Episode 22 Jan 14, 2021

The State of the Industry in 2021 with Industrial Distribution’s Mike Hockett

Mike Hockett, managing editor at Industrial Distribution, joins our first episode of the new year to share findings from the publisher’s recent 2020 survey and talk about what lies ahead for industrial distributors in 2021. Listen to hear about the surprising cost-cutting measure distributors have undertaken during the pandemic and why many had a digital wake-up call in 2020. Mike and host Lindsay Duran also project the most in-demand product categories in 2021 and tackle the big question: to compete with or partner with Amazon Business?


Mike Hockett

Mike Hockett

The pandemic has served as a major wake up call to a lot of these distributors to realize how outdated some of their previous technology was, and that they needed to get on board (with new technology) to manage these chaotic changes that the pandemic has caused.
- Mike Hockett, Industrial Distribution

Episode Transcript

Lindsay Duran: Welcome to B2B Reimagined. My name is Lindsay Duran, and I'll be your host for [00:01:00] this episode. Our guest today is Mike Hockett, Managing Editor at Industrial Distribution. Mike, thanks so much for being here.

Mike Hockett: Thanks for having me and happy late new year to everyone. Yeah, it's great to be here.

Lindsay Duran: Happy new year to you as well. Before we get started, why don't you tell us a bit about yourself?

Mike Hockett: Sure, like you said, I am the Managing Editor at Industrial Distribution. We are a B2B trade publication that, given its name, covers kind of everything going on in the industrial distribution sector, whether that covers news regarding distributors and suppliers, especially mergers and acquisitions. We provide a lot of thought leadership, blogs, and articles about distributor operations. Yeah, just any topic you can think of that relates to industrial distributors and the products they carry. We try to cover that as widespread as we can. That's what Industrial Distribution does through our website, newsletter, a lot of lead generation projects out there.

We survey our audience for a [00:02:00] lot of just new statistics that we can provide. We have our print magazine that comes out every year. Yeah, we have a lot of avenues that we try to get information and thought leadership to as many people in the industry as we can.

Lindsay Duran: Excellent. We're thrilled to have you on this episode.

I know that 2020 was quite the challenging year for everyone. But certainly, distributors were heavily impacted with a number of new challenges that maybe they haven't faced before. You guys recently published a survey about the impact of the pandemic on distribution. Can you tell us more about that survey? Who was involved and what were some of the key findings that you observed?

Mike Hockett: Sure. So yeah, back in early October we deployed I think it was only a 10 or 11 question survey. Basically, trying to reach distributor executive titles or anyone in the kind of upper management, really asking about their technology usage or adoption of technology and as it [00:03:00] relates to the pandemic and how it has evolved.

So, some of the figures might be slightly outdated just because the pandemic has caused so much fast moving…just a lot of changes that are rapidly evolving, but I think a lot of the figures that we came out of that survey with are still very relevant. Yeah. I think the core message that we got out of that survey about technology adoption, was that the pandemic has certainly accelerated distributors either adoption of technology or the plans for it.

It definitely seems like the pandemic has served as a major wake up call to a lot of these distributors to realize how outdated some of their, either previous technology was, or just that they needed to get it on board to whether it's to manage some of these chaotic changes that the pandemic has caused, or maybe it's something that they've been needing for a long time.

For years past that they finally due to the pandemic, they were like: “Alright, this makes sense to get on board with it now.” [00:04:00] I think the most interesting statistic that came out of that survey was one of the first questions we asked was “What measures have you taken to cut costs due to the pandemic?” A during March and April and May, so many of the headlines on our website in the news that we covered, was about distributors and major suppliers talking about all these major cost cuts that they had to enact just to financially navigate the pandemic. And sadly, those were often in the forms of staffing cuts, job furloughs, hiring freezes, major cuts to capital spending.

So, when we ask this question “What measures have you taken? We expected the most popular answers to be among those that I just mentioned; job cuts, hiring freezes, and those were some of the popular answers. They were selected between 28 and 37% of our respondent pool. And that pool was about a hundred distribution managers and executives.

But what was [00:05:00] surprising was that the most popular cost cutting measure selected was the one stated: “Negotiating with suppliers on price terms or inventory issues.” And that was chosen by 57% of our respondents. So significantly more than those other common expected cost cutting measures. So yeah, the need to negotiate with all these new suppliers, especially out of PPE and janitorial sanitation products.

Yeah. It definitely showed that there was the need to negotiate with these new suppliers or existing suppliers on the price terms and inventory of those products. So yeah, just recapping that survey we did in October, I thought that was the most surprising or eye-opening statistic. That was the top option for the cost cutting measure that these distributors enacted.

Lindsay Duran: That is quite interesting.

And certainly, sounds like that put significant pressure up the chain, the supply chain. And I think if there's one thing we've [00:06:00] all learned in 2020 is just how interdependent and connected we all are, in so many ways, than maybe we realized before. I'm interested to hear, Mike, if beyond the cost cutting measures, if you had any statistics or results or even anecdotal evidence from your discussion with distributors, about other ways that they could go about making margin improvements. Cost cutting can really only go so far. And there's certainly a limit to the impact on that. But have you seen distributors with a renewed focus on how they're pricing their own products during this time?

Mike Hockett: I haven't had detailed conversations with distributors on this. I think just the overall topic of technology adoption definitely involves pricing, technology and pricing software.

When we asked in that October survey COVID-19 has accelerated distributors plans for a technology adoption. [00:07:00] More than 61% of our respondents said that it has. And then side by side with pricing technology, some discussions I've had with other distributors, whether it's for other articles I've written and things like that.

They said that forecasting technology, as it relates to ERP and pricing has definitely played a huge role just because is in terms of forecasting, whether it's inventory levels or forecasting how much of a hit that supplier customers are going to take in reaction to what happened with the pandemic, especially in that March, April, early May timeframe when everyone was initially reacting to supply chain impacts of the pandemic. And you can only imagine just the kind of chaotic scene that would have created in the pricing element of these distributors having to suddenly negotiate with all these, in many times, international suppliers, unfamiliar suppliers, to get this new inventory of PPE and Jan [00:08:00] San products that a lot of these distributors had some in inventory up. Like, almost every industrial distributor has going into the pandemic already had some inventory of PPE, but the massive challenge was scaling that up to major levels in a short timeframe.

Yeah. It just suddenly led to distributors having to work with these new suppliers on pricing. I think software and pricing technology would play a large part in that. Just providing data instead of just these distributors, having to go with gut reactions or just having to lean on experience, as far as when they're negotiating these pricing terms of products with unfamiliar suppliers.

I think pricing technology would play a huge role in having a historical data on the pricing of these products and what they should be priced at, even when these products are in high demand. Yeah. I think pricing software has played a large role and has been a huge asset for distributors [00:09:00] during this chaotic period.

Lindsay Duran: Absolutely. You mentioned that companies in the space have been a little bit slower to adopt technology in the past. Why do you think that's been the case?

Mike Hockett: I think just when people think of industrial distribution, even those in the industry, I think when the economy is churning along, I think it's just easy for people in this industry to just go with the flow.

And yeah, it's just such an old school industry. It's been around since the 1800s, going back to the blacksmith days. And I think just when the economy is going well, I think there's a notion that just to ‘get set in your ways’ when it comes to technology and ‘what's working well, it's always going to work well.’

And even coming out of the 2008, 2009 recession, as far as what we could see, there wasn't a huge push for technology adoption, even though it caused a lot of the same supply chain effects that we're seeing with the pandemic…maybe nothing nearly to the [00:10:00] current scale. Yeah. You would have thought that a major economic crisis would have spurred distributors to get with the times when it comes to technology. It's just the nature of the industry. I think, with such an old industry, and with an industry that relies on these relationships that are sometimes decades long with certain suppliers. Yeah. I think it's just an industry that's really set in its ways. It's a generationally family-owned industry for the most part.

Companies like Granger and Fastenal and all these distributors on our big 50 would garner all the headlines. But the vast majority of the industrial distribution market is still comprised of these small, independent distributors that often either just lack the capital or the personnel, or just the wherewithal to adopt the technology that's really needed to succeed here.

In a nutshell, I think it's just the nature of the industry and how it's evolved as to why it's behind the consumer world when it comes to technology adoption. [00:11:00]

Lindsay Duran: You mentioned the reliance on relationships, Mike, and something that I think we've all had to adapt to is the nature of remote work.

And while certainly not everyone has been able to work remotely, for those folks that have jobs that allow them to work remotely, and certainly, there are roles like that within distribution businesses, how have you seen distributors adapt to more, I'll say, remote selling when they're used to in-person visits to their customer, to the factory of their customer? How have you seen that evolve and what do you expect for that to continue into 2020?

Mike Hockett: I think we've all kind of heard, whether it's from peers or just friends that work in certain industries that may have said, “Oh, we could never do remote work” or “these kinds of jobs could never be done remotely.” And we've found out because of the pandemic, these companies, whether it's in distribution or [00:12:00] other industries that these jobs, many of them, can be done remotely, or at least predominantly done remotely, when need be.

Everyone's kind of had to be forced into figuring that out on a short notice. So, when it comes to office jobs in distribution, it seems like across most of north American distributors, their offices are operating with as few people in the office as they can and still get by. And you can imagine a lot of the office titles for distributors are jobs that can be done remotely. But certainly, there are those jobs, like you mentioned, field sales, that are really focused on face-to-face selling. Those are the ones that have probably had the hardest learning curve here as we've gone along. I just had a video interview with, I'm blanking on the industry expert, that the whole topic was “how salespeople have adapted to virtual selling.”

You would think that the [00:13:00] younger, maybe the newer salespeople would have the most natural adoption, just being tech savvy as it is. But what he's found, our industry expert on this topic, was it's really been at those kinds of seasoned salespeople that have been with a firm for 8- 10 years or more, that seemed to be doing the best in terms of this virtual transition.

It seems like a lot of the core selling aspects in terms of the sales process. There's not a huge change when it comes to that. Obviously, there's the differences of not having a physical product to show off in most cases. But in terms of the general selling process in terms of, going from a cold call to working out negotiating terms, things like that, a lot of that has stayed the same.

I'm not involved in sales myself. But yeah, I can definitely see that, for a lot of the industry, I think that our expert told us that he figured that about 60% of just distribution salespeople are struggling with virtual selling. And [00:14:00] you've got to think that the salespeople are doing a lot better now than they were maybe in March, April, or May when they were just figuring out virtual selling.

But yeah, I assume that even right now, it's still a struggle for a lot of salespeople out there who are really used to being at customer locations, just doing a lot of handshaking, going to trade shows, selling kind of that way, that all of a sudden have to do it on a remote basis. So, I don't really have an answer as to how people are virtual selling. But yeah, it's definitely a struggle for a lot of people out there. But hopefully it's gotten to the point where at least half of the salespeople in this industry or have got to figure it out.

Lindsay Duran: Sure. That's very interesting. Your observation or your expert's observation about the more seasoned sales reps being more equipped, maybe more comfortable with the sales process, and are able to more easily transition to virtual. Shifting gears a bit, thinking about 2021 and beyond, I [00:15:00] think we certainly expect virtual selling to continue, or at least in part, or maybe people believe that’s, perhaps, a more efficient way of going about selling and it becomes more of a hybrid approach. But I want to ask you about some other trends that you foresee continuing or are really taking off in 2021. One of those is likely to be the rise of eCommerce. Can you talk a little bit about how you see distributors responding to the need for more robust eCommerce systems?

Mike Hockett: Certainly, and eCommerce adoption is a good topic on our publication for years now. We survey our audience every year, especially over these last, ever since eCommerce really became popular, kind of in the early 2000s. And yeah, we've surveyed our audience saying, “Hey, do you have eCommerce? Do you plan to get eCommerce?”

And the percentage has marginally ticked [00:16:00] up each year, but even in our most recent survey in 2020, where we, I think we had over 400 respondents, not even two thirds of distributors said that they currently have eCommerce. And that this was the survey was done in March, just as the pandemic was just taking off in North America.

So, you have to consider that part of it. But even with that, it's always been surprising that not quite two thirds of industrial distributors at least, only two thirds have eCommerce. You would think that, at this point in 2020, almost everyone would be on board. But going back to the notion of distributors just being set in their ways, slow to adopt technology.

Yeah. I was always surprised, just over the years, whether it's talking with distributors over the phone or going to their locations and talking to them, there was a lot of these distributors, even midsize distributors that, they say are completely focused on relationship selling and they don't want to be seen as a [00:17:00] just a website that sells products.

And while that's understandable. Yeah. There was just always that part of me that's like: “Yeah, I get that.” But you have to at least have some element of eCommerce. Otherwise, you're just falling further behind. And I have to think that the pandemic is at least been a real instigator for these companies that were yet to get with the times.

Yeah. I'm hoping that it has spurned them to at least start thinking about eCommerce and putting a plan together instead of just saying: “Oh, maybe we'll get to it when we really need it.” And then you've got these other distributors that are, small, like family-owned, that might only have a dozen employees that have had eCommerce in place for over a decade.

It's really a case-by-case basis. When you look at this industry in terms of who you expect to have eCommerce and who still doesn't. Yeah, you would think that everyone that does at least, $10 million in sales, that you would think that everyone at that threshold or larger should have eCommerce in place. But I've talked to plenty of industrial [00:18:00] distributors that have more than $10o million dollars in annual sales, and they still either don't have eCommerce or just in infancy or just starting to get the plan together about it. Yeah, it's really a case-by-case basis. But I have to think that the pandemic is going to accelerate that adoption just because you see that the amount of PPE and janitorial and sanitation products, the volume of those sort of products that are being moved all of a sudden, and the inventory that's being ramped up.

ECommerce is a great way to assist with that in terms of finding suppliers, getting inventory in your system, and letting people know about it. ECommerce is one of the greatest tools that can do that right now. I definitely expect to see an uptick in that adoption rate. I'm hoping that at least in our next survey, I'm hoping that percentage is well above two thirds. Hopefully it's closer to 75% closer to 80%.

That'd be a great number, too. Yeah, we'll do that survey again this [00:19:00] coming March. Yeah. Looking forward to seeing what that updated figure would be at this point. It just seems if you don't have eCommerce or don't have a plan to get eCommerce, yeah, you're just falling further behind at this point.

Lindsay Duran: Absolutely. Do you see that distributors are showing, I'll say a greater concern, over Amazon business and competition from them? I asked that last year around this time. I spoke to a group of heavy-duty parts distributors and asked the question if they were concerned about Amazon business. And I was shocked at how few people raised their hand.

And so, I'm curious, from your readers, and what you're hearing in the industry, if concerns about Amazon business have grown substantially over the course of the past year?

Mike Hockett: Any article or news kind of posting that we have that has Amazon business in the headline, or that just has Amazon [00:20:00] business as the topic is always some of our most-read content.

So, it's definitely top of mind for this industry. And while Amazon business has been notoriously really tight-lipped when it comes to sharing numbers regarding the size of their business and how, what their annual sales are, profits, anything like that, I think the general assumption in this industry is that if Amazon business did have a dollar amount attached to them, they would probably be considered maybe the largest industrial distributor in this industry.

Even either the same size or larger than Granger, which is the first company that a lot of people think of when they think of industrial products. Yeah. A lot of people think that Amazon business is already at that same size when it comes to B2B product sales. Yeah. Amazon business is definitely considered a threat in this industry.

I think it's just that element of the unknown. Everyone knows Amazon business [00:21:00] is huge and they're growing fast, but we just don't know exactly how big they are and what their trajectory is right now. But yeah, I think it's definitely with those things. Amazon business is interesting in that it is seen as a competitor, but it's also seen as a sales channel for existing distributors. There's the notion of… “Do you want to compete against Amazon, or do you want to, if you can't beat them, join them?” …sort of thing.

There's a lot of distributors that use Amazon business to sell excess inventory. And you would think that's a way of cannibalizing the industry if you're doing sales through a company that's also taking market share from you. But just from a dollar and cents standpoint, it does make sense to find different avenues to sell, whether it's oversupplied inventory or just inventory that's moving really slow. Amazon business and other online marketplaces like eBay and things like that: these are channels that make sense for distributors to sell kind of some of that excess inventory on. And I think one of the reasons they [00:22:00] do that is because Amazon gives you the option to sell under a different name.

If you're XYZ distributor, you don't have to sell on Amazon business as XYZ distributor. You can use any kind of ghost name that you want just to protect your reputation that way. But yeah, so Amazon business has a large presence in this industry. It's definitely seen as a threat out there to taking market share. But it's also seen as almost an ally in providing an additional channel for distributors to sell via eCommerce.

Lindsay Duran: Indeed. It's a bit of a fraught relationship with some pros and cons that's for sure. Mike, what other trends do you see and forecast for 2021 for the distribution market?

Mike Hockett: Sure. We've already covered technology adoption and now just Amazon.

And then when you look at what the pandemic has caused, I definitely see the product categories of PPE, janitorial, and sanitation. They're going to remain very [00:23:00] elevated. I think for most of 2021. I think even as the vaccination it gets rolled out here. It's going to be a slow process. But I think the general consensus or expectation is that things might start to return to what we considered normal by mid, late summer, hopefully.

But I think even when that time comes, once the pandemic has subsided, let's just call it in the fall of 2021, I think sales of safety and janitorial and sanitation products are going to continue to be top sellers in this market. And even, yeah, once the pandemic's over, I think it's going to make sense for these distributors to really maintain some sort of emergency PPE level, just because I think this has shown I think going into 2020, people thought “We're well past where we are very well equipped to handle a major pandemic thing like this.” But I think this past year, and right now, has shown that this could [00:24:00] definitely happen again. I think distributors are going to maintain a high level of that safety inventory that maybe they didn't before.

And even distributors that aren't traditionally involved in the safety product category like electrical distributors and HVAC distributors. I think, even though it was companies are going to keep a fair amount of that inventory on hand, we've heard from different buying groups and things like that that there are a member distributor that aren't, in the industrial or safety space, that have been called upon by their customers. Even if they’re a distributor of electrical products, they have customers asking them for safety and PPE products right now. And that's something that they don't really have expertise in.

Yeah. I think just the pandemic is going to cause these distributors to really ramp up their emergency inventory level of these kinds of products, whether it's for their customers or just for themselves. If, God forbid, a new pandemic happens down the road, [00:25:00] these companies want to make sure that they're well equipped to keep at least themselves safe and be able to operate without much hiatus and operation.

So, I think that's one, just one of the key trends that I see, in least in the industrial sector going forward that PPE is not just going to be a COVID-19 thing. I think it's going to remain an elevated product category for years to come.

Lindsay Duran: Interesting. Certainly, it brings a whole new meaning to business continuity planning that maybe folks haven't really prepared for in the past.

Mike Hocket: And then just going back to the point that you had earlier about virtual selling and just the overall remote work aspect, I do really think it is going to be kind of a hybrid approach going forward. I think, leading up to 2028, I think the remote working aspect had been gaining traction as it was, especially among millennials.

But I think the pandemic has shown that a lot of these companies can do a large amount of remote work without kind of missing it. I do expect [00:26:00] companies to be a lot more accepting of allowing their employees, at least their distribution office employees, to work remotely more often. Obviously, that can't be done in the warehouse.

But yeah, as far as the kind of the back-office functions, I think a lot of that will be a hybrid kind of approach to, “Does it need to be done in the office or can it be done more often from home?” And then there's the whole trade show and industry event aspect. One of the things I look most forward to is traveling to these industry events and trade shows to meet and greet a lot of these companies in person and see their products in person.

And it's really been a bummer over the past year, not to get to do that. We've already seen there's some of these industry events that were scheduled for the spring of 2021 are already either being converted to virtual or being pushed to later in the year when things might be better. Yeah. I think those kinds of events are also going to have a hybrid approach. I think there will still be in-person, industry events and trade [00:27:00] shows. But I think overall they're going to be scaled down. And maybe a portion of those shows that were going to be in person will be made maybe strictly virtually, or in both formats. So yeah, it's going to have a widespread and long-lasting effect.

I think even after the pandemic is over, I think it's going to cause a lot of companies and industry events to rethink the best way to handle things going forward.

Lindsay Duran: Absolutely. Absolutely. Mike, is there anything else that you'd like to add or for our listeners to know?

Mike Hockett: No, I think we covered a lot here.

I think that the industry as a whole is in much better shape than it was in the spring of 2021, when everyone was just reacting to everything. There's a company that immediately comes to mind: Stellar Industrial Supply. They're a well-known industrial and safety product supplier in Washington state.

Their CEO told me recently, back when the pandemic first hit, that they were really just spending those first [00:28:00] few weeks trying to get a grip on things. He even had the quote. I believe he said, “When you get punched in the face by Mike Tyson, it takes a bit to regain your bearings.” And he said that was what it took to get over things.

It took a few weeks to figure things out. But after they had just seemingly endless company meetings, they really got a plan, a smart plan together, and they've been going like that ever since. So yeah. I'm hoping distributors are doing much better right now than they were in the springtime.

I think most everyone has their operations figured out now and a kind of a forward-looking plan. For what they're going to do for the rest of it, as long as the pandemic lasts. So yeah. I just wish everyone the best of luck, stay safe, and keep doing business.

Lindsay Duran: Thanks, Mike. Really appreciate you joining us today and thank you for sharing your insights.

I hope you'll join us back on the podcast later this year and we can reflect on how things have changed.

Mike Hockett: Sure. Thanks again for [00:29:00] having me. It’s been great.

Lindsay Duran: Absolutely. And thank you all for joining us for this episode. You can find a link to the industrial distribution publication in the show notes. If you're interested in learning more about how Zilliant works with distribution businesses, visit us on our website at zilliant.com.

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