Bottom Line Garry Bartecki
Digitalization-Proficiency-Resilience What a week. Just finished listening to Jim Cramer summarize the Q1 results from the major retailers. Worse than expected, with their stock prices taking a hit. The main reasons for these results are: • Unexpectedly high costs throughout Q1 • Inventory impairments • Sales mix changes • Supply chain disruptions • Freight Costs Revenues may have been close to expectations. The gross margin and the operating margin, however, both missed. Foot traffic was up but sales patterns changed to more essentials as opposed to big-ticket items. The freight and transportation cost increases were staggering. About $1 billion for Target was not expected. I would expect any distributor of prepackaged goods to fall under this array of disruption. Most will be taking hits unless they fall under the “Discount Store” umbrella which is doing better at hitting numbers. The important thing here is that “higher cost,” “inflation,” and “supply chain problems” are now only becoming known in the public sector. Consequently, dealers can expect to be exposed to these issues through their distributor customers and hopefully have courses of action planned out to assist customers and avoid collection problems. Are pre-packaged distributors the only OHIO RACK customers to worry about? I doubt it. Every We BUY & SELL business with a significant distribution function will Portable Stack Racks Flexible Packaging also have to deal with the NEW & USED five “reasons” noted above. And as far as manufacturers 800-344-4164 Fax 330-823-8136 are concerned, they are also subject to the five “reasons,” Email: ohiorack@cannet.com www.ohiorack.com different from the distributor 12
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July 2022
level of disruption, but still disruption that will eat up both time and dollars. One of the major problems deals with the cost and timing of deliveries. Not much you can do about transportation costs unless you move your warehouses closer to both your receiving and customer's locations. It seems that both manufacturers and distributors are analyzing these options to build or rent more warehouses where a high concentration of customers is located. Another show I was listening to discussed how companies are “handling” the cost increases. They are: • Do not pass them on yet. Do so when they really need to. • Pass on 100% of the increases as incurred. • Pass a % of them on for as many years as it takes to recover 100%. Let us assume many of your customers find themselves dealing with the five “reasons,” which of course could cause cash flow problems for them, and then cash flow problems for you. Consequently, tighter customer credit reviews and a weekly review of AR to spot problems before they get out of hand should be considered. To aid in this process you may want to calculate your Days Sales Outstanding at least weekly to see how the trend is tracking, and which customers are causing any increase. After tracking all that is going on in the lift truck industry, the construction equipment industry, the rental industry, and the construction industry, I believe we are in this trick-bag for many years, and no matter what industry you are in there is a need to get more resilient if you hope to maintain your influence in your market area. Let us face it. Customers will be in a state of flux financially, either because of customer problems or the direct impact of the five “reasons” or some combo of the two. Add on to that the price increases in equipment yet to come plus the higher financing costs lead me to believe
