Death Of A Wholesaler
Late night crowd in the waterfront bar after a trade association dinner. The manager of a dying wholesale house is buying and we are drinking and telling war stories. Let’s call him Mr. Welch and the company Standard Supply. Cognac is being consumed by those who drink bar whisky on their own nickel. Mr. Welch projects a steady coldness, even drink does not make him warmer. To my eye, even with the ruddiness of drink he doesn’t look like a healthy man. But he would look a lot worse if not in an expensive, beautifully tailored suit. The generosity is appreciated, but the gaiety is muted because we all know this is a wake.

Mr. Welch started as an accountant for this hundred-year-old family business, and he married into the family. He was rumored to be the financial whiz of the operation. And they grew, opened quite a few branches in other cities, and prospered. They pursued the biggest jobs, and with California growing exponentially since WW II, and not a lot of competition, it didn’t take geniuses to make money -- all the big West Coast construction suppliers were very profitable.

Standard Supply is going down. The managers are beating the bushes for any business, lying about how they’re going to survive this. Meanwhile they’re closing branches and not replacing their diminishing inventory. Laying off the countermen and warehousemen, and their inside salespeople. They’ve lost their credit with manufacturers and are trying to fill orders by buying from other wholesale houses. Imagine a supermarket that is out of bread and milk, when a customer appears they stall and send a clerk running out the back door to get some. But not many customers appear, because everyone knows they are out of bread and milk.

A major plumbing and heating supply house (capable of supplying any size job) needs to carry around 100,000 parts. Standard Supply’s warehouse still has a lot of material in it, but much of it is parts like cast-iron hub and spigot drain fittings that no one uses any more. There are some that I can barely remember the names of, such as sussoon long transitions that must have been gathering dust for decades. When the bankruptcy court holds an auction and the jobbers crowd around these bins, they might not even know what a lot of this stuff is.

A little farther down the bar, out of earshot of Mr. Welch, an older contractor gives me the scoop on another stake in their heart. They’ve just lost a very big lawsuit. The rumor is that they chiseled (or worse) another distributor out of commissions they were owed on sales. Further malicious gossip is that the owners, seeing the trainwreck coming, have stripped the company of assets, leaving a hollow shell for the bankruptcy. That would be illegal, verging on the criminal. We’ve been getting bits and pieces of these rumors from the Standard Supply counter and warehousemen we’ve known for so many years.  

I don’t know the real story of what iceberg this Titanic ran into. The company was in the same family, father and son, for over a hundred years. That’s a pretty good run. But they did become hidebound fossils, slow to shift gears. At the top of the distribution food chain, there has been consolidation, as large aggressive national companies were buying up other substantial supply companies and getting much bigger than Standard Supply.

Meanwhile, at the bottom of the food chain, small Asian owned wholesalers, with few employees and no unions to deal with, started doing a lot of business from neighborhood storefronts at cut-throat prices. Construction materials distribution is a simple business -- the more of something you can buy, the cheaper it gets and the cheaper you can sell it. The manufacturer has one price for 10,000 feet of copper pipe and another, much lower, for 100,000 feet. Everyone pays the same. The trick is to be able to handle and sell 100,000 feet quickly to turn the dollars. How did they do it without warehouses? They cooperated with each other, and they stored material in garages and basements all over the city. Isn’t the free enterprise system a beautiful thing?

Since my business is just around the corner from Standard Supply, we would often just walk over when we needed a few parts. But even we have stopped doing this. My last monthly statement from them was $4.34. They are done, it's Game Over. But since Mr. Welch is buying tonight, and we are drinking, we’re too polite to ask, “Will our counter and warehouse buddies get their retirement funds out of this mess?”

I’d like to ask our host if he’s seen “Death Of A Salesman,” as I wonder what some of their older outside salesmen are going to do. Especially the ones who have told us they’re holding company stock in their retirement accounts.

Although we had done a lot of business over the years, I began to dislike Standard Supply because they became untruthful. We would place an order that they assured us would be ready at a certain date, while knowing that it could take weeks longer, leaving us to take the heat for delaying the job. Finally the fixtures would arrive, to our joy, but they would be the wrong color. Add incompetent to untruthful.

I imagine that the owners, father and son, now it would be grandsons, or more likely great-grandsons, must have wealth from what had been a four generation cash cow. They must have seen this coming for a long time before their employees could have. And aren’t people like this smarter than people like me -- cockroach capitalist that I am? They wouldn’t be holding a major part of their assets in Standard Supply stock, would they? But oddly enough, a study of these matters found that a large percentage of executives keep much of their assets in company stock, and neglect to diversify, even when there is a likelihood the price will fall. I wonder if Mr. Welch, now fairly snockered, a cold fish in his cups, has his own assets on the line?

 

We all need to be at work in the morning, and although he tried to keep the party going, we start to drift away, the valets are bringing our cars, and an unsteady Mr. Welch is waiting for his Cadillac, insisting he is fine to drive, and I feel a little sorry for him. He would look out of place in the DUI lockup in that expensive suit. I’m sure he did the best he could. Don’t we all?