Momentum and persistent headwinds shape distribution outlook for 2022

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U.S. retailers had a record year in 2021 for revenue while protecting margins – despite continued pandemic and supply chain pressures in the second half of 2021. And the outlook for 2022 is positive, as economic and market indicators point to disruptors of the “new normal”. stabilization. These are some of the takeaways from the MDM 2022 Annual Distribution Industry Outlook webcast (access on-demand here).

We are in an early-cycle economy that is accelerating, said David Manthey, senior research analyst at Baird. And while the frenetic pace of the construction and building materials sectors is slowing, the industrial sectors are well positioned for growth and prices in 2022 and beyond. Manthey presented an overview of economic performance and key indicators for the industrial sector, as well as the fourth quarter 2021 results of the latest Baird-MDM industry survey.

Total U.S. wholesale distribution industry revenue in 2021 rose 22% to around $7 trillion, according to analysis presented by MDM’s Tom Gale on the performance of 19 major industries during the pandemic and expected revenues until 2024.

U.S. distributor revenue grew 22% in 2021 to around $7 trillion, after declining more than 4% overall in 2020. MDM’s 2022-24 baseline forecast shows 10% growth in 2022, 2.6% in 2023 and 3.4% in 2024. the 2022 MDM Industry Outlook webcast for more details.

Cause for optimism in the fourth quarter survey

Manthey noted that there is cause for optimism, especially as respondents to the quarterly survey of more than 500 industry, construction and building materials distribution executives recently increased their growth forecast for 2022. the growth expectation in the survey in 2022 was around 7%, but today it’s 8%,” Manthey said. “So I think the takeaway is that the forecast for 2022 is a little better and a little more encouraging than it was just 90 days ago.” Responding to a question about the impact of pricing on positive growth rates, Manthey noted that, overall, they seemed relatively even.

Based on the latest Baird-MDM survey, a two-year stacked analysis, which sums the growth rates of the past two years to eliminate fluctuations, indicates an improving trend in the first quarter of 2022 in industrial products, construction and electrical/data communication sectors.

There is momentum for these beliefs, Manthey noted, especially when looking at survey responses to the 4and Quarter 2021. The industry saw +9% year-over-year growth in the last quarter, and construction products grew by +10%.

“We ended the quarter very strongly up,” wrote one survey respondent. “In December, our recorded sales were better than November and equal to September/October, which is exceptionally strong. But orders are not the problem. Supply chain and profitability are the problem.

Indeed, supply chain crept into Baird/MDM’s quarterly survey, as part of an open-ended question about “what’s going on in your world?” In Q4, 17% cited “supply chain constraints” as an issue in their lives, up from 13% in Q3 2021.

“One of our survey respondents, a distributor of valves and fittings, told me his business was down 50%,” Manthey said. “He said he was reading about supply houses, business is booming and things are going well. But it’s not for him, and I think the reason I mentioned that is in the event that there are supply shortages, a lot of larger companies have better access to product than smaller companies , and we’ll see how long this continues, but let’s just say it’s still a problem in 2022. Hopefully we start to fix this, but there’s no sign of it happening just yet.

Impacts on prices and inflation

“Prices are always positive; it may not be accelerating at the same rate and may plateau, but it is still positive and net-net, even though the rate of change may peak at a high level, we believe that 2022 will still be a year of price increases positive,” Manthey said. “Manufacturers are mostly saying they expect to push through price increases in the second half of 2022. That could continue into 2023. I don’t think we see an end in sight here.”

Another key theme is strong demand and limited supply which is supporting good price realization, while strengthening margins. Survey respondents had a lot to say about this nationwide phenomenon:

  • “Costs continued to rise, but we were able to capture the margin with price increases.”
  • “The price increases from manufacturers are overwhelming. For the most part, we are able to pass them on to customers. There is less price sensitivity from customers on items that are in short supply. Customers just need product.
  • “Due to current supply issues, many customers were eager to order products. Price was a secondary consideration. Prices and margins increased.
  • “Availability prevailed over price.”
  • “The market is positioned to be able to pass on appropriate price increases, customers are aware of global supply constraints and have a better understanding that price increases need to be accepted to maintain a more reliable supply chain.”
  • “Revenues and prices outpaced cost increases. These two elements helped to improve margins. »
  • “Due to supply limits and manufacturers’ price increases, distribution had no inventory cushion and had to immediately pass the increases up the supply chain.”

For a deeper dive into the core market and economic factors shaping 2022 and beyond for the distribution industries for your specific product sector, watch the MDM 2022 Annual Distribution Industry Outlook webcast (on-demand access here).

MDM Premium members have access to the quarterly MDM MarketPulse report, which provides comprehensive analysis of the Baird-MDM monthly industry survey, which compiles trends in revenue, price and other performance in the sectors of industry, construction and building materials based on responses from more than 500 retail executives representing more than $100 billion in revenue. Learn more about an MDM Premium subscription.

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