I just got an email from a plugged-in industry vet who said the following:
The U.S. wholesaler is akin to Bear Sterns, Lehman Brothers, Fannie and Freddie. The owners need to be more like John Thain of Merrill Lynch. He saved his company by acting decisively and recognizing that a bad deal is still better than something that kills the company. Had Fabrikant, OTC, LID, Star Diamond, Whitehall etc acknowledged their problems and taken action they would not have fallen.
If you check the landscape today, there are many companies that are in peril. They believe that with time an improved economy they will get back on their feet. This is far from the truth. Their fundamental business models are flawed and old school.
So what’s the solution?
- Accept the fact that the banks will tighten standards.
- Wholesalers need to be more transparent and inject capital where they are able.
- Wholesalers cannot and should not allow returns.
- Wholesalers must be proactive in seeking vertically integrated partners.
- Niches, branding, innovative product and Internet platforms must be developed.
- Profit need to be re-invested in the business – not in real estate.
This person concludes: “There will be a Christmas, and it will not be Armageddon for the smarter wholesaler. Those unwilling to reinvest in their business and adopt best practices will fail. Those who do will survive and prosper in 2008 and beyond.”
More thoughts on the industry’s financial state from Chaim here.