I woke up this morning listening to CNBC and the hit Cat and other durable goods manufacturers were taking. All of a sudden there is a 300 pt drop in the DOW and all hell is breaking loose. Earlier in the week I was reviewing ITA’s 2015 estimate of a high single digit increase in material handling equipment sales. Then we hear how the dollar’s strength is hurting our exports and at the same time making foreign purchases more attractive. In the middle of these events you read about the possibility of deflation resulting from the decrease in the price of oil. And last but not least, we have the fall in commodity prices, primarily because of the strength of the dollar and falling worldwide demand.
And there you are Mr. or Mrs. or Ms. CEO getting ready to finalize your 2015 game plan. Quite frankly, I don’t envy you. I don’t envy you because these conditions appear to be more long-term than short-term and will require planning that meets your individual circumstances.
Me, I wouldn’t take the ITA sales increase estimate as gospel. This year
I guess my first step would be to analyze my top 20 customers which should represent 80% of your business and find out where they fall within the scenarios noted above. I have to think they are going through the same thought process as you are, and depending where their business falls will dictate their capital budget for 2015.
Customers that benefit from the increased consumer spending I suspect are going to be very busy and thus in need of your services in terms of equipment and warehouse systems. They are going to be quite busy. Customers that have a high percentage of foreign sales may find sales slipping causing a reduction in their production schedule and thus less need for your products and services. Customers related either upstream or downstream of the oil fields could also find themselves with lower demand at a time when they invested in ramping up to service the energy markets.
No matter how you look at it, you have to have a discussion with your key customers that make up the bulk of your business so that you don’t plan for a year that is not going to happen.
Is there any doubt you would rather know in January or February what to expect for the year, or would you prefer to plan for that growth increase in terms of inventory and personnel and then find out in October that you wasted your resources and cash flow.
If you find your customers are upbeat then it can be “risk on” in terms of your 2015 plan. If a good chunk of your customers are impacted negatively because of decrease in oil prices or the strength of the dollar it is on to Plan #2 for 2015. No matter which plan you decide to follow you have opportunities to help certain customers become more efficient with new equipment or services. And then you help the negatively impacted customers become more efficient by reducing costs, selling off used units, providing additional short-term rentals as well as an overall review of their material handling costs for both owning and operating the equipment.
If this economic condition in your area of responsibility is expected to remain in place for a number of years, a dealer has to figure out how to manage current accounts and find new ones that fits their niche of expertise. This may mean taking on additional product lines, offering additional services, or buying up some of the competition now when interest rates and values are low.
There is little doubt that what John Walker discusses in his column is of importance at this time. Customers need service and parts and you have the resources to provide them. If you are not getting your share of this revenue now is the time to review John’s library and get started generating this high margin business.
I guess the next column along these lines will take place when the value of the dollar recedes. We will keep you on your toes.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail firstname.lastname@example.org to contact Garry.