Looking Up in a Down Cycle

July 1, 2012
Here are some ideas you can use to ride out a down business cycle.

Having spent my entire work career in the electrical supply business, I have experienced down business cycles while working as a manager and as a salesperson. When I was a young salesperson, during one particular downturn the owner of the company and I had a strategy meeting. He saw that many of our competitors in our market were cutting back on most of their expenses, and that we could use this to our advantage. The CEO told me to spend more money on customer meetings, advertising and customer entertainment.

This strategy resulted in some positive business results. We were able to retain our strong position in the marketplace by keeping our inventory at a high level. This allowed us to continue getting that first call from our customers on their warehouse supply requirements. The factories we represented saw we were carrying their product in depth in our warehouse, and they helped spread the word that our company had not cut back in inventory. The factory reps cooperated fully with us on both warehouse and direct-ship orders. We were able to keep all of our valuable personnel by not reducing salaries or commissions. Company morale remained high when everyone realized that even though overall business conditions were down a bit, the company was going to make every effort to maintain and possibly grow its market share.

Investing in your business when your competitors are cutting back is similar in theory to the contrarian strategy in the investment community of putting your money into beaten-down blue-chip stocks when there's “blood in the streets,” and the masses are selling their shares.

Distributors will always differ in how they handle a downturn. Publicly held companies need to take into account the concerns of their shareholders and may have to be more conservative in their approach, while privately held companies or family businesses can usually take a more cautious approach to reducing inventory and employee expenses and be a bit more aggressive in their expansion plans during a downturn.

The available line of credit a company has at the bank will definitely influence their decisions about any expansion or major investment during a downturn. Companies may also differ in how they utilize their computer system to monitor key financial performance indicators. Time is money and the distributors that can detect a downturn — or the eventual uptick — and adjust inventory levels quickly can add dollars to the bottom line.

That being said, people, product and service are the most important drivers powering any successful company, and how a distributor manages these resources will have the most impact on how they weather any economic storm. When a downturn hits, some distributors take the easy road and just focus on cutting overhead. They reduce people and inventory and cut back on customer service. They may even slash their salespeople's commissions.

These strategies may take the immediate pressure off the overhead expense side of the business, but how will it offset the short- and long-term customer sales position with a company? The only reason a company is in business is to sell products and make an acceptable profit. Always remember that the main reason a customer does large amounts of business with his or her number-one distributor is people, product and service. Let's review several other key strategies to consider during a downturn.

Project a positive attitude

This shows your customers, factories and employees that your company is in business for the long haul and wants to continue to earn large amounts of your customers' business despite challenging business cycles. Staying positive during a downturn will help your company get that all-important first call to serve a customer's daily requirements.

Keep your top salespeople and service personnel if at all possible during the doldrums

Make every effort to maintain your top-performing employees during a down cycle. With 401k plans replacing pension plans at many companies, employees have much more flexibility to move to another company when they feel they are not being treated properly. Competitors may decide to get one or more of your top performers during a down cycle by offering them a one-time deal that may be hard to ignore.

Skilled and experienced salespeople are important to any company. Top salespeople are the faces and heartbeats of the companies they represent, because they represent the company's image and reputation in the marketplace. The old saying, “Nothing happens until you sell something,” will never change.

Maintain service levels with a carefully stocked warehouse

It's important customers know your company will continue to have a strong inventory in the warehouse during the down cycle so they can continue to get the high-percentage fill rate that they deserve on the orders they place with you. This will help you continue to be a customer's first-call distributor.

The factories a distributor represents obviously appreciate it when a wholesaler carries a sufficiently large amount of inventory of their product. And when a customer asks a factory rep which distributor stocks their product in the most depth, the manufacturer will usually tell them. Strive to be that distributor. If your company is in a financial position to make a sizeable investment in inventory, even in a regional or national business downturn, it will improve the morale of your own employees, customers and suppliers.

Keep surprises to a minimum for customers

There really aren't too many secrets about how to best serve your customers. They prefer doing business with experienced sales personnel they know and trust; are always looking for top order-fill rates and competitive prices; and want honest business dealings.

Whatever the economic climate, never forget this is a people-product-service business. Keep those market drivers top of mind and you will improve your chances of success in the electrical wholesaling industry.

A life-long salesperson who loves discussing the art and science of professional salesmanship, the author was president of St. Louis' Glasco Electric Co. for many years and now writes for Electrical Wholesaling on sales topics.

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