Wholesaling in the United States
Bob Vereen presents an analysis of sales and operations of the industry leaders in American wholesaling…
Only a few decades ago, America’s 40,000 plus hardware and lumber/building material retailers were being served and supplied by more than 550 full-line hardware wholesalers – plus thousands of smaller specialty distributors of all types.
Today, the number of full-line wholesalers has dropped dramatically to less than100, the demise of the others in large part brought about by the growth of the three biggest dealer-owned wholesalers, the remarkable growth of giants Home Depot, Lowes and Menards in the home centre field, and Wal*Mart’s rise as the world’s largest retailer (it stocks an extensive line of hardgoods.)
While there are still nearly 100 such wholesalers (some of whom today are more like specialty wholesalers), the industry is actually dominated by six firms, five of them cooperatives owned by the dealers being supplied. Only Orgill, a privately-owned firm, is among the top six, and ranks in fourth place. TruServ, the third largest firm, soon will change its name back to True Value, reflecting its name before it merged with ServiStar Coast to Coast some years back.
Wholesalers always have been a vital link in the distribution chain in America, perhaps more important here than elsewhere in the world. Their role was vital in the early days in providing retailers with local sources of supply because of the long distances between retailer and manufacturer. Amazing climatic differences in sprawling America also dictated different products for different regions, requiring manufacturers to use stocking wholesalers who could deliver products to far-flung retailers when seasonal needs demanded.
While wholesalers play a role in serving smaller hardware and lumber/building material retailers in every nation around the world, in no other country have they attained the size that they have in the US. Dealer-ownership is the reason. It grew here because of the charismatic leadership of a few key individuals such John Cotter (of True Value), Richard Hesse (of Ace) and others.
Dealer ownership encouraged concentration of purchases and operational efficiencies, delivering to member-owners lower costs for goods purchased, as well as the lingering profits of the wholesale operation. It also encouraged offering multiple ways to buy so independent retailers could better compete with larger chain store competitors – ie drop-shipments direct from factory to store, but billed through the wholesaler or pool-buys brought into a single shipping point and then redistributed to individual retailers. Group advertising coordinated by wholesalers also enabled stores to more effectively convey their messages to consumers with colourful, professionally prepared advertising.
The concept of dealer ownership has been exported around the world to other countries, but only in Canada and Australia has it attained the kind of success it achieved in America, though it is also strong in New Zealand, and more recently, in South Africa.
Yet, even within the US-based dealer-owned wholesale ranks, there are significant differences in their operations, as the accompanying charts disclose. The basic data on which these original analyses are made came from Do It Yourself Retailing’s November 2003 issue.
It should prove interesting for wholesalers in other countries to compare their own performance with those of America’s largest firms. Before comparisons are made, however, some operational differences should be stressed:
- American wholesalers do not make all their sales from merchandise carried in their own warehouses. Their sales include orders billed through them but shipped directly from factories.
- The product mix of wholesalers, while similar, will be different and in some case accounts for substantial differences—ie Do It Best Corporation sells far more big-ticket lumber-building materials, hence its sales-per-employee are far higher than others as well as sales per distribution centre.
- Because sales include merchandise not actually handled, sales-per-employee likely will be higher than those for wholesalers with little or no drop-ship business billed through them.
- Purchase figures per store indicate that few, if any, dealers buy 100% of their merchandise from their primary wholesaler. They also buy from secondary wholesalers, specialty distributors, and from manufacturers (such as branded paint lines.) It is felt that normally a retailer will buy from 50-75% of its merchandise from its primary wholesaler.However, bearing those factors in mind, it is interesting to note the differences – sometimes substantial – between the top six American firms.