Many electronics distributors are concerned what impact the economic slowdown will have on their businesses in 2008. However, while catalog distributors may not be completely recession-proof, they are less affected by the cyclical ups and downs of the economy.

“When you cater to design engineers, that business doesn't stop even though manufacturing slows down,” says Kevin Hess, marketing director for Mouser Electronics in Mansfield, Texas. “People are still designing new products with the latest technology. We provide them with the latest products that our component manufacturers have to offer.”

Catalog distributors such as Digi-Key, Allied, Newark and Mouser, sell small volumes of parts for design, prototype builds and small production runs. Margins of the parts are higher than components sold by distributors that supply parts for production. In some cases, OEMs will turn to catalog distributors for items that may be in short supply.

Catalog distributors often have double-digit growth even when the rest of the distribution industry is limited to single-digit revenue increases.

Scott McLendon, vice president of marketing for Allied in Fort Worth, Texas, says one reason catalog distributors do well even during economic downturns is they “have thousands and thousands of small customers. They are in a variety of verticals, including energy, oil and gas, food and beverage, waste water, transportation and communications,” he says. “A lot of customers are in infrastructure segments and those segments continue to expand.”

Another reason why catalogers outperform the market is they are “committed to inventory, convenience, and service,” says McLendon. He says a buyer may not want to buy parts in a standard carton.

“A customer may want to buy three or 100 off of a reel and that is our model,” says McLendon. “If you want to buy one, we will sell you one.”

He says catalogers are not as concerned about turning inventory as other distributors.

“We are not turning inventory eight to ten times, we are turning it three times. We tend to have a broad range of products and inventory and can ship you one piece out of the door today. That convenience and service is recession proof,” says McLendon.

Also key to catalog distributors' success is carrying new products based on the latest technology from the leading suppliers.

“Last year we added 64 new suppliers into our line card,” says Hess. “We also added products from suppliers that we already had. That gets us market share when we are the first ones to have the latest technology,” he says.”

“New suppliers and new products bring in customers from different industries,” Hess adds.

Catalog distributors are all beefing up their Web capabilities to offer more information about parts, make it easier to search for parts and offer tools to help engineers design.

Newark is investing in its website as it grows its design engineering business, says DeWight Wallace, president of the Chicago-based catalog distributor.

“We have made a big investment on our website. Engineers are more Web savvy than the average Joe. They like to get a lot of information,” he says.

Greater emphasis on design engineering is a change in strategy for Newark. Wallace says traditionally Newark's business has focused on maintenance and repair operations (MRO).

“We want to maintain and grow that profitable business, but we are looking for aggressive growth in the electronics design engineering space,” says Wallace.

He says the plan is to leverage Newark's “brand equity in the market and sell into the design piece of the market where we had been selling into the maintenance piece.”

Wallace says to grow its design engineering business, Newark has added 90,000 new products including semiconductors, passives and optoelectronic components.

Improved Web capabilities also help catalog distributors expand their businesses globally. Newark's parent company, Premier Farnell, has launched a website in Mandarin for the Asian market, says Wallace.

Mouser has also added more customers through its website and from its sales branches in Asia, says Hess.

Digi-Key is also increasing customers via the Web, says Mark Larson, president. He says about 60% of Digi-Key's business comes through the Web and some of it is from non-North American customers. Larson expects that percentage will increase in the next several years.

The Web helped Digi-Key increase its overall sales 13% in 2007 while its North America revenue grew about 10%.

Digi-Key is growing its business in China. It started doing business there about three years ago and grew sales there 60% in 2007, says Larson.

“The sales numbers are small. There are a lot of barriers to China. It's not like we go and interface with one company and get tens of millions of dollars of business,” says Larson. “We are building a customer base one customer at a time.”

He says Digi-Key will also “get cranked up in India” as well. “Both India and China are difficult to get into. It has to do with government and bureaucracy and managed economies,” he says.

But he says Digi-Key's business model is being well accepted in Asia. “We have the advantage that a lot of engineers who go back to China for engineering positions and design are U.S.-trained and have had exposure to Digi-Key,” says Larson.

Allied is a subsidiary of Electrocomponents, a global distributor, so Allied's focus is strictly North America.

“Part of our value proposition is being close to customers,” says McLendon. “We are in local market with local people.”

He says Allied has added outside salespeople. “Three years ago we did not have an outside sales team, just inside. Now we have 60 outside salespeople and 400 in the field in 55 branches.”