Chain Reaction '02

What to make of business year 2001? Or more specifically, the tail end of 2001 when — literally, overnight — a country on the precipice of economic uncertainty was nudged over the edge. First, the terrorist attacks. Then, almost immediately, the devastating economic impact on specific industries. Then, the loss of consumer confidence. Finally, the official ushering in of a recession.

A late-year chain of events — and a fiscal chain reaction — likely to have a significant affect on the character of business year 2002.

As a way of preparing, then, for the not-so-distant future, let’s examine the recent events and the jan/san industry’s reaction to them.

Are we an industry that sees the coming year as a glass half full, or empty of economic opportunity? The truth is that many industry distributors and manufacturers are still having trouble adjusting to the events of 2001, much less the uncertain future of 2002.

“I wonder how our industry is going to react,” says Randy LaBarbera, vice president of operations for All-Brite, Jacksonville, Fla. “Right now I’m looking for solutions.”

LaBarbera isn’t the only jan/san businessperson who is trying to find answers to deal with the sluggish economy. For more than a few companies, downsizing the amount of staff has presented the best option for streamlining costs. Georgia-Pacific, a leading manufacturer in the paper industry, has closed its Bellingham, Wash., facility that employed 420 people. In addition, Minuteman International, Addison, Ill., a leading manufacturer of floor-cleaning machinery, recently reduced its staff by close to 5 percent.

These numbers reflect statistics published by the National Association of Purchasing management (NAPM), who recently reported that overall U.S. manufacturing activity has shrunk for the 15th consecutive month.

“We’ve had to look at every aspect of our business and do everything possible to cut costs,” says Greg Rau, president and CEO of Minuteman International, Addison, Ill. “Our company-wide sales were down 17 percent, so we had to freeze wages and we had to let some people go.”

Rau explains that since a terrible third quarter, Minuteman’s business has shown signs of rebounding, but that at the lowest point, one of his major manufacturing plants was forced to close for two weeks due to the drop in revenue.

As other industries suffer the pains of the recession, the jan/san industry undoubtedly feels the effects. Mark Finkelstein, CEO of Crown Sanitary Supply, Ft. Lauderdale, Fla., says that distributors in Florida are being hit as a result of struggles that have arisen with the tourism industry.

“We’re a very tourism-driven state, and the hotel/resort business is down 60 percent. Restaurants are suffering too. Our business isn’t dominated by the tourism market like some distributors are, but it’s part of our business,” he says.

Distributors, wholesalers and manufacturers throughout the industry are feeling the pinch of end users’ limited spending, and they’ve had to react to it, sometimes drastically.

“Manufacturers are not fools, and they looked out over the economy and saw that economic activity had slowed dramatically,” says Joel Naroff, chief economics at Naroff Economic Advisors. “Not wanting to carry inventories, they slashed production and workers. They acted correctly, but the downward spiral has been set in motion.”

LaBarbera thinks that problems have arisen on the distributor side because companies have been reactive rather than proactive in looking for new opportunities. “It starts with upper management. From the top to bottom, a company needs a proactive attitude. I think it’s a problem when people just sit there and don’t do anything,” he says.

What To Do?
Understandably, a lot of distributors are unsure about what action to take. The attack on the nation took everyone by surprise, and prior to that, business owners were already attempting to adjust to the sagging economy. Finding the wherewithal to rise above the atmosphere of apprehension and make decisions that translate into positive business opportunities appears to be the need of the hour for distributors.

“Right now it’s harder to get business,” says Jerry Elkind, CEO of Empire Cleaning Supply, Los Angeles. “There’s definitely a negative feeling, but that means that you have to work harder. I would say that we’ve decided to be more aggressive instead of pulling back.”

Elkind’s focus on a work-harder attitude is reflected throughout the industry. In fact, October’s ISSA/Interclean trade show in Orlando was filled with dialogue encouraging the jan/san industry to move forward. Even the theme for the show, “Let’s Get Going,” left little doubt about where the association stands on the action vs. contemplation issue. For Robin Tucker, vice president of Tucker Co., Cedar Rapids, Iowa, the show presented exactly the supportive urging that he was hoping it would provide.

“The seminars at the ISSA show weren’t telling us to retract. In a tough economy, you need to get more involved in the economy. Of course you have to tighten your belt and look carefully at your budgets, but there are things you can do to enhance your business,” says Tucker. “The events of September 11 were terrible, but I hope businesses aren’t using those events as an excuse to cut back.”

But cutting back is exactly what many distributors and manufacturers are doing in the jan/san industry. The trend in business around the nation is to scrutinize spending and try to streamline operations for maximum efficiency.

In Kenosha, Wis., Expanded Technologies, a manufacturer of flooring protection, eliminated its temporary workforce of more than 90 employees and decided to invest more heavily in its full-time staff.

“What we’re doing here is trying to maintain a core group of employees in both production and management,” says Richard Bushey, the company’s president. “Until recently, we’ve also had a lot of temporary help that is supervised by the core group. We’ve increased the number of those full-time workers from 35 to 54 and we’re focusing on them.”

About a year ago, Bushey saw signs that the buoyant economy was starting to slow down and hired a marketing agency to help increase sales. He feels that the attention to marketing his products has helped ease the pain of the drop in demand.

“The approach I’m taking is that we’re trying to do what we can on the efficiency side of the operation so that eventually we can expand the marketing side,” he explains. “I’ve got a person on staff now whose sole job is to evaluate efficiency, and we’ve already seen that position pay for itself with efficiencies that have been discovered.”

The decision to downsize a company is not an easy one, but many distributors are finding that it’s better to take good care of a smaller staff than to keep more people on the payroll than can be justified cost-wise.

“If you get scared and feel doomed, then you’re going to lose,” says Tucker. “It’s like a football game in the fact that you have to play to win, rather than playing not to lose. If you just sit back waiting and hope things don’t get worse, you’re going to be in trouble.”

Opportunity Knocks
Playing to win means looking for new customers, taking care of old customers and, in general, making those relationships work so that a company can remain competitive in the long-term. However, playing to win also means having an intelligent game plan, one that has been well planned and is realistic with regard to a company’s resources.

Diane Coyle, author of the books Paradoxes in Prosperity and Governing the World Economy, is an economic consultant with Enlightenment Economics. She is also a visiting research fellow at the London School of Economics and has a doctorate in economics from Harvard. When asked about the approach that distributors in the jan/san industry should take in light of the economy, she cautions business owners to carefully balance realistic budgeting with an aggressive attitude.

“Any businessperson pondering the next 12 months ought to be thinking about who their customers are, how vulnerable they are to recession, and whether there is any possibility of finding new markets,” she says.

Bushey agrees and emphasizes that industries in the United States need to fight the tendency to shrink away from those new markets.

“I think businesspeople need to make deals,” he says. “It’s always been my experience that when things slow down, people start raising prices to compensate for fewer sales. But those who are willing to keep prices low and maintain their relationships are the ones who will succeed.”

Rick Johnson, principal and managing partner with the Indian River Consulting Group, Melbourne, Fla., notes that the distributors who seize the opportunities and, as Coyle mentions, the benefits of bad times are also the distributors who keep their competitive edge instead of self-destructing.

“Smart distributors will focus on their competitor’s problems,” he says. “Those that go into retrenchment ultimately affect their customer relationships, their supplier relationships and even their employee relationships.” When relationships suffer as the result of a “slash everything” attitude, it creates opportunities for competitors who have remained calm. The distributors who decide to stay the course, make deals and watch others panic are the ones with the best plan of action, he says.

“Most market share is gained on the down side of the economic cycle,” he explains. “If a distributor has managed his company well, kept his inventory in check, with minimum obsolescence and very little aged stock, he is in a position to take advantage of the obvious price advantages from the manufacturer that will emerge.” Capitalizing on those good deals that arise in a slow economy puts a distributor in a position of strength, according to Johnson, compared to the competitor who has too much inventory at higher prices.

Play It Smart
Many distributors and manufacturers in the jan/san industry have expressed belief in the unique position that their companies hold. “Security will be increasing, and we need to find ways to find solutions for our customers,” says Tucker. “When we hit bad times, people still need cleaning products.”

Industry leaders throughout the United States share views similar to Tucker’s — that in the coming year the cleaning supply business will play an increasingly important role in their customers’ safety and confidence.

But, as we prepare for 2002, those who believe the jan/san industry can’t falter due to the customer’s constant need of cleaning supply goods must check their positive attitude with practical thinking.

“Our industry has had such a great run with the economy being strong,” says Minuteman’s Rau. “It’s easy to get lulled into a false sense of security.”

The economy is suffering, and although one business may not be as influenced by economic trends as another, no industry is completely immune.

“No industry is safe from every recession, even if it weathered the last one,” says Coyle. She explains that distributors need to be mindful of how the industry has reacted to the economy in the past and use that wisdom to make smart business decisions in the present. “Even recession-proof businesses need not be history-proof,” she says.

How will our industry respond to the challenges of 2002? It’s still too early to tell, but the answer is sure to be found in how we continue to deal with the events of 2001. A shaky economy combined with terrorist attacks have made decisions for business all the more precarious — and all the more important.