WF&FSA: Overview Of Financial Performance In Distribution, All Industries

The year 2009 represented the third straight year that return on assets declined in distribution in all industries. The composite figure of 6% was the worst since Profit Planning Group started conducting financial research twenty-five years ago.

The chief culprit, of course, was declining sales volume. Unlike the last two years, sales fell in all three key industry segments—construction, industrial and consumer good. Only a couple of individual industries—out of thirty four that were analyzed—experienced sales growth.

Firms fought back by getting control of their gross margin percentage after two years of systematic declines. The only segment that continued to have a margin decline was industrial and even here the decline was small.

The increase appeared to reflect two issues. First, there were major opportunities to buy advantageously. Second, firms began to think about pricing across the product line in a much more strategic way. This allowed them to generate margin on the slower-selling end of the product line.

Unfortunately, the margin increases were almost always offset by increasing expense percentages. Simply put, firms were unable to shed expenses as rapidly as sales declined. While most firms did a yeoman’s job in controlling expenses, there were simply overwhelmed by the magnitude of the sales declines.

Finally, accounts receivable collections rose slightly in the two segments most impacted by sales declines—construction and industrial. The fact that the collection period did not expand further again reflects strong performance by distributor organizations.

Source: Wholesale Florist & Florist Supplier Association