Federación de cajas de Ahorros Vasco-Navarras

SUMMARY AND CONCLUSIONS

1. INTRODUCCIÓN

The aim of this report is to examine wholesale distribution of non-food consumer goods in the Autonomous Community of the Basque Country, analysing the current situation, recent development and also the determining factors and trends for the future. These aspects are supplemented with an analysis of the sector both in the European Union and in Spain, so as to include variables which will enable homogenous comparisons to be made, and the importance of the Basque wholesale trade sector for non-food consumer goods in relation to other wider markets to be determined.

In spite of its economic importance, the studies which have looked at the subject of commercial distribution have traditionally not given the same attention to wholesale trade as they have to the retail sector, the role and recent problems of which are closer to society in general. This report is original in that it analyses the situation and importance of wholesale trade in general, and non-food wholesale trade in particular, a sector which has rarely been mentioned in the extensive literature about commercial distribution.

Like the other sector-based reports in this series produced by the FCAVN, the report is divided into five chapters. The first chapter defines the activity being studied, summarises the methodology used to produce the report and briefly describes the role of wholesale trade in product distribution chains. The second and third chapters examine the situation of wholesale trade of consumer goods in the European Union and in Spain, respectively, while the fourth chapter looks at the situation of the sector in the ACBC. As a supplement to this quantitative analysis, the fifth chapter offers a qualitative overview of the sector being studied, outlining the factors which affect sector competitiveness and describing its strengths, weakness, opportunities and threats (SWOT analysis).

2. DEFINITIOM OF THE SECTOR

According to the goods distributed, the wholesale trade sector for non-food consumer goods (CNAE-93 51.4) is divided into seven subsectors, some of which in turn comprise various branches of activity:

• Wholesale trade of textiles
• Wholesale trade of garments and footwear
  • Wholesale trade of garments
  • Wholesale trade of footwear
  • Wholesale trade of accessories
• Wholesale trade of electrical appliances and radio and television sets
• Wholesale trade of chinaware and glassware, wallpaper and cleaning products
  • Wholesale trade of chinaware and glassware
  • Wholesale trade of wallpaper and cleaning products
• Comercio trade of perfumery and beauty products
• Comercio trade of pharmaceutical products
• Comercio trade of non-food consumer goods
  • Comercio trade of stationery, books and similar goods
  • Comercio trade of games and toys
  • Comercio trade of watches, jewellery, silverware
  • Comercio trade of leather and travel goods
  • Comercio trade of other household products

3. THE ROLE OF THE WHOLESALER IN THE DISTRIBUTION CHANNEL

In general terms, the distribution process consists in taking the products from where they are manufactured to the consumers, and can either be carried out directly from the manufacturers to the consumers (a direct distribution channel) or through intermediaries (commercial agents, wholesalers, retailers, etc.), who make up the commercial distribution sector.

Among the reasons for the intervention of wholesale companies in the distribution channels, the following should be mentioned:

• They simplify commercial relations, reducing the number of transactions which manufacturers and consumers must make.
• They match supply to demand, since wholesalers buy in bulk from the manufacturers and sell in small quantities to their clients, who cannot or do not want to store large supplies of the products.
• They offer a complete supply (or range) of products, since while the manufacturer specialises in a small number of product lines, by purchasing from several manufacturers, the intermediary can offer customers a wide range of brands of the same kind of product.
• They perform complementary functions which provide added value, such as the transport of products, storage and preserving, division into smaller consignments or batches ("bulk-breaking"), packing, or even product advertising and marketing campaigns which can be performed independently of or jointly with the manufacturers, the supply of maintenance and/or after-sales services, etc.
• They provide two types of credit facilities either by advancing payment to the manufacturers before the products are sold to the consumers, or by granting credit facilities to their clients through methods such as deferred payment, application of discounts, etc.
• They take risks, since by purchasing the property of the product, they run the risk of not being able to sell or selling at a price which is lower than the purchase price. They also contribute towards relieving the financial load which product storage and/or preserving implies for manufacturers.
• Finally, in addition to the above tasks and functions, wholesalers add their experience, specialisation and trade relations to distribution.

4. THE SECTOR IN THE EUROPEAN UNION

According to Eurostat data, wholesale distribution reached approximately 1.5 million companies in the European Union in the year 2000, employing almost eight million people in total. The estimated aggregate turnover of the wholesale trade sector reached at approximately 2,825 thousand million euros, whereas the value added of the sector stood at about 755.9 thousand million euros. In view of such data, the participation of wholesale distribution in the EU economy as a whole amounts to 8% in terms of the number of companies, 7% in terms of the people employed, 17% in terms of turnover, and 8% if the generated value added is considered.

For its part, the wholesale trade sector of non-food consumer goods stands out as one of the main sectors of activity in wholesale distribution in the European Union. In particular, it has been estimated that the sector consolidated more than 275,000 companies with a turnover of 575,357 million euros and generating a value added of around 171,521 million euros. In terms of the number of people employed, Eurostat data estimate that the sector employs more than 1.7 million people, a figure which represents around 2% of the employment generated by the EU economy for this year.

The average size of wholesale non-food consumer goods companies is 6.5 employees per establishment, which is slightly larger than the average size of EU wholesale establishments (5.4 employees). For its part, the average turnover of companies in the sector hovers around 2 million euros, whereas turnover per employee is on average 326,592 euros.

Finally and regarding the geographical distribution of the sector, it is worth mentioning the importance of countries such as Italy, France, Spain, the United Kingdom and Germany, with a 74% concentration of wholesale companies producing non-food consumer goods in the EU and 76% of sector-based employment. If the geographical distribution of turnover and sector-based value added is also considered, Germany and the United Kingdom stand out over the other countries, concentrating 30% and 44% of the sector-based total of the EU, respectively.

The differences observed in the sector-based contributions of each EU country are underlined if the average size and average turnover are considered for wholesale non-food consumer goods companies according to the country where they are located. The average size of sector companies ranges between a maximum of 14.4 employees per company in Germany and a minimum of 3.1 employees per company in Luxembourg. These two countries also have the maximum and minimum turnover per establishment, with averages of 4,711 thousand euros and 1,093 thousand euros, respectively.

5. THE SECTOR IN SPAIN

According to the Annual Trade Survey produced by the Central Statistical Office (INE), the wholesale trade sector in Spain as a whole agglutinated a total number of 184,289 companies in the year 2000, employing 941,302 people and generating a turnover of 274,290 million euros.

It is also worth mentioning that the value of production of the wholesale distribution sector in Spain stood at 58,747 thousand million euros, whereas the value added reached 31,541 million euros.

For its part, the wholesale trade sector of non-food consumer goods encompassed a total of 32,958 companies in the year 2000, which represented 18% of the total number of wholesale Spanish companies and hardly 5% of the total number of commercial distribution companies. In terms of the employment generated, the total number of people employed in the sector reached 205,019, and therefore the sector-based participation in the volume of employment of wholesale activity stood at 22%. Consequently, the average corporate size of the wholesale trade sector of non-food consumer goods stood at 6.2 workers per company, exceeding the average of 5.1 for the whole of the wholesale trade sector.

Looking now at the economic magnitudes of the sector, it is worth mentioning that the volume of trade of Spanish wholesale companies involved in the distribution of non-food consumer goods amounted to 61,435 thousand euros; 93% of this came from the wholesale of products which have not been transformed by companies, and the remaining 7% came from other types of sales (4%), the provision of services to third parties (2%), and intermediation commissions (1%). In terms of the distribution of this according to the type of client, it can be seen that the retail sector comprises the main purchaser in the sector, concentrating 42% of total sales, and a substantial way ahead of the sales made to producers and other wholesalers (29%), companies and professional users (20%), and end users (6%).

On the other hand, gross sector-based production amounted to 14,635 million euros, with more than half this figure corresponding to the generation of value added (7,519 million euros). Therefore, and in comparison with the value of production and the value added of wholesale trade as a whole, the participation of wholesale distribution of consumer goods would hover around 25% in both cases.

If the participation of each subsector constituting the wholesale distribution of non-food consumer goods is considered, fur stand out over the others: the wholesale trade of electrical appliances, radio and television; that of pharmaceutical products; that of other non-food consumer goods; and that of garments and footwear. In particular, these subsectors concentrate 87% of the sector-based volume of trade, 82% of the value of production and 83% of the generated value added.

Finally, the Central Business Directory (DIRCE) offers wider information about the corporate structure of the sector, with data about the size of establishments and their geographical concentration. Regarding the distribution of the number of establishments according to size, the DIRCE data reflect the fact that the wholesale trade sector for non-food consumer goods shows a high level of fragmentation: 33% of companies have no salary earners, 31% have a maximum of two salary earners, and only 1% employ at least 50 salary earners. In terms of geographical concentration, the most noteworthy aspect is that more than half of the companies and salary earners are concentrated in Cataluña and in the Community of Madrid.

6. THE SECTOR IN THE ACBC

Importance and main magnitudes

According to the Input-Output Tables produced by Eustat, wholesale trade activities employed 39,116 people in the ACBC in the year 2000, concentrating 37% of the volume of employment which corresponds to the trade distribution sector as a whole. In terms of the value of production (3,002 million euros) and of value added (1,878 million euros), the participation of wholesale trade in the trade distribution sector is significantly higher, with rates of 55% and 52%, respectively.

In terms of the wholesale trade sector for non-food consumer goods, the 2000 Survey on Trade and Repairs (also produced by Eustat) indicates that the volume of sector-based employment amounted to 6,398 people in the whole of the ACBC (92% salary earners), working in a total number of 1,626 establishments. In view of these data, the average size of the establishments involved in the wholesale trade of non-food consumer goods in the ACBC stood at 3.9 employees/establishment, an average which is slightly lower than that of the whole of Spain (6.2 employees).

Considering the main economic magnitudes of the sector, it is worth mentioning that wholesale non-food consumer goods firms generated a gross value added of 255.8 million euros in the ACBC in the year 2000, an amount which represents 0.7% of the wealth generated by the Basque economy, and which exceeds that corresponding to sectors such as I+D activities (0.5%) or wood industries (0.6%), to name but a few examples.

On the other hand, the value of sales or volume of trade of the sector amounted to 2,120 million euros, although the net flow of income due exclusively to the commercial activity of these establishments (i.e. the gross profit margin) is significantly lower: 387.2 million euros, or in other words, about 18% of the volume of business.

Input-Output Analysis

According to the Input-Output Tables produced by Eustat, the goods and services which the wholesale sector uses to carry out its activity are basically attached to wholesale activity itself, which holds a participation of 15% in the total of intermediate purchases of the sector. This is followed, in order of importance, by the transport of goods by road (13%), real estate activities (9%), restaurants (9%), and other transport services (8%), to mention the most important.

Analysing the geographical origin of the intermediate inputs used by the wholesale distribution sector highlights the fact that more than three quarters (78%) of purchases are made to productive sectors located in the ACBC itself. Purchases made to productive sectors in the rest of Spain represent 21%, while those from abroad stand at 1%.

In terms of the destination of production associated with wholesale activity, the Input-Output Tables show that 67% of this is destined to be intermediate inputs in the activity of other productive sectors, whereas the remaining 33% is channelled towards final demand, which includes the domestic consumption of households and public institutions (20% of production), investments (4%), and exports (9%). Regarding the geographical destination, it is worth mentioning that 63% of the production of wholesale activity is destined for the Basque Autonomous Community, while the remaining 37% is destined for other communities in Spain.

Description of the corporate fabric

As in the rest of Spain, data from the Directory of Economic Activities produced by Eustat highlights the fact that there is a high level of fragmentation in the Basque wholesale trade sector for non-food consumer goods. More specifically, in 2002, 64% of establishments in the sector employed between 0 and 2 people, 20% employed between 3 and 5 people, 8% employed between 6 and 9 people, and the remaining 8% employed fewer than 10 people. There is also a total predominance of SMEs (small and medium-sized enterprises) in the sector, and no company in the ACBC has more than 250 employees.

When analysing the territorial distribution of establishments and employment within the ACBC, what is particularly notable is the concentration of wholesale activity for non-food consumer goods in Bizkaia, with 58.3% of the total number of establishments, and 59.4% of employment. In Gipuzkoa, these percentages are 32.4% and 29.2%, and in Álava 9.3% and 11.4%, respectively.

Finally, an analysis of the corporate structure and employment of the different subsectors which comprise wholesale activity of non-food consumer goods highlights the fact that the subsector classified within the epigraph of "other non-food consumer goods" concentrated around 40% of the sector-based establishments and employment. For their part, each of the subsectors involving wholesale trade of electrical appliances, radio and television sets, wholesale trade of garments and footwear, wholesale trade of perfumery and beauty products, and wholesale trade of pharmaceutical products represent between 10% and 15% in terms of the number of establishments, and between 8% and 18% in terms of employment.

Competitive positioning of the sector

Factors which affect the competitiveness of the sector

The dynamism of the commercial distribution sector can be seen in the continual changes which have taken place in its activity. As a result of the structural changes which have affected commercial distribution, commercial structures have been modernised and sector-based strategies (such as corporate alliances or integration) have been adopted.

Within this context of continual change, the response capacity of the wholesale trade sector of non-food consumer goods has arisen from the manoeuvrability of each company in view of the following factors which are possibly the ones which greatest affect the competitiveness of the sector:

• Assuming roles corresponding to other levels of the distribution channel
• Strategies for integration and alliances among wholesalers
• Importance of human capital
• Differentiation strategies

• Impact of Internet and electronic trade on wholesale activity

SWOT Analysis

Among the main strengths of the sector, it is worth mentioning:

• Essential, consolidated activity in commercial distribution
• Vast knowledge about the market and consumer tastes and habits
• Flexibility and ability to adapt to changes in demand
• Modernisation efforts of the sector

The most important weaknesses are:

• The wholesaler's function can be carried out by other agents in the distribution channel (vertical integration)
• Fragmented corporate structure and small corporate size
• Limited entry barriers which facilitate the appearance of new rival agents
• Narrowing of commercial margin on sales

In terms of the opportunities of the sector, we should mention:

• Encourage sector training and professionalisation
• Continue to improve the service offered to customers
• Specialisation and reinforcement of subcontracting
• Continue to incorporate new technologies and modernise infrastructures
• Formation of alliances/integration

In terms of the main threats , we should mention:

• Trend towards the vertical integration of commercial distribution
• Disappearance of specialist retailers and increase of new forms of distribution (hypermarket chains, etc.)
• Growing competence of logistic operators
• Increase in direct sales to consumers, partly as a consequence of the new information and communication technologies