Fed Spending Shift

For marketers that sell to the federal government, “Christmas in July” is more than the title of a Preston Sturges movie or a catchy advertising slogan. Because the government’s fiscal year ends in September, summer is the busy season for those that reap a significant portion of sales from the feds.

For many of these marketers, though, this past summer wasn’t as busy as they’d hoped. “This is as close to a flat year as I’ve seen in business-to-business government marketing,” says Mark Amtower, founder of Highland, MD-based Amtower & Co., a consultancy that helps catalogers sell to the federal government.

Amtower has said in the past that the federal government is one market that’s virtually immune to economic ebbs and flows. But while he’d estimated last year that annual sales to the government had increased 10%, this year he says that sales will be up only 3%-4%. In comparison, the National Retail Federation is predicting that consumer holiday sales will rise 4.5% this year.

What’s more, the 3%-4% increase in government sales didn’t fall evenly across all market segments. “A tremendous amount of money is being driven to the Department of Defense and homeland security,” Amtower says.

That’s great news for marketers that sell products of use to security and defense buyers. But for those that sell other products or target different departments, the shift isn’t so good.

Ups and downs

For Chicago-based Newark InOne, a cataloger of electronic components and accessories, sales to the federal government are up 16% this year. According to Doug DiVenere, Newark’s director of government business, sales to the Department of Defense increased 22%, with the average order value up 20%. The defense department purchases test and measurement equipment, connectors, and wire and cable from Newark.

Sales at Frankfort, NY-based cataloger Northern Safety increased 15%-20%, according to marketing director Robin Fostini. The cataloger sells respirators, boots, and eyewear to the Department of Defense.

Northern Safety’s federal buyers pay for their orders primarily via SmartPay, the government-issued credit card. SmartPay can be used only for transactions of less than $2,500, but they can be used to buy from virtually all suppliers, not just those that have been approved with a schedule from the General Service Administration (GSA).

In contrast to Newark InOne and Northern Safety, Lincoln Equipment has seen softer sales to the federal government and lower average order sizes, says Charlie Luecker, president of the Concord, CA-based commercial supplier of swimming-pool equipment. With more money required for the troops in Iraq, the government apparently has less to spend on discretionary items such as filters for swimming pools at military bases, he says.

Vernon Hills, IL-based computer reseller CDW is also feeling the effects of the government’s shift in spending priorities. CDW’s overall public-sector sales remain strong — the division’s second-quarter revenue, for instance, increased 22%, to $315.1 million for the three months ended June 30. But that gain was due to sales to state and local governments and the education market.

In CDW’s monthly sales release for August, the company’s chairman/CEO John Edwardson noted that “strength in state and local government and education channels was partially offset by weakness in the federal government channel. This was primarily a result of buying indecision among our Department of Defense customers, due to their uncertainty regarding available fiscal year-end discretionary budget dollars, which may be affected by other spending priorities.”

Max Peterson, vice president of federal sales for CDW-G, CDW’s government subsidiary, adds that “there’s no crystal ball as to when, or even if, sales will come flowing in.”

A decline in park and forest fires, not the war in Iraq, resulted in flat federal sales for Eugene, OR-based National Fire Fighter Corp. The company sells firefighting and protective equipment to the federal and munical governments and to private wild land protection groups, with the fed accounting for 10%-15% of its total sales, says marketing director Shannan Odum.

Fewer fires means fewer sales of protective gear and water tanks, the items most commonly purchased by the federal government. But as firefighting tools “get more technical — and the government catches on — we sell more technical items to them,” Odum says. But not without some lag time. “They catch on a year or two after the regular market,” she adds.

Spending spree

Federal agencies don’t get to carry unspent funds over into the next fiscal year. If they haven’t spent the money allocated to them by Sept. 30, the end of their fiscal year, they lose it. By their fiscal fourth quarter, agencies often have leftover, “fallout” funds from projects that were delayed or cancelled. Catalogers can benefit from federal buyers’ scramble to spend their discretionary funds by sending the right offers to the right targets at the right time.

“Marketers must really be in front of their customers to grab a greater share of the pie,” CDW’s Peterson says. “We must capture awareness in the market and make sure we’re doing everything we can to alert our customers of sales or specials.” CDW even includes additional promotional funds in its annual budget to capitalize on the last-minute spending spree on the part of the federal government.

This year CDW teamed up with computer manufacturers Hewlett-Packard and IBM to configure laptop notebook computers specifically for the U.S. Army, Air Force, and Marines. The machines for the Air Force were equipped with a common access card (CAC) reader that lets authorized personnel access and enter data by inserting or swiping their identification badge. For the Marines, CDW provided barcoded asset tag numbers for each laptop shipped. The asset tag numbers were loaded onto an extranet site so that the Marines could track where each computer was being shipped.

To promote the offer, CDW sent an e-mail blast to customers, advertised in trade publications such as Federal Computer Week, and aired radio spots in the Washington market.

Both CDW and rival PC Mall’s PC Mall Gov subsidiary inserted catalogs into the Aug. 6 issue of Federal Computer Week, which goes to 93,000 subscribers across all branches of the government. CDW also inserted catalogs into six issues of Government Computer News, whch reaches 252,000 government IT workers.

Such catalog ride-along efforts can be especially effective in targeting buyers at military bases, according to Amtower. “Military bases have a hard time delivering what they determine to be unsolicited commercial pieces, such as catalogs,” he explains. “So ride-alongs with an established publication help.”

Top Fed Suppliers

Sales to the federal government for fiscal 2003

  1. DELL COMPUTER CORP.

    $1.6 billion ▪ Marketshare: 10.77%

  2. IBM

    $342.1 million ▪ Marketshare: 2.31%

  3. SAIC

    $308.7 million ▪ Marketshare: 2.08%

  4. MOTOROLA

    $273.0 million ▪ Marketshare: 1.84%

  5. ORACLE CORP.

    $264.8 million ▪ Marketshare: 1.79%

  6. EDS

    $258.6 million ▪ Marketshare: 1.75%

  7. BOOZ ALLEN HAMILTON

    $249.6 million ▪ Marketshare: 1.69%

  8. ACCENTURE

    $241.9 million ▪ Marketshare: 1.63%

  9. BEARINGPOINT

    $200.0 million ▪ Marketshare: 1.35%

  10. NORTHROP GRUMMAN INFORMATION

    $193.8 million ▪ Marketshare: 1.31%

Source: General Accounting Office (GAO)

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