Deflation, Employee Costs Threaten Industrial Distributors

Compiled ByTraci Purdum Declining product prices, imports and rising employee costs are negatively affecting the profits of U.S. industrial distribution companies, according to Pembroke Consulting, a Philadelphia-based management consulting firm. "Over the last decade wholesale prices for industrial products increased a mere 1.4% per year and were actually deflating in early 2002," says Adam J. Fein, president of Pembroke Consulting. In addition to falling prices, Pembroke Consulting found that personnel costs for distributors are growing at 4% per year. And according to an industry study, health-care premiums increased an average of 19% in 2002. "If this scenario continues over the next three years, we estimate a typical industrial distribution company could experience profit declines ranging from 25% to 50% or more," says Fein.