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Riding Out the Recession

Nov. 1, 2008
Applying these 10 strategies can help electrical distributors survive and thrive in this uncertain economic climate.

Is the American economy in a recession? That depends on whom you speak with. Although second quarter GNP grew at a modest 3.3 percent rate, technically speaking, we won't know if we're in a recession today without looking in the rearview mirror several months from now.

Until the economic picture becomes clearer, what is certain is that the slowdown has hit electrical distributors hard. Small and mid-sized distributors are among those suffering most. Lacking the financial resources of their larger brethren, these businesses are taking the full brunt of the credit crunch. How can electrical distributors weather this storm? No magic formula exists, but following the strategies outlined below can help agile distributors survive, and even thrive, in this challenging economic time.

  1. Monitor receivables

    Payments tend to stretch out when times get tough. To keep business humming along profitably, consider offering incentives such as a discount on the customer's next purchase to get him or her to pay on time. Also, review Dun & Bradstreet credit reports for your current customers to get a heads-up on who might be in trouble.

  2. Diversify

    There's no time like the present to begin broadening the markets you serve. For example, wading into commercial and industrial segments can keep sales up despite a loss of business in residential new construction. Diversification gives a distributor more stability because a new product line, such as video surveillance products or basic data communications equipment, may compensate for a down market in another category. The key is to find complementary items without stretching your expertise or adding greatly to overhead.

  3. Reward loyalty

    The electricians who buy from you are the lifeblood of your business, so protect your turf with regular contact, better terms, value offerings and unique programs. Touch base with customers you haven't spoken to recently. Skip the e-mail and pick up the phone, or better yet visit them on-site. Listen to what they like or don't like about your service, pricing or product line.

    Another tactic is to establish a customer loyalty program that awards prizes for meeting purchase amounts. Hosting training classes creates a strong sense of customer loyalty and interdependence. When times get better, customers will remember the help you offered.

  4. Improve morale

    Good employees are hard to find no matter how economic winds may be blowing. In down times, it is especially important that you retain them. Maintain the incentives, benefits and training programs you've always offered your employees, even if it means dipping into working capital for a few months. Also, reward your sales people with higher, more lucrative incentives for new account acquisitions. Satisfied employees provide improved service and project a healthy business that in turn creates confidence in your customers. Finally, if need be, now is the time to drop poor performers who can hurt overall company morale.

  5. Train employees

    Make your employees more than mere order takers. They can be developed into valued sources of information for electricians to turn to with questions about codes, equipment and accessories that encourage up-selling.

  6. Secure credit

    Credit is tight and it may get tighter in the coming months. Talk to your banker now about credit before you need it, not further down the road when a crisis situation may arise. Take a hard look at your borrowing needs and secure that cash now.

  7. Study margins

    Even distributors knowledgeable of their product mix and pricing structure are not always clear on which tools and supplies are most profitable. In a slow moving economy, high-turn, lower-margin categories are winners because there is a steadier demand for them. And while you may not need to cut list prices on large ticket items, consider offering more pricing promotions and extending credit to customers in good standing.

  8. Spruce up the store

    Create a more profitable shopping environment with a new floor plan, attention-grabbing point-of purchase (POP) displays, in-store customer promotions, and a counter that encourages impulse purchases. Partner with your suppliers to fully leverage the power of merchandising. Cost/benefit analysis of POP is still crude, but if you have bar coding and scanners it's possible to monitor specific product sales during the course of a promotion.

  9. Investigate the competition

    When was the last time you seriously sized up your competition? The fact is you can't beat 'em unless you know 'em. Assign one of your employees to investigate competitor pricing, delivery, product mixes and service policies. If you've lost some of your customers to the guy down the street, now is the time to find out why.

  10. Don't cut marketing

    The Harvard Business Review recently pointed out that businesses that increase marketing investment during a slowdown, while competitors are busy slashing budgets, can gain share at a lower cost than during good economic times. Advertising, direct mail and Internet marketing will help you recruit more new customers. This is the time to get really aggressive. Get the message out.

Finally, dust off your original business plan. Everything you once did to become a successful distributor, you'll need to do again. Better times are coming, but until then stay the course.

The author is business unit manager for Ideal Industries Inc., Sycamore, Ill. Call him at 800-435-0705 or e-mail him at [email protected].