Business Starts to Look Towards Expansion

Many companies have been sitting in a holding pattern since the Great Recession officially started in the fall of 2007. Economic recovery has been weak, holding many companies back from investing in new structures and equipment—until now.

We had a flurry of automation and new equipment expenditures between 2009 and 2011, as companies opted for things like robotics instead of re‐hiring workers for more basic activities. Since then, companies have been "banking" profits for the past several years. Coupled with "cheap money" for borrowing stemming from historically low Federal Reserve rates, the time is probably correct for many industries and companies to make their next strategic move: expand their operations.

Add to this trend the rapid acceleration of online order activity, and there is a real push for the ability to handle new distribution and fulfillment strategies across the spectrum for retailers and their suppliers. Retailers are beginning to embrace the notion of the Omni-channel. Omni-channel strategies embrace the notion that a customer should be able to engage in commerce with a retailer in any manner that they prefer, whether it is online, brick‐and‐mortar, or in any other manner available. Fulfillment and where customers take delivery is also an important factor. The bottom line is that online sales volume (expected to add more than $1 trillion in new sales by 2018 worldwide) will continue to drive the need for flexibility, expansion and investment in how fulfillment is handled. That will lead to new construction and expansion of structures throughout the supply chain—especially as NAFTA trade heats up from a growing Mexican manufacturing supplier sector.

This is the counter argument to the reduced durable goods data and the credit crunch. There remains a great deal of money in the coffers of the corporate community and that means that they are less dependent on the banks than in the past. The business community has reasons to expand and, at the same time, some to be cautious. The sense is that many companies are starting to worry about market share, which can drive decision-making. The path of expansion this year will be determined by this tension between a need to compete and the need to be fiscally prudent.

- Chris Kuehl, Ph.D., NACM Economist and co-founder of Armada Corporate Intelligence

No comments:

Post a Comment