Wholesale bypass will limit the extent of revenue growth and keep profit margins modest
New York, NY (PRWEB) September 10, 2014
The Tool and Hardware Wholesaling industry distributes fasteners, hand tools, power tools and other products. Wholesalers purchase products from upstream manufacturers in bulk and distribute them to customers in the manufacturing, construction and retail sectors at low prices. By definition, the industry does not sell directly to households, who may instead purchase industry products from retail intermediaries. The industry's performance is tied to the general level of economic activity, particularly in the manufacturing and residential construction sectors. According to IBISWorld Industry Analyst Amal Ahmad, “A sluggish economy has precipitated weak industry growth, with revenue growing at an annualized rate of 1.6% in the five years to 2014.” This includes forecast growth of 0.2% in 2014 alone, bringing total revenue to $9.5 billion.
This industry depends on demand for tools and hardware in downstream markets. However, it also depends on the extent to which demand is fulfilled through wholesalers. Wholesalers, like retailers, are an intermediate part of the supply chain that adds value from manufacturer to end user; however, such an intermediary also takes a cut of the profit. Markets, including downstream industries and hardware retail stores, may attempt to contain purchase costs by buying directly from manufacturers. In the end, the decision to do so, or to bypass wholesalers, depends on the ability of the manufacturer to offer the same value added, including customized and competitively priced distribution, in a cost-effective manner.
Over the past decade, wholesale bypass has presented a growing challenge to this industry. While wholesalers are still able to compete effectively with manufacturers on small orders, manufacturers often have an advantage in filling large orders, since these can be produced (and therefore distributed) at lower costs per unit. “In turn, wholesale bypass has intensified competitive pressures in this industry, forcing operators to look for ways to improve inventory management and cut unnecessary costs,” says Ahmad. Consolidation has presented one way of doing so, with fewer wholesalers controlling a larger number of facilities over the past five years.
Going forward, IBISWorld expects improving construction markets and government spending to boost demand for hardware. Still, bypass will limit the extent of revenue growth and keep profit margins modest. Overall, IBISWorld expects revenue to grow in the five years to 2019.
For more information, visit IBISWorld’s Tool and Hardware Wholesaling in Canada industry report page.
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IBISWorld industry Report Key Topics
The Tool and Hardware Wholesaling industry wholesales a range of hardware products including fasteners, hand tools, power tools, locks and keys, metal knives and saw blades. Wholesalers purchase products in bulk and distribute them at competitive prices to users in the manufacturing, construction and commercial sectors. However, this industry does not distribute motor vehicle hand tools or machinists' precision hand tools.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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