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The coming shakeout in industrial distribution

And five keys to outperformance in the years ahead

Powerful trends that have disrupted industries around the world are now affecting industrial distributors. A few distributors are moving quickly to create more value by building scale, making dramatic advances in commercial and operational excellence, and digitizing to create the seamless, omnichannel experiences that customers now demand. But we expect slower-moving distributors to struggle—and some to go the way of Blockbuster and Borders.

We also expect the disruption to accelerate. Fast-moving digital players eyeing the industry’s trillion-dollar revenue pools are offering best-in-class customer convenience and more price transparency. Sophisticated customers, armed with new data, are demanding deeper discounts and better promotions on more commoditized products. As manufacturers and customers gain leverage through consolidation, some are forging strong relationships that cut out the intermediaries—leaving distributors in the cold.

These and other challenges come at a difficult time for the industry, whose returns have lagged those of the overall industrials sector for 15 years.

Margins have remained narrow even in the recent economic recovery and under increasing pressure. Indeed, we expect many industrial distributors to lose strong customer relationships in the next few years and become mere links in supply chains, rather than business partners who add value. But while the overall picture may look bleak, we see opportunities across sectors.

A handful of industry leaders are growing share and margin. Based on our research and experience serving clients across industries, we believe that industrial distributors who move quickly can create deeper customer relationships and sustainable competitive advantages to outperform consistently in the years ahead.

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In this report, we present an overview of the industrial distribution industry, including performance across subsectors. We then describe some of the many challenges and opportunities we see on the horizon, and we conclude by outlining the five main advantages that we believe will distinguish outperformers in the decade ahead.


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