Strategies for growing in a depressed environment
By Steve Guglielmo
Every year, The MHEDA Journal randomly polls dozens of MHEDA members across North America to gather their economic forecasts for the coming year. Members discuss what trends have emerged, what markets have gotten stronger or weaker and any outside influences that could impact the industry, positively or negatively.
While several trends and topics were discussed, the issue on everybody’s mind this year was the 2012 Election. Would President Obama retain the White House or would Republican Challenger Mitt Romney unseat him to become the 45th President of the United States? In many cases, the answer to that question swung projections dramatically. One member, with a strong economics background, went so far as to predict a 40-percent economic swing between a Romney presidency and an Obama second-term.
The consensus among members is that this election was a choice between pro-business and pro-government policies.
We now know that President Obama was re-elected and that the Democrats retained control of the Senate, while Republicans retained control of the House of Representatives. In other words, we find ourselves in the same place we have been since 2010.
What remains to be seen, however, is the impact of policies and taxes that will go into effect next year: such as the Patient Protection and Affordable Care Act (“Obamacare”), the looming “fiscal cliff,” the debt-ceiling, continued EPA regulations and the proposed expiration of tax cuts enacted under President Bush.
Slight Growth Ahead
It isn’t all bad news, however. Most members expect to see growth in 2013, though perhaps less than it could have been. As a matter of fact, 69.5 percent of distributors anticipate their sales will be better this year than they were last year. Compare that to 65 percent of dealers who expected growth in 2012. A further 19.5 percent expected their sales to be the same in 2013 as they were in 2012, though many of those dealers had record years in 2012 that they expect to replicate this year.
Of the four major segments – Industrial Trucks, Engineered Systems, Storage & Handling and Diverse Products, all expected a net growth in sales compared to last year. Storage & Handling led the way with an expected 5.9 percent increase and 80 percent of dealers expecting growth. Compare that to IT dealers who expect a 4.05 percent growth with only 61 percent of distributors expecting an uptick next year.
As we have seen in the past, MHEDA members are resilient and will do whatever is necessary to ensure growth and prosperity. Though conditions may not be ideal, they are also not nearly as dire as the Economic Collapse of 2007-2010. We have weathered the storm and are now reaping the benefits.
Since the economic downturn, industrial truck distributors have been faced with a new normal. New orders have been replaced with demands for used, rental trucks and fleet management. Customers increasingly are looking to shift the burden of risk onto the dealer. Now, dealers hope that pent-up demand and an increased focus on eco-friendly trucks will carry them to a projected 4-percent increase in 2013.
For Carolina Handling (Charlotte, NC), 2012 was a record year. And CEO Dave Reder expects to improve on that in 2013. “We expect to be up around 6-percent next year,” Reder says. “Getting the election behind us and the economy back on track will drive jobs and demand for equipment.” The company plans on adding a new facility in Greenville, SC, and adding to its reconditioning and training facilities. And Reder doesn’t just see growth isolated to his company or market. “I see steady growth with continued pressure on margins in all areas,” he says.
Paul Spalla, president of Omni Wholesale Equipment (Boerne, TX), also expects to see growth next year. He forecasts a growth of 10 percent. “Our area is in the midst of a drilling boom, which is going to be driving growth for us next year,” he says. Spalla expects the overall economy to remain flat next year, with the impending health care taxes preventing any substantial growth. “There is some pent-up demand, but customers are in a holding pattern until everything gets sorted out.”
Arbor Material Handling Marketing Manager Dave Bennet has agrees that there is pent-up demand in the industry. “Going back five years, we have seen people opting to repair trucks rather than replace them,” he says. “It was cheaper that way. That got people through the really tough times but those trucks are four-years-old now. People are looking to replace them now.” Bennet projects a level year for Arbor (Willow Grove, PA), but notes that the expected addition of a territory salesperson, along with a restructuring that has occurred since hiring a new COO, provides long-term growth potential. “As we hire a new salesman and get him trained, we will miss things that we won’t miss going forward,” he notes. “We hope to have that process done in the first quarter.”
Doug Carson, MHEDA Board Member and VP of Sales & Marketing at Fallsway Equipment Company (Akron, OH) expects a 5-10 percent growth in sales next year. “We expected the market from an ITA perspective to be flat to a 5 percent increase,” Carson says. “But we have a fair amount of future sales already on factory order to be delivered in 2013. This order backlog is historically large for our company going into the new year.” Fallsway is also in the process of introducing itself as the U.S. distributor for Baumann-branded Sideloaders by Bulmor. This introduction will also be a boon to sales going forward.
Lift Pro Equipment Company Vice President and General Manager Craig Schoen expects a relatively flat year in 2013, bolstered with growth in the 4th Quarter that will extend into 2014. “We are at an advantage because segments of the energy industry: coal, wind, ethanol, natural gas production, are all strong and are all in our area,” he says. “And that is to say nothing of agriculture, which is a market with a growing need and that always surprises us.” Lift Pro also expects to see dividends from a radio-marketing plan that the company put in place in 2012.
A newcomer to the industry, 1580 Equipment Sales (Salt Lake City, UT), expects to see a 25 percent growth over 2012. “Most of our customers had a very strong 2012 and are feeling optimistic about 2013,” says Justin Deputy, director of operations. “For us it’s about expanding our name and reputation with customers. We will also be adding inventory, which puts in a strong position. Those things leave us feeling very optimistic, even though there are some looming concerns like high fuel prices that we will have to deal with.”
Victor, NY-based SwiftLift, Inc. expects to see slight growth in 2013. President Michael R. Elliott plans to add service technicians and will be investing in STR fleet additions and replacements, which will fuel growth. SwiftLift also sells into a number of strong, recession-proof markets such as food and beverage, and firearms that will insulate them a bit from market volatility. He does note that higher taxes and consumer confidence following the election will restrain growth in 2013.
There are a number of red flags that leave M&G Materials Handling President Ken MacDonald feeling cautious going into 2013. “Economic uncertainty just ties everybody’s hands,” he says. “There are serious debt issues to be addressed and we have been slow to do so. That has been causing our customers to sit. They don’t want to expand because they have too many doubts.” M&G saw growth in 2012, but still sits below pre-recession sales levels. “I see the first half of 2013 being stagnant or worse,” MacDonald predicts. “By the second half of the year hopefully we can start getting some real confidence back in the market.” He also projects continued consolidation throughout the industry.
New product releases will buoy Atlantic Coast Toyotalift (Winston Salem, NC) to a 10-percent sales increase in what President Jay Williford projects to be an otherwise flat market. “A flat economy won’t hold us back,” he says. The company has a few new products debuting in the first quarter, with product revisions being spread throughout the year. “The new products are opening up a new market segment that we are already position to service,” Williford notes.
“We expect our core sales to grow 5-8 percent next year,” says LiftOne VP and General Manager Bill Ryan. “The growth will be driven by increases in the sales of parts, service and labor as customers by-and-large are not being motivated to invest in new equipment but rather to extend the life of what they currently have.” Ryan has seen customers become more risk-averse since the down turn. “This shift has put the onus on us to move more to rental and take on some of the risk. This has been an area of focus and internal education for us.”
For Naumann/Hobbs Material Handling (Phoenix, AZ), 2012 showed slow and steady growth throughout California and Arizona. Like many industries in the state, the company showed flat performance in Nevada. President and CEO Bryan Armstrong expects to see a 6-7 percent growth in 2013, on the back of a new product release in the first quarter that targets the company’s medium to large customers. “We are debuting a value-added service and rental programs that will solve many of our customer’s problems,” Armstrong says. Like a majority of others, Armstrong is uneasy about the impact of Obamacare and the expenses it may add to small business owners.
The results of the election were costly to Washington Liftruck Vice President of Operations Jeff Darling. “We have two very large customers who are withholding orders based on the outcome of the election,” he says. This, coupled with the fact that 2012 had an extremely large order that boosted the company’s bottom line, has led Darling to project a 7-10 percent decrease in sales in 2012. “Increased taxes by the current administration will reduce private enterprise growth and investment,” Darling predicts. He has also noticed that customers have become more “stingy” with their expenditures after the recession. This has led the company to market more low-cost alternatives.
“Customers are looking for their material handling professionals to add value and solve problems,” Miami Industrial Trucks (Dayton, OH) President and CEO Mark Jones says. “These two key components will separate competitors.” Though he says a number of troubling trends: the debt crisis in Europe, high oil prices, healthcare costs, inflation and the green policy of the Obama administration, Jones is confident enough to project a 6-8 percent growth in sales in 2013. “We are going to be selling more to our current customer-base through additional product and service offerings.”
Lift Power, Inc. (Jacksonville, FL), CFO Susan Allen projects a 17 percent growth for fiscal year 2013. The company has a very large order coming in the beginning of the year, but will see across the board improvements that will help it hit that lofty projection. “We are expanding our allied division,” Allen says. “We have been flirting with the idea for a while but in 2011 we started buying up used rack and selling it out. This year we’re branching out into catalog sales and big warehouse stands. Last year we had $1 million allied sales and this year we project $1.7 million.” Sales in all segments were up last year, as Lift Power. “Everything picked up. It had been so dismal, but we ended up having one of our best years in the past 10.”
FMH Material Handling Solutions (Denver, CO) President John Faulkner sees a very bleak economic outlook going forward. “I have a degree in economics and everything that I have seen leads me to believe that is President Obama is re-elected, we will see a 20 percent contraction in the economy,” he says. “If Governor Romney is elected, we could see as much as a 20 percent expansion. The tax provisions of the current administration are onerous and I think they will take a lot of cash out of the economy. It will certainly limit economic expansion.” The company plans on introducing new products at ProMat that are targeted at warehousing customers and improve AC controls and manufacturing.
Carolina Material Handling Services (Columbia, SC) is back to its pre-recession sales volume. However, CEO Buddy Smith is still treading lightly going forward. “There is a lot of uncertainty out there,” he says. “I would say our 2013 sales will be about the same.” CMH Services has increased its service staff by 20 percent and is continuing to add technicians going forward. “Our service business has been strong and I expect that to continue,” Smith opines. “People are still shy about making an investment in new equipment right now.” With interest and commercial real-estate prices so low, the company is looking to add facilities. Smith expects this to take place before the 2nd quarter. He also projects hydrogen becoming a viable energy option, rather than a niche option, within 5 years.
“Our 2012 sales are up 33 percent over 2011 sales,” says Adobe Equipment Houston President Bob Young, Sr. “I don’t expect to see anything like that again in 2013, but I would be thrilled if we could replicate those numbers.” The company saw substantial growth in wholesale business, specifically 30,000 lb. capacity and larger trucks. To keep up with the sales explosion, Young expanded his personnel by 20 percent in 2012 with another 5 percent planned next year. The company is also intent on expanding both their product offering and territory next year. “We have gotten deeper into the Jungheinrich line through MCFA and our share of that market is increasing as our sales force gathers more knowledge in that product market.”
Allied Industrial Equipment President and Owner Steve Mattis sees a level market in 2013. “There just isn’t much momentum toward a full recovery with all of the uncertainty out there,” he says. “People are concerned about the mounting debt and increased corporate taxes. It’s sapping enthusiasm and that can only lead to a downturn in employment.” Mattis is looking to add additional territory to get better coverage and bolster sales next year. They are also on the lookout for qualified technicians and mechanics. He has also observed a strong and sustained push toward electrics throughout the forklift market that he sees increasing going forward.
Engineered Systems integrators have been faced with a catch-22 in the last five years. Customers are seeking ways to increase efficiencies through robotics and automation, but lack the capital budgets necessary to make such investments. Still, integrators are confident that the recovery has taken hold and are predicting a nearly 5-percent growth in 2013.
Pent-up demand, continued consolidation and a new product offering to be introduced in the second quarter of 2013 all spell an increase in sales for W & H Systems (Carlstadt NJ). President Donald Betman anticipates the new product will solve many e-tailers needs with efficient goods-to-man delivery. Though he is confident in the company’s growth, the fragile state of the economy gives him pause. The company has responded to a sluggish economy by offering more flexible software and also increasing their social media presence to attract new business.
Though Daryle Ogburn expects a modest growth in sales in 2013 for Advanced Equipment Company (Charlotte, NC), he doesn’t see it as indicative of the industry as a whole. “Our sales are going to be up because so many orders were put off this year. Customers will be doing projects to automated process and looking for good ROI,” says Ogburn, president of AEC. “Our expectation for the industry overall, though, is declining growth. The industry reaction has been negative to government policies and economic news. Hopefully with the election behind us, much of the fear businesses have will diminish as we get a clearer picture of policy.”
“We see a lot of companies that are very interested in automation, so we’re doing a lot of professional consulting and engineering work to help do the justifications, science and engineering type of projects,” says Peach State Integrated Technologies President Jim Bowes. Bowes expects sales to be up more than ten percent in 2013. “We’ve done a lot of consulting and planning activities for our clients, which means they’re preparing to do some fairly significant work in 2013 and beyond.” Peach State will add staff across the board in preparation for the expected growth. “Taxes are a major concern,” he warns. “A lot of these small businesses are S Corps and LLCs. That’s a huge part of the employment base in this country and it is going to cost them exponentially more money if these tax cuts expire.”
AHS President and CEO Chuck Frank expects sales to be up slightly in 2013 but is guarded with that projection. “It’s kind of tenuous,” he says. “There was a lot of good activity in the beginning of 2012, some pent-up anxieties. But the last 3-4 months things have slowed way down. There’s a lot of talk, but it takes much longer to make decisions.” Frank sees this as a new normal going forward. “People are going to hesitate and look to spend more time justifying purchases to make sure they’re at max capacity. That is something that the recession really taught people.” AHS also updated its website and is in the process of updating its CRM system.
STORAGE & HANDLING
Whereas in 2012, Storage & Handling dealers were the least optimistic of all segments of the industry, in 2013 they are the most optimistic. Dealers are predicting growth of nearly 6-percent. A combination of pent-up demand and a strong presence in relatively recession-proof industries such as food & beverage and energy will buoy S&H dealers in an otherwise flat economy.
AK Material Handling Systems CEO Al Boston sees a 10 percent growth for the company in 2013. “I’m not predicting that growth because I think the economy is going to grow by ten percent,” he says. “What I’m saying is that we have built the infrastructure and added key people to drive that growth so I would be disappointed if we don’t have any growth after those investments.” AK Material Handling opened a Quick Ship location in Erie, PA, that will also help bolster sales. “We added some key people there and it is really starting to produce fruit for us.” Boston also plans to continue investing in state-of-the-art technology and training for his employees.
Storage Solutions President Kevin Rowles has seen a shift in customer expectations in the last few years. “We have seen smaller customers decrease staffing,” he says. “We have really increased our project management capabilities as a result.” Rowles expects a growth of 15-20 percent in 2013, even with what he describes as “more requests for budgetary numbers on capital projects in 2013 than ever before.” Storage Solutions will grow as a result of additional sales, account penetration and international growth.
Stein Service & Supply (Charlotte, NC) also expects to see improvement next year. President Steve Stein expects a growth of 5-10 percent as a result of pent-up demand releasing into the market place. “2012 was a great year, with sales growth of more than 20 percent over 2011. Margins also improved in 2012, so we definitely feel we are on an upswing,” says Stein. The company invested in a new building that is more than double the size of its current space. Stein sees any additional regulations as having the potential to hurt the economy. “The less the government does, the better off we will be.”
“Our customers have become more comfortable with the sustainability of the economy,” says Carolina Industrial Products Vice President Jessica Gore. “They are once again investing in long-term solutions for their companies.” This optimism has led Gore to predict a 10 percent growth in 2013. The company plans on adding personnel in 2013. “At a time when many companies have cut back on quality personnel, we see this as a great time to invest in our people.” These additions will be both in geographic and market-based positions and will allow Carolina Industrial Products to compete in several competitive markets.
Mid Middleton anticipates a 10-percent increase in sales next year, a number that he feels would have been much higher of Governor Romney had been elected. “It’s psychology,” Middleton, president of Carolina Material Handling (Greensboro, NC), says. “It’s consumer confidence-based. People believe that Romney is better for business, so if he wins, they will be confident.” The company added two positions this year and anticipates adding two outside salespeople in 2013. Middleton is leery of economist predictions of a mini-recession in 2014, however, and is taking measure to protect the company against that. “We’re going to be more cost-effective and really save our pennies.”
Geographic expansion into Georgia, Alabama and Virginia will lead to an 18 percent growth in 2013 for Advanced Battery Technologies (Greensboro, NC). ABT was named one of the 10 fastest growing privately-held companies in the Tri-Ad area of North Carolina in 2012, and President Ken Fearn’s strategic planning and expansion will lead to 18 percent growth for the next three years. “The economy is sluggish, but we have had good growth,” he says. “It’s been more about market share than economic growth.” The company is investing in what it calls ABT University, which will be a virtual cloud-based online learning management system. Fearn is very excited about the training opportunities that this investment will provide.
An increased investment in inventory coupled with projects already in the works will lead Bernie’s Equipment (Holmen, WI) to enjoy an 8-10 percent increase in sales in 2013. Since the recession, President Jeff Conger has seen some customers become more interested in the bottom-line price of a project than the overall value. “A lot of distributors are running into that issue,” Conger says. “It has also gotten to the point where customers are very hesitant to pull the trigger. Even with all of that going on, though, we do anticipate some nice growth next year.”
Cranston Material Handling Equipment Corp. enjoyed a staggering 50 percent growth in 2012, and President David Cranston expects 2013 sales to be in line with those numbers. “We have a salesperson who has been with us now for two years and he has been building up his pipe-line,” says Cranston. “I expect he will make up the difference in sales between those big orders that were anomalies last year, and where our sales will just be growing in general.” If the company hits Cranston’s sales projections, it will add a salesperson during the second-half of the year. Cranston has also received a major boost from the drilling of the Marcellus Shale fields and was thrilled to find out that under the Marcellus Shale is another shale called the Utica Shale field, which could provide a major opportunity going forward.
Mathand Inc. President Connie Costner projects an increase of 3-percent in 2013. The Woodstock, GA-based distributor plans to move into a larger office during the 1st Quarter and will look to add full-time personnel next year to handle the expected growth. The company will also add cloud-service technology and have added a live-chat option to its website that provides customers with product info and quotes. “We have dealt with several Fortune 500 companies who have already gotten their budgets approved for next year, and they are showing growth,” says Costner. “They’re going to start buying more and that should really help our sales.” Working with such large companies, especially in the food & beverage industry, has helped insulate Mathand from the economic downturn.
Nearly 70-percent of companies that sell a diverse mix of products expect to see a growth in sales in 2013. Overall, the Diverse segment of the industry projects a 4.69-percent growth. Less than 10-percent of the market expects a decrease in sales, while 23-percent expects to stay level with their 2012 sales numbers. Dealers in this segment are being aggressive in selling into new markets and looking to supplement their product offering to add revenue.
Modern Group Chairman David Griffith anticipates a 5-percent growth in sales in 2013. However, he is wary of how taxes could impact the economy. “The big wild card is the tax policy and government actions,” he says. “Our backlogs are steady but under margin challenges.” Modern Group will be adding lines as they continue to improve their fleet service offerings. “Fleet services find a customers pain and then fixes it,” he says. Regardless of party affiliation, Griffith stresses the need to break the gridlock in Washington. “If they can’t do that, we all have a problem.”
Though Duncan Murphy expects a relatively flat marketplace overall, the Riekes Equipment Company President expects to see a growth in sales due to growth in areas and customers that the company doesn’t currently serve. Riekes acquired an independent company in North Dakota, which adds a new geographic market as well as new product sectors to its portfolio. “Our customers have gone through tough times and they cut their staff way back,” Murphy says. “As a result, there is going to be more outsourcing of support services that we can provide. I think that’s the new normal now. Everybody is working on less and lower margins. Everybody has to work more efficiently. Each decision has to be an economic business decision.”
“We have seen a steady rebound from the debacle that was 2009-10,” says Jefferds Corporation President and CEO Richard Sinclair. “We expect sales to continue to improve 7-10 percent in 2013.” The election could have a heavy impact on Jefferds, as the coal industry in West Virginia has been, in Sinclair’s estimation, “decimated by the EPA.” Coal was a hot-button issue throughout the presidential campaign and Sinclair opines that “if the EPA continues unchecked, West Virginia will suffer mightily.” “Obamacare is clearly the elephant in the room,” Sinclair adds. “As costs go up, we will have to become more productive. It has the potential to really retard growth and in a consumer-driven economy, that does not bode well.”
Nelson Equipment Company (Shreveport, LA) grew 12 percent in 2012 and with a majority of that growth taking place in the second half of the year, projects to grow a further 10 percent in 2013. President Mark Nelson notes that the company has been working out of a temporary facility for the past five-years and has plans in the work to build a new facility. “We are waiting for a window that indicates a positive business environment.” However, issues like healthcare, energy policies, and shrinking margins could make that difficult.
Brenham, TX-based ESS Group will grow 15 percent as part of a strong Texas economy in 2013. President Jeff Ross has seen his company’s bookings remain strong and has already quoted several big jobs for the coming year. ESS Group has plans to add a technician, a salesperson and an administrative person next year to aid in that growth. The company also has plans to open a dock and door equipment branch in Corpus Christi in the first quarter. A shift in policy toward more oil production and drilling in Texas would also be a shot in the arm for Texas and would positively impact ESS’s business next year.
Allied ToyotaLift (Knoxville, TN) is on its way to its best year since 2007, according to President and General Manager Russ Sharpe. “Our recent growth has been based on acquiring business that used to belong to our competitors,” he says. “It’s not really new business moving into the area. We have just been going out and being a little bit more aggressive getting new business and then keeping it.” The company has added emphasis on acquiring service customers, and as such plans on adding six service technicians throughout 2013. The green movement has benefitted Allied ToyotaLift as customers more and more are opting to go for electric quick-charge trucks.
Hy-Tek Material Handling (Columbus, OH) will be looking for product lines that supplement their current offerings next year, as they gear up for growth in 2013. Jim Ripkey, president of the company’s mobile equipment division, expects that new product offering, combined with organic growth through sales efforts, penetration, strategic partnering and account development to help the company expand revenue. “One thing that we have seen is customers demanding longer or expanded payment terms,” Ripkey says. “They are focusing on their cash flow. We expect that to continue for quite a while.”
Jeff Gambrill, president of Aloi Materials Handling (Rochester, NY), expects a 2-percent growth in business in 2013.”I think that customers are focusing a lot on safety now,” he says. “They always have, but they seem to be really stepping it up now and that seems to be driving a lot of projects. We have also seen customers looking to expand efficiencies. They want to put things in and, like it or not, take people out. They have looked a lot at adding robots and doing other things that expand efficiencies.” He also notes that the tax plan that President Obama touted during his campaign will put stress on many MHEDA companies that are set up as S Corps and LLC. “From a tax standpoint, all the taxes get rolled into the individual.”
Greg Larsen, president of McKinley Equipment in Irvine, CA, anticipates a 15 percent growth in 2013. This will be a function of service, rather than equipment sales. “Customers don’t have capital budgets, but they have to keep shipping product so they fix what they have got,” Larsen says. “We are anticipating a bit of pent-up demand, but we’re still waiting for the time when people will start releasing that demand.” One area where Larsen does expect improvement is from the sale of HVLS fans from Kelley Company. “It’s a big energy-saver for companies and it has really gotten some traction last year and we expect that to be more a part of our daily activity in 2013.”
A.J. Jersey (South Plainfield, NJ) positioned itself well during the downturn to strike when the recovery started. The company installed a new phone system, expanded into a second building and instituted a new software system two years ago. “We geared up for it,” President Dave Rizzo says. “We have seen an increase in volume and we’re prepared.” Rizzo expects a minimum of 10-percent growth next year. “We’re seeing expansion in New Jersey,” he says. “We have seen a lot of groundbreaking. We have customers moving again and housing starts are coming back now, too. All of that increases demand for material handling.”
“Many companies feel the government is adding an additional burden with the institution of Obamacare,” says E-Distribution President Brad Emerson. “They aren’t spending unless they absolutely have to.” Because of that reality, Emerson predicts business to be level or slightly down in 2013. He has seen customer budgets getting cut, which has led to an increased demand for used equipment. “The lingering unemployment and uncertainty surrounding taxes and regulations has led to a market where customers just don’t buy products. You have to fight for every deal. Even a small upswing in projects could be the difference between making or losing money next year.”