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2016 Predictions for US Manufacturing

As we approach the end of 2015 our thinking is turning towards 2016 predictions for US manufacturing and what they mean for you, your customers and for us at CDS. How and where will our 2016 growth come from? With the help of many experts as references, here are two predictions for US manufacturing market growth and how you could get market-share growth. We recommend you do both and here’s how!

1. eCommerce has Hit the Tipping Point

We predict that industrial suppliers that don’t offer an excellent eCommerce (online product search and purchase) customer experience in 2016 and beyond can likely expect a Wal-Mart 2015 experience.

  • Founders Fund partner Geoff Lewis on CNBC described Wal-Mart’s October announcement of flat full-year revenue and a profit fall in fiscal 2017 as a massive tipping point for eCommerce. “People in the technology industry have been predicting that brick-and-mortar-based businesses like Wal-Mart are going to end up really struggling, and I think that that’s actually now coming to the fore…it always takes longer for these things to shift than people expect, but once they do … it happens very quickly.” Shares of Wal-Mart plunged as much as 9 percent as the company shed more than $20 billion in market capitalization.Wal-Mart has driven tremendous efficiencies in inventory management, supply chains, logistics and salary costs but they’ve extracted all the value, and arguably too much value, from those cost improvements! Now their only choice is sales growth and they are hugely handicapped! It’s not really surprising that Amazon surpassed Wal-Mart as the world’s largest retailer by market cap in July. Amazon is growing 77 percent while Wal-Mart expects sales to be flat this year. Amazon is forcing the brick-and-mortar-based businesses to catch up, particularly with their eCommerce spend online.
  • Look at Black Friday. According to this New York Times article, Black Friday Shopping Shifts Online As Stores See Less Foot Traffic, “A preliminary reading of Black Friday by Retail Metrics declared traffic across apparel and department stores ‘uninspiring’. At Amazon, it was another matter. By mid-Friday, sales at Amazon were estimated to have jumped 19.6 percent this Black Friday compared to last year.”
  • Before you say, “but Wal-mart and Amazon are mainly B2C and mostly not industrial products so we’re different” take a look at this UPS and MDM report specific to B2B industrial distributors and note some of its findings:
    • “Having an eCommerce platform has gone from a competitive advantage to table stakes in the distribution industry”
    • “Buyers that are looking for new distributors rely on distributor websites more than company sales representatives or trade shows to gather information.”
    • “Only word-of-mouth topped the website as a research resource. Distributors that aren’t making their digital channels a priority will not only lose out on potential customers but current customers as well.”
    • “72% of industrial products buyers would shift spending to a distributor with a more user-friendly website, illustrating the shift from relationship-driven to experience-driven loyalty.
    • “66% of industrial product buyers purchase through distributors’ websites – and while most prefer to buy online, they’re using other channels as well.”
  • According to Forrester Research, B2B eCommerce is estimated to exceed $1 trillion by the end of 2020.

2. Economic Predictions for 2016 and Beyond

We were impressed by the predictions, logic and balanced views of MAPI (Manufacturers Alliance for Productivity and Innovation) Chief Economist, Dan Meckstroth and below link to his recent presentation and list a few bullet points from it:

  • US consumer spending is driving the economy mainly driven by job growth. New workers with new income but also low oil prices lets consumers spend less on heating and transport. Domestic demand is offsetting a global slowdown.
  • Unemployment in manufacturing is ~4%, well below the 5% of the economy overall, and may lead to worker shortages in manufacturing.
  • The strong $ (this year it has appreciated ~16% against major currencies, ~10% against emerging currencies) has and will reduce GDP. In 2016 this is expected to impact GDP by 5/10th of one percent. We are also importing inflation as a result of the strong $.
  • Manufacturing production has not yet fully recovered to pre-recession levels – it will do that in 2016 (2.6% growth) and 2017 (3% growth). Recent weakness is mainly due to inventory liquidation and the negative shocks of 2015 (harsh winter, Port strike, major decline in commodity prices, $ appreciation) will not repeat in 2016. The presentation breaks out this growth by individual manufacturing sector. For example, motor vehicle sales have more than recovered from pre-recession volume and are expected to continue to grow through 2017 then decline as pent up demand gets met.

3. Conclusions

From the MAPI economic forecast model most, but not all, manufacturing sectors will grow in 2016 and 2017 and you can grow with the market as long as you maintain your market-share. The other way to grow is to gain market-share from your competitors and we believe eCommerce is a key to achieving that type of growth as well as to defend your existing market-share. Don’t let your competitors do to you what Amazon has done to Wal-Mart!

Please let us know what you think of these 2016 predictions for US manufacturing by commenting below. Are you in step with us or marching to the beat of a different drummer? Happy holidays and good luck with your 2016 planning. If you have any industrial eCommerce questions use the button below or call us to discuss them …

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