Britain’s wholesalers and distributors remain confident about the prospects for the economy, the latest data from Close Brothers’ Business Barometer reveals – but their optimism is increasingly cautious.
Just 21% of wholesalers now describe themselves as confident in the steady recovery of the economy, down from 24% earlier in the year. While a further 29% say that although the worst may be in the past, the path to prosperity may be slow. The same number also think the economy could decline again, while 20% say they don’t believe the recovery has begun.
Part of the explanation for this dip in confidence is macro-economic: the volatility of emerging markets and the continuing problems in the Eurozone have undermined confidence in the global economy.
But there are also particular challenges facing the wholesale sector. Not least, the pressure on margins is now intense, as supermarkets and other customers focus on price in an environment of zero or even negative inflation in the economy.
The Close Brothers Business Barometer reveals that more than one in four wholesalers (29%) also complain that late payments are a problem for their businesses. While 69% warn that late payments make their cash flow difficult to manage, of these, 19% say this issue seriously threatens their ability to trade.
Mounting regulation may also be having an impact on wholesalers. Like other businesses, they will face higher costs when the new national living wage comes into force next year, but the wholesale sector also faces specific regulatory impacts – via the increasingly high-profile Groceries Code Adjudicator, for example.
Then there’s the mounting challenge of pensions. Wholesalers are coping with the auto-enrolment pension reforms, which require all employees to offer pension benefits to every employee who hasn’t opted out. But many report an additional burden from April’s pension reforms, which saw people given much greater freedom about how to save for retirement.
Almost a third of wholesalers are planning additional pensions support for staff, but 36% think they don’t currently provide enough help, or that they won’t be able to maintain engagement at current levels.
Faced with all of these pressures, wholesalers must consider:
- Positioning their businesses for the trading environment to come
- Where to invest in order to best exploit the opportunities that lie ahead
- Focus on efficiency and margin improvement, to ensure the business is in good shape to cope with further turbulence
Each option will require wholesalers to develop a funding strategy if they are to execute their plans successfully. Currently, the Close Brothers Business Barometer suggests that more a quarter of wholesalers see access to finance as their biggest business challenge of 2015.
Whether brimming with confidence, cautiously optimistic or downbeat, wholesalers must begin to think creatively about how they will fund future investment.
In the end, both defensive and more aggressive business strategies will flounder unless they are built on firm financial footings.
Takeaways:
- Confidence has slipped, but many companies are still optimistic about the future
- Wholesalers must confront challenges such as the regulatory burden and higher pension costs without losing sight of their growth ambitions
- They will need to decide whether to target growth aggressively or to focus on efficiency and margin improvement for now
- Whether defensive or aggressive, wholesalers need a strategy for funding and investing in their businesses
Take a look at our latest infographic: Barriers to growth for wholesalers and distributors
