Sector analysis: Wholesale sector

Light on the horizon for wholesalers. For several years the sector has been struggling with declining growth and last year even contraction. Even 2024 is still negative, albeit minimal. But the first signs of recovery are visible and growth is expected again next year (1 to 2%). It is not enough to undo the decline of recent years, but the path to growth has been set. Important drivers for this are higher wages (additional consumption), lower inflation and falling interest rates. Although, of course, higher wages are also causing significantly higher personnel costs.

Already, wholesalers in commodities such as oil, agricultural products and building materials are showing first signs of recovery. These sectors were hit hardest during the contraction. They are now benefiting from lower energy prices and increasing demand. Demand for building materials is also picking up, mainly due to project developments and renovations aimed at making homes and businesses more sustainable.

The economic downturn in Europe and especially the stagnation in Germany lay heavy on wholesalers in recent years. Consumers at home and abroad spent heavily on goods during the pandemic, but then demand shifted more to services and the demand for goods stagnated. Furthermore, many buyers had accumulated substantial inventories that had to be cleared first. High inflation and subsequent increases in interest rates did not help either. Many wholesalers were unable to fully pass on increased purchase prices to customers, resulting in margin pressure.

Wholesalers are eminently sensitive to cyclical developments. The growth prospects for the EU and the global economy directly affect demand for products, investments and trading activities. Based on current expectations, our research department assumes that the economy will pick up slightly both in Europe and globally (Eurozone: 2024: +0.8%, 2025: 1.4% and 2026: +1.4%). Due to wage growth, consumption is picking up and monetary policy easing (lower interest rates) is also increasing investment and credit costs are falling.  

Germany's role, of course, is crucial. When will "the sick man" of Europe recover? The German economy just won't get going. German companies are facing declining competitiveness, not only in international markets, but also within Europe. Our research department assumes that 2024 will also enter the books as a recession year for Germany, although the downturn will be limited (-0.1%). For 2025, we expect modest growth for Germany of +0.7% in 2025 and then +1.1% in 2026.

As a sector, the wholesale industry faces numerous challenges, including scarcity of personnel, increased costs and the urgent need for climate and energy transition. Entrepreneurs are forced to adjust their strategies. Both large and small players must work on sustainability and digitalization to remain relevant.

New technologies and innovations play a crucial role in improving logistics processes, optimizing supply chains and increasing industry efficiency and effectiveness. It not only helps streamline processes, reduce costs and improve customer satisfaction. It also enhances collaboration and connectivity in the supply chain. Furthermore, innovations increase sustainability. Companies that know how to handle this well gain competitive advantage and are better able to respond to rapidly changing market demands.

ICT and innovation

With the use of digital inventory management and on-demand warehousing, (whether or not coupled with a logistics partner or in-house logistics), wholesalers can ensure faster delivery to the professional end customer. Depending on the products, distribution can be done daily, through delivery rounds or through personalized deliveries, but only if the quantity of goods transported justifies it. The quality of each wholesaler's logistics service is an important differentiator, even though pure logistics service providers obviously compete with them as well.

• Whether it is packaging, loading vehicles or organizing delivery rounds, technological investments allow wholesalers to accelerate these flows and adapt them (in real time) to the ever-fluctuating demand.
• By making more intensive and smarter use of Business Intelligence and Big Data, wholesalers can greatly increase the efficiency of business processes.
• Today, wholesalers upstream and downstream are investing in IT management tools for their supply and distribution chain. Thus, they benefit from the traceability of their products and comply with various standards, especially in the field of food.
• In the context of increasing digitization of activities, wholesalers' staff must have solid digital knowledge. Training is thus becoming an important issue in this sector.

Sustainability and energy

Wholesalers do not manufacture products themselves. As a result, the sector's energy consumption is relatively low. Making it more sustainable and reducing its environmental impact focuses mainly on the use of recyclable packaging (cardboard or paper instead of plastic) and optimizing transport, which is mainly by road. Logistics optimization is therefore at the core of the wholesale trade's economic model and contributes to its energy performance.

Shortage of personnel

Wholesale trade is an industry with highly varied occupations and a great need for workers. But like virtually all other sectors, the wholesale industry is struggling to bring in new people. Although the salary level is a plus. It is higher than in retail, for example. The sector suffers especially from a shortage of delivery drivers, order pickers and forklift drivers.

Changing consumer behavior

Consumer behavior is constantly evolving, and wholesale companies must adapt to these new trends. The shift to online shopping, sustainability and ethical consumption are all factors that can affect demand for certain products and services.

As stated earlier, wholesalers are especially sensitive to cyclical developments. That explains why the number of bankruptcies in the sector rose above average in recent years. And we must still be careful. In recent years, bankruptcies increased globally and this trend will continue in 2024. Globally, the number of bankruptcies will rise +11% this year. This puts Allianz Trade's insolvency index at +13% above the 2016-2019 average (the pre-Corona period). For 2025 and 2026, we foresee a slight recovery. Wholesale trade is among the most sensitive sectors. Higher costs and disappointing sales put pressure on margins. Many wholesalers are struggling with their liquidity.   

An unpaid invoice or the bankruptcy of an important customer can have serious consequences for wholesalers. Wholesalers working with governments are less at risk than fellow companies doing business with retailers and SMEs. To prevent companies from running into unpaid invoices, we offer the protection of a trade credit insurance. Business owners can then be sure they will get their invoices paid.

For many wholesalers, the blow of unpaid invoices can hit hard. This can be mitigated with a trade credit insurance. Allianz Trade has a solution for every type of business. Whether an invoice is paid or not is no longer a worry, companies are sure of their money with our trade credit insurance. This provides security and removes anxiety. We take over the debtor risk from the company. Don't customers pay? Then Allianz Trade indemnifies the affected company. In addition, we offer companies who take out a trade credit insurance with us information about the creditworthiness of their (potential) customers. Daily, we analyze the financial situation of customers and prospects.