As the year 2012 was coming to an end, wholesalers across the board were reducing inventories as the fiscal cliff was beckoning on top of the usual floor taxes that keep inventories at minimum levels.
This brought the ratio of inventory to sales down well below the 1.20 levels which had been achieved at the technical end of the financial recession crash early in 2010. Since then it has been relatively consistent as wholesalers retreated to levels limited to those indicating no speculation for business expansion, a sign of pessimism regarding economic improvement in the forthcoming months.
Although a similar ratio existed during the economic “hot spell” preceding the mid-September financial downturn, it then reflected distributors’ inability to keep goods in stock due to the much higher sales levels that existed in the mid-period of the century’s first decade.
With imports still comprising a substantial segment of consumer, as well as producer goods, the optimum import orders to receive the best price breaks require extraordinary volume, usually difficult for most distributors, falling into the “small business” category, to handle cost-effectively.
This has given rise to a growing number of “master distributors, who are better financed to build up large inventories, especially in the arena of slow movers, which a great majority of wholesalers tend to stay away from.
In my area of expertise, the pipe-valve-fitting sector which primarily depends on all types of residential, commercial, and industrial construction, as well as maintenance, the “master distributors” exist almost exclusively to support conventional distribution. This is especially true in the wake of new federal regulations, as well as Environmental Protection Agency restrictions, which threaten badly needed expansion opportunities in the surging energy sector.
Most of such super distributors have been scrupulously careful not to circumvent conventional wholesalers; and to reach out to end users or contractors, since such circumvention leads to aversion by the wholesale distribution fraternity at large. This “going direct” would undermine the stability of a system that has proven remarkably successful in the orderly system of bringing the vast majority of goods to market— even at this time of economic uncertainty.
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