Highlands’ Director of Strategic Accounts, Jan/San, Charles Koslowsky, recently reached out to industry experts at S.P. Richards and RJ Schinner for their thoughts on how the evolving landscape in Jan/San will impact our clients’ businesses over time. Nick Lomax, Senior Vice President of Jan/San at S.P. Richards, had an interesting take on the situation, believing that alternative and innovative solutions are the keys to success. Crystal Lewellen, National Accounts Director at RJ Shinner, also had an interesting take on the current landscape of Jan/San, with an emphasis on keeping a close eye on the recession and return to office.
Interview with Nick Lomax, Senior Vice President of Jan/San at S.P. Richards:
How do you see the evolving landscape in Jan/San impacting clients’ business over time?
Nick: Overall, at S.P. Richards, we believe the return to the office remains an open question as corporations and small offices alike navigate the path to employee safety, productivity, collaboration, and demands for flexibility. We continue to see the surging cost of raw materials and overall inflation, combined with supply chain disruptions, labor shortages, and transportation challenges. Encouraging manufacturers and the channel to seek new and efficient ways to deliver products and services with high quality while maintaining margins, we believe, will open doors for the wholesaler to win within Jan/San.
We also believe mergers and acquisitions will continue within Jan/San. Imperial Dade, BradyIFS, and Envoy Solutions continue acquiring Jan/San distributors. We believe there is a risk within the channel for larger members to choose to buy direct; however, we do believe that the market pressures actually offer more upside to SP Richards to help our distribution partners better manage their businesses when they truly understand the value of the wholesaler.
What are the areas where you see S.P. Richards creating the most value?
Nick: For starters, incremental sales with higher fill rates, fewer missed orders, and stock outs. Secondly, cash flow thanks to carrying less inventory with shorter lead times and smaller order minimums. We can offer access to a broader line of products and suppliers to improve the product range and meet customer demand for stocked and non-stocked items. Another benefit will be increased flexibility so new verticals can be entered with the confidence that orders will be fulfilled. Other benefits include the simplicity of ordering from one vendor rather than multiple suppliers. Last but not least is prioritization, with less time being spent on vendor programs and more on customers and key suppliers.
Does working with S.P. Richards as a wholesaler translate into better business results for customers?
Nick: Overall, our data is telling us YES. Lead times are 1-2 days versus 7-10. Inventory turnover is 12-16x vs. 7-8x, incremental sales are higher by 3%-7%, a one-time inventory reduction of 35%-50%, and a 5% or more increase in cash flow.
What is the most important priority for suppliers as they look ahead to 2023?
Nick: In summary, we are bullish on the future of the Jan/San vertical and the role of the wholesaler in supporting key customers. Innovation and vertical expansion taking shape have to be at the center of the plate for all suppliers. We believe we are well positioned to help suppliers emerge and engage within the channel and look forward to what is to come in 2023 as we navigate the ever-changing competitive landscape.
Interview with Crystal Lewellen, National Accounts Director at RJ Shinner:
What market trends do you anticipate for 2023 and beyond?
Crystal: With many signs pointing to a recession, we will see purchasing habits changing at both the end user and distributor levels. Distributors are going to try to do their best to control their dollars and keep cash on hand. We can expect to see them pull back from the multitude of suppliers they brought on due to the COVID crisis buying, aligning with fewer manufacturers, and trying to maximize their “preferred” supplier back end and marketing programs. Wholesalers tend to do well in periods like this as we still provide access to assortment and offer an as-needed purchasing model, no truckload investments for potentially stagnant inventory, and afford the ability to secure items from the manufacturers they are trying to minimize through the consolidation attempt.
Are there certain verticals you expect to remain stronger than others during this time?
Crystal: There are certain verticals that we expect to stay strong while others may soften a bit. As one example, we saw enormous buys in education due to COVID dollars which created significant purchasing early in the year, but the stockpiles are still full, and expectations are that they will stay this way for a number of months to come. This will undoubtedly cause price decreases in certain categories due to high levels of inventory that were purchased at higher than current market prices. This should also help curb some of the manufacturer price increase activity that has assisted the inflationary behavior. The return to office is still far below pre-COVID occupancy rates, and class-A buildings won’t see a lift anytime soon.
Do you expect a potential rise in the unemployment rate to play a role at all?
Crystal: It will be interesting to watch how employers could begin to have more pull and move away from remote work if we see the unemployment rate rise. They’ll have more negotiating power if jobs become scarce. The question now will be if employers want employees onsite. A recent study of remote, hybrid, and onsite employees stated that 45% preferred the option to be at least hybrid, and of those, 40% said they would actively look for other employment if their current employer demanded onsite only. As unemployment rises, which is the case in recession or marketplace cooling, will the above statistics change as fewer employment-seeking individuals hold the leverage?
What segments do you expect to remain strong?
Crystal: Segments we expect to stay strong are Healthcare and Foodservice. This cooling of the economy is different from those in the past. Unlike the recession in 08/09, the consumer has less debt and higher savings. With inflation at the current rate, some economists see the translation of money spent during COVID on travel and home renovations to be spent on less expensive but coveted family events like dining and entertainment. Restaurants/QSRs could see better staffing and continued demand as the consumer stays closer to home. Ultimately 2023 is shaping up to be somewhat volatile and unpredictable.
How does marketplace consolidation shape your forward planning?
Crystal: We have a strong focus on customer needs, interaction, and local support. With consolidation, we do not plan to pull back in these areas. I believe consolidation will affect manufacturers more strongly as we expect these larger entities to select key vendors and reduce or end potentially longstanding relationships in efforts to be more meaningful to fewer suppliers and have uniformity of SKU sets across the country. As this happens, it will create an opportunity for independents to align with manufacturers who historically haven’t been willing to do business in certain marketplaces.
Consolidation creates opportunities for independents! It also has the potential to create a larger reliance on re-distribution as those large distributor consolidations cannot drive complete compliance for every location with each preferred supplier. In this case, to reduce internal “hub and spoke” methods of cross-stocking, it will make better financial sense to partner with the large redistributor. The large redistributor aligns with the geography and manufacturer relationships to get the needed product offering into the right branch location and effectively service the end user.
How do your RJ Schinner customers focus on the retention of their end-user customers?
Crystal: At RJ Schinner, we support a diverse distributor base that reaches all types of end-users. Each distributor has a unique go-to-market strategy. If I were to try to simplify it, the winning combination of strong relationships (knowing your distributor partners model), breadth of lines (providing apples to apples plus innovative options), competitive pricing (strong manufacturer partnerships), and online relevancy make up the competitive advantage. We assist our distributors in being that indispensable partner for their end users.
Are there any specific simplicities or efficiencies that RJ Schinner affords its customers?
Crystal: It’s really about the value of redistribution. There are no distributors that can make the business case of stocking every manufacturer line, let alone supporting the entirety of the line, and that’s what our business is all about. I get really excited about how RJ can expand the product portfolio of a distributor into new categories with almost no investment by the distributor. The strength of our customers, in turn, is our strength. Making simple suggestions to our distributor partners on ways to improve working capital through the RJ model gives them more cash on hand to drive additional business and increase efficiencies, thus becoming more to their customers. With us, it’s never about selling SKUs or transactional business; it is truly about the partnership and creating a mutually beneficial model.
How do your customers see external market pressures, like the cost of freight and global supply chain issues, impacting their future?
Crystal: Our partners see both opportunity and risk. The opportunity is around the stabilization of the supply chain (both domestic and abroad), which allows all to order, inventory, and deliver POs with higher fill rates. This also, as mentioned above, allows the streamlining of manufacturers because you can now receive complete POs and avoid sourcing other suppliers out of desperation. With that benefit comes the risks. Demand and lack of supply have created Inflation that has driven prices to all-time high levels. With improved inventory positions and the possibility of the market slowing (recession), competition and price deflation now tempt the end user to test the market and make sure they are making sound decisions. There will undoubtedly be more time spent retaining existing end-user business, which in turn takes away from prospecting newer or expanded opportunities (not to mention margin erosion!). Freight is already becoming a true benefit. Domestic and international freight is slowly becoming more affordable. Still, there are labor issues that the recession might help with. 2023 might actually be the first year since 2020 that a realistic budget can be compiled around this that will allow manufacturers, distributors, and redistributors to reduce the time and effort spent adding fuel surcharges and increases to cover the impacts.
Are there any new channels or verticals that are being highlighted by RJ Schinner going forward?
Crystal: We stay focused on our core channels of food service, paper, and Jan/San. Our expansion and tremendous growth trajectory within this assortment keep us relevant and strong. If there was one channel in particular that is gaining a newer focus, it would be Industrial/MRO. We have found many distributor partners want to expand into our core categories, and we see benefits in potential line expansions as well. What had helped fuel our success is looking at future market trends and getting in front of them. Currently, there are multiple opportunities to explore.
Do you see an expanding role for digital commerce in the future of B2B?
Crystal: When it comes to digital commerce, many of our competitors rely on tech/digital in their go-to-market approach more so than we do. We try to take a balanced approach with human capital combined with new technologies to stay in line and on pace with the industries we operate in, but like all channels and segments, this keeps evolving daily.
We have a robust content management team and assist our distributor partners with their e-commerce sites and expansion efforts regularly. One thing that is a benefit for the distributor doing business with RJ is we can help every size customer we have by “sharing” best practices. Some of our smaller redistributors need help with content but are more advanced with their platforms because they have invested in that market approach. That enables us to use that learning with other medium and larger size partners to discuss trends and success in the B2B market regarding e-commerce. We all know it will only continue to grow and evolve, and we certainly embrace that.