Cover Story
10 Trends that Will
Shake the Industry
The economy has turned the corner and looks to be in position
for steady if not spectacular growth in 2013 and some robust
growth in 2014. Here are our picks for the key macrotrends that
will shape how manufacturers, distributors, reps and end users
will do business during the next few years.
W
ith the 24/7 assault of tweets, blog
postings and other social media, as
well as the more traditional forms of
communication, it’s sometimes difficult
to figure out which information is just
some online blowhard’s opinion and which data needs to
be assimilated into strategic planning for your business.
Part of Electrical Wholesaling’s reason-to-be has always
been analyzing the most important future industry trends
for its readers. When we published the article “Ten Trends
that Will Shock the Industry” back in 1996 and used that
article as the basis for a seminar at the National Electrical
Manufacturers Representatives Association (NEMRA),
Portsmouth N.H., we got a ton of positive feedback on our
efforts. With the economy improving, advancing technologies
and emerging sales opportunities, Electrical Wholesaling’s
editors felt it was a good time to make our picks for the
Top 10 Trends that will have the most impact on electrical
distributors, electrical manufacturers and independent
manufacturers’ reps. Following are our picks, and some
ideas for how you can compete against these market forces
and take advantage of good sales opportunities and tools
for running your business.
probably still sell well over $85 billion worth of electrical
products — more than 70% of all electrical products.
That’s an amazing figure when you consider that some
well-established alternate channels for electrical supplies account for billions of dollars in sales. For W.W. Grainger Inc.,
Lake Forest, Ill., electrical products accounted for an estimated
$1 billion of its total of $8 billion in 2011 sales. Home Depot
and Lowe’s sell up to $2 billion in electrical items (heavily
weighted toward residential lighting fixtures, a product area
that full-line electrical distributors no longer focus on very
much). And while it’s tough to estimate electrical sales for
Fastenal Inc., Winona, Minn., the company does have 32,000
electrical stock-keeping units (SKUs) in its catalog and had
an astounding 2,652 branches at 2012 year-end — more
than the five largest full-line distributors operate as a group.
Fastenal opened up 80 new stores last year alone.
1
Full-line distributors will remain the primary sales
channel for electrical products, but product specialists, hybrid distributors and alternate channels
will steadily nibble away at their market share.
Despite body blows from online merchants with no need
for local brick-and-mortar branches, home centers and
occasional manufacturer initiatives to sell direct, full-line
distributors of electrical supplies are standing strong and
By Jim Lucy, Chief Editor
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Electrical Wholesaling / FEBRUARY 2013
2
The five largest distributors will continue to
acquire smaller distributors to fill in gaps in
their geographic market footprints or to build
their presence in new market niches. The
Big Five — Sonepar North America, Philadelphia; Wesco
Distribution Inc., Pittsburgh; Rexel Holdings USA, Dallas;
Graybar Electric Co., St. Louis; and Consolidated Electrical
Distributors Inc (CED), Irving, Texas — accounted for no
less than 30% of industry sales in 2011 and run an estimated
2,300-plus branches between them.
Several of these companies — Rexel, Sonepar, Wesco
and CED — have been actively hunting for acquisitions
to bolster their market coverage. Together with Border
States Electric, Fargo, N.D., and Crescent Electric Supply, East Dubuque, Ill., they have been the most active
acquirers in the past and can be expected to be the biggest
acquirers in the next few years, too. Also, look for one
of the big acquirers to buy a distributor of industrial or
construction-related supplies in a related market niche
like plumbing, HVAC or pipe, valve and fittings to manage the purchase and sale of those products through their
ERP systems and to pump those products through their
regional distribution centers.
3
In an increasingly global market, more U.S.based electrical manufacturers and distributors will look to grow outside the United
States, and more electrical companies from
outside North America will move into this country. By
now, electrical distributors have gotten pretty used to the idea
that two of the five largest distributors in the North America,
Sonepar and Rexel, are owned by
companies based
in France, and that
between themselves
they operate 4,000
locations and did
an estimated $35.9
The Key Trends that Touch All Shores
billion in combined
sales in 2011. And if
any industry execs
had forgotten that
the foreign-based,
multi-billion-dollar companies like
Schneider, Siemens,
Legrand, Philips,
and Nexans are well-entrenched in the North American
market, ABB’s acquisition last year of Thomas & Betts
jogged their memory a bit. There’s no doubt that despite
its recent economic woes, North America is still one of the
most lucrative and stable electrical markets in the world.
Over the next few years, look for some of the Pacific Rim
manufacturers of the LEDs to strengthen their positions
in the United States through acquisitions of other lighting
manufacturers with strong networks of distributors or
local lighting reps.
A PENTON MEDIA, INC. PUBLICATION
The Wild World of
Global disTribuTion
4
Within five years virtually all electrical distributors will stock LEDs. LEDs are spreading
throughout the lighting market application-byapplication. The first lighting niches they flooded
include exit signs, traffic lights, special effects lighting, hardto-get-to locations and streetlights. While we don’t expect
them to push top-of-the-line T5 or T8 fluorescent lighting
systems out of too many ceiling sockets in the general office lighting market, don’t be surprised if they now start
taking over some “statement” applications where customers want to make an impression, like lobbies, conference
rooms, restaurants, stores and the like. You won’t be alone
in stocking LEDs, as all sorts of new channels are emerging.
For instance, in Oct. 2012 Apple began stocking the Philips
Hue LED lighting kit, which includes three LED bulbs that fit
into any standard light fixture and a bridge that connects to
existing wireless routers. Hue starter kits retail for $199 and
have been available at Apple stores nationwide since Oct. 30.
Additional bulbs will be available at $59. Says a press release
announcing hue, “Philips hue sets up in minutes and with
a quick download of the hue application the system can be
controlled from any iOS or Android device.”
Also In This Issue:
•ElectricVehicleUpdate
•ABlastfromEW’sPast
•GreenMarketNews
ESTABLISHED 1920 • WWW.EWWEB.COM
$10.00 • SEPTEMBER 2012
5
As the residential market recovers, manufacturers, distributors and reps will find big opportunities to sell products for home theaters,
computer networking and security systems.
This business is totally attainable for electrical distributors
www.ewweb.com / FEBRUARY 2013
15
Cover Story
who establish relationships with the national builders doing
business in their local markets, as well as more progressive
local homebuilders. The residential market usually tops
out at around 20% of the average electrical distributor’s
sales. But they can increase that percentage because adding
boxes, cabling, fasteners and related brackets, surge protection, and surveillance cameras to an order for an electrical
contractor who’s wiring a new housing development isn’t
much of a stretch. The fact that all signs point to a much
better market for homebuilders in 2013 and beyond will
make this market even more lucrative.
6
New oil fracking technology will unlock oil
and gas resources in more regions of the
United States and create exciting new sales
opportunities for electrical manufacturers
and the electrical distributors and reps. The stories
coming out of western North Dakota about the amount of
POINTS TO PONDER FOR THE TOP 10 TRENDS
While it’s important to familiarize yourself with the
market drivers discussed in this article, the real challenge is analyzing how or if they will impact your company,
and developing the proper sales, marketing, management or operational strategies to harness or overcome
these challenges. The questions below in these “Points
to Ponder” may help you in this analysis. Use these
questions during your strategic planning sessions to
spark discussions with your company’s leaders and
gather their ideas on key challenges and opportunities
down the road. These questions are intended to jumpstart the conversations inside your company. When you
start developing strategic plans to attack any of these
areas, you will find a need to drill down much deeper
and come up with plenty of more detailed questions for
co-workers, vendors, customers and other buying influences, independent manufacturers’ reps and local factory salespeople, as well as non-competing distributors
from other regional market areas that have an expertise
in some of these areas.
CONSOLIDATION
Who are the distributors in our market most likely
to sell their businesses?
If consolidation totally reshapes the market, what
impact will it have on my business?
(For company owners) Should I sell my business
while the market is hot?
THE LED MARKET
Are the electric utilities in my market offering
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Electrical Wholesaling / FEBRUARY 2013
rebates for LEDs, and if so, how do I get the word out
to potential customers?
How much more does my sales staff need to learn
to effectively sell LEDs?
Who are or will be my key competitors in selling
LEDs? What are their strengths and weaknesses?
On the flip side, what does my company have to do
to become the preferred source for LEDs in my market
area?
THE NEW & IMPROVED RESIDENTIAL MARKET
What is the short- and long-range outlook for
housing in my market?
How big of a factor are the national builders in my
market and do I have the necessary contacts with them?
Which local independent reps or factory salespeople could help me increase my share of the market?
Are any of my manufacturers actively marketing
their products to builders?
If I want to go after the voice-data-video (VDV) portion of the residential market, how many new lines will
I have to stock? Which of my current vendors already
manufacture or market these products?
SOLAR & WIND
Is it too late to get into renewables in my market?
How much longer will the local or state financial incentives last?
Are any utilities into this business in a big way?
Are my existing customers looking for new sources
of supply in these areas?
business in the Bakken oil patch could warm the heart of
even the most hardened sales manager. Several distributors
recently set up new branches in this remote area, and one
rep servicing the region even called it an once-in-a-lifetime
sales opportunity. The Bakken region will remain king for
some time because gazillions of barrels of oil can now be
profitably extracted by new fracking technology. But that
same technology is helping companies do the same thing
on a smaller scale in western Pennsylvania, upstate New
York and eastern Ohio, and the reports from the oil folks
in Oklahoma, Kansas and Colorado say there’s plenty of
potential there, too.
7
The solar industry will continue to rely on
federal tax incentives and local and state
financial crutches, but the utility-scale wind
farms will eventually attain financial independence. No photovoltaic (PV) manufacturer has had that
If I choose to get into solar, could I realistically
provide my customers with a single source of supply for
PV panels and balance-of-system (BOS) products like
inverters, framing, overcurrent protection, switchgear,
wire and cable, and related fittings and fasteners?
Are local reps or factory salespeople already
servicing other distributors and sources of supply for
these products?
OIL & GAS OPPORTUNITIES
Is there any talk about oil and gas companies
using new fracking technology to drill for oil or gas in
my market area?
If so, do I know any non-competing distributors
in other geographic market areas who are in this niche
and could give me a few tips on how to sell into this
market?
Are there any state agencies or local oil & gas
trade groups that could be good resources in making
contacts in this business? How about my manufacturers?
What types of products would I need to stock to
get into this market, and which of my current manufacturers are into this business?
THE UTILITY MARKET
How strong are my ties to the buying influences
at the local utilities servicing my market area? Is it time
to build or refresh my company’s contacts with them?
Do these utilities have any major system upgrades, stormproofing or plans for implementing smart
grid technologies in the future?
Which of my competitors will go after this business? How much it will go direct? Can my company really
be a factor in the utility market?
A MORE MOBILE WORLD
Have I surveyed my customer base recently on
how they use their mobile devices and what types of
product or ordering information they would like to access
with them?
Is the product data on my ERP system really ready
to support an online storefront?
How can I market my company’s products and
services to customers on their mobile devices? Which
of my manufacturers offer apps or other resources that
would be helpful in doing this?
Where is my company at with mobile devices?
Can employees use their own to access the company
network or are there security concerns?
NEW WORK-FORCE DEMOGRAPHICS
Could I offer more training to younger employees
on computer systems, products or other job skills?
If younger employees have a real interest being
part of the green movement, can my company be more
active in “green” community charities or benefits?
Am I willing to create a flexible work environment
to attract younger workers?
What types of brand loyalty will the younger generation have that work for customers, and how will it
affect my business?
www.ewweb.com / FEBRUARY 2013
17
Cover Story
Oh-My-God moment in R&D that radically changes the
efficiency rate of how PV cells convert sunlight into electricity. That means the only way the return-on-investment
for the installation of a PV system in most residential,
commercial or industrial applications is even remotely
palatable is to rely on federal, state and local incentives.
It’s a different scenario in the wind industry, where the
technology for utility-scale wind farms is a proven commodity, and the industry as a whole is more willing to
wean itself off of incentives. Many challenges remain for
transporting power from often-remote wind farms to the
utility grid, but companies in the wind belt will get some
nice incremental business for the construction of these
facilities. One big project to watch down the road is the
Atlantic Wind Connection, an offshore wind farm in the
early stages of development and scheduled to begin construction in 2016. It would supply power to thousands of
homes in businesses along the densely populated Eastern
Seaboard from New Jersey to Virginia. Bechtel and Alsthom
are now working on the project and Google is one of its
backers with a $200 million investment.
8
The renovation and modernization of the
U.S. electrical grid will pump up profits in
the utility niche for more companies in the
electrical wholesaling industry. Over the years,
there weren’t all that many full-line electrical distributors that
focused on the utility market in a big way. Border States Electric; Graybar; Hughes
Supply (now part of
HD Supply); Stuart
Irby (now with Sonepar); Kriz-Davis Co.,
Grand Island, Neb.;
One Source Distributors (now with
Sonepar); and Wesco
have always been key
players in this niche.
They and a handful of
smaller utility specialists handled the bulk
of utility products
that went through
distribution.
But with the smart
grid, integration of renewable power sources like wind and
solar onto the grid, expansion because of increased power
demands, and the stormproofing of the grid in some regions
of the country prone to hurricanes and other storms, we
think there’s a good chance that more distributors and reps
will get into this business. While an awful lot of material is
sold direct from manufacturers to utilities in this market
because of the size of the orders, look for more companies
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Electrical Wholesaling / FEBRUARY 2013
to play a role when the products go through distribution.
9
Customer use of smartphones, tablets and
other mobile devices will push more distributors toward online storefronts and force them
to rethink how they manage their digital
product information and market their companies. To
get a sense of the potential here, electrical distributors don’t
have to look any further
than the smartphone app
launched by Grainger in
Aug. 2012 to give its customers access to 900,000
SKUs at www.grainger.
com and push its annual
sales from e-commerce to
40% to 50% of all sales by
2015. The move to mobile will also force many
more distributors and
manufacturers to make
sure the back-end product information on their
ERP systems is populated and consistently updated with
product data from IDEA, Arlington, Va., or Trade Service,
San Diego. It also gives them and reps a very good reason
to “mobilize” their marketing and to check out the digital
marketing tools offered by industry resources like www.
electricsmarts.com.
10
As the younger generation become a bigger part of the workforce in the electrical industry, manufacturers, distributors
and reps will need to get more creative
in how the recruit,
train and incentivize
them. Time marches
on, and over the next
few years more Baby
Boomers have to manage their own mortality,
retirement, succession
planning — and the
fact that the young folks
they hire won’t be wired
the same as them or
their parents. Talk with
your industry buddies
about what’s worked for
them in managing their
youngest employees. But most importantly, talk with your
best young talent on a regular basis, both informally and
in a more structured personnel-evaluation process so you
see where they want to go in their careers.