Advisor Insights

Middlemen in the Crosshairs

Laura Lallos

Online wholesalers such as Amazon.com  (AMZN) are entering the business-to-business distribution market, bringing increased price transparency. Their growing market presence will change customers’ expectations, and many incumbent distributors must adapt to remain competitive. In a recent Industrials Observer,[1] Morningstar equity analyst Brian Bernard explained how the leading industrial distributors can compete in the digital age. I spoke with Bernard about his research on Jan. 31; our conversation has been edited for length and clarity. 

Brian Bernard, CFA, CPA, is an equity analyst with Morningstar Research Services.

How have leading industrial distributors gained their edge? 

Bernard:
Two factors helped the distributors that we cover become the largest and most dominant in the space. The first is economies of scale. Industrial distribution is a fragmented market, with a lot of mom and pops out there. These guys, relative to those competitors, are very large and have a cost advantage; they are able to leverage fixed costs over a larger sales base.

Laura Lallos does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.