INVENTORY TURNS AND PROFITABILITY TRENDS CONTINUE TO SLIP FOR WHSLRS.

Executive Summary

Average inventory turnover by drug wholesalers declined for the third straight year in 1986, according to the most recent Operating Survey released by the National Wholesale Druggists Association. From a 7.31 turnover rate in 1983, the median drug wholesaler has slipped to 6.39 inventory turns. Similarly, wholesalers continued to experience the recent trend of narrowing profit margins, NWDA reported. "The industry's overall profitability is now approaching that of most other wholesale commodity lines," the survey states. "Another year of decline similar to that seen in 1986, and it will probably be below the returns available from other wholesale lines." The squeeze of profit margins favors high-volume operations, the report notes. The "strong relationship between sales and profitability is highlighted" by the fact that "most houses under $20 mil. in sales lost money in 1986" and that "there is not too much difference in the profitability performance of the over-$20 mil. houses," NWDA said. "It appears that a number of small, under-$20 mil. houses are losing money and are candidates for closure," the report states. "Their particularly weak performance has been pulling down overall industry profitability."