highway spending bill and post-Katrina rebuilding.
Private non-residential construction, which contracted sharply in 2002, was up 3.5% in 2005. The commercial real estate market looks very promising for 2006.
” “Product inflation boosted top-line revenues of wholesale distributors without requiring an equivalent increase in labor costs. Prices lumber products and other construction materials spiked in 2004 but have subsequently moderated.
” Revenues for industrial distributors rebounded in 2004 and 2005 along with the U.S. manufacturing industry. Total revenues for the more than 43,000 industrial distributors reached $316 billion in 2005, up 15.5% from the previous year.
” U.S. manufacturing capacity utilization is now running above 80%, substantially up from the twenty-year low of 72% in 2001. Many economists expect capacity utilization to rise to 82% by the end of 2006, suggesting increased capital investment and continued growth for industrial distributors.
” The weakest part of the U.S. manufacturing industry continues to be the automotive vehicle and auto parts manufacturers. Shares of General Motors fell to a 23-year low in December 2005 and Toyota is expected to surpass GM as the world”s biggest automaker by volume this year.
” “The economic rebound has allowed industrial distributors to work down excess inventory in 2003 and 2004, bringing the inventory-to-sales ratio back to historical averages achieved during the 1990s.”
Editor”s Note: For information on the 2006 Wholesale Distribution Economic Factbook contact Pembroke Consulting Inc. Tel: 215 523-5700 Web: PembrokeConsulting.com �2006 FastenerNews.com