The electrical industry has come a long way since the dark days of 2001, 2002 and 2003.

Some segments are seeing positive industry growth; in other segments, the negatives are improving. If your business is primarily focused in the industrial market, you should already be seeing single-digit positive growth. If you are mainly in the contractor market, especially commercial, the growth is still negative but not double-digit negatives like in the first half of 2003. If you can tough it out for another quarter or so, DISC Corp. predicts smooth sailing at least through 2007.

For 2003, electrical distributors' industry performance was down 3.5 percent from the 2002 level — a cumulative industry sales decline of nearly 16 percent since the peak in 2000.

Since 2000, cumulatively, the distributor-served contractor market decreased 22 percent while the distributor-served industrial market declined almost 20 percent. The partial offsets were the institutional and utility markets.

The industry still has a long way to go in 2004. Look for sales to increase a paltry 2.4 percent, led by the industrial and institutional markets. The contractor market is expected to decline fractionally.

For 2005, DISC's analysis points to a rebound in all major segments with total industry sales increasing 8.5 percent led by the distributor-served contractor market. For the first time in five years, look forward to seeing all major segments in plus territory.

CALIFORNIA'S MARKET

In keeping with NAED's annual conference to be held in San Francisco May 15 - 19, I want to turn now to a bit of regional analysis.

It's no secret that California is the nation's largest distributor-served market. With nearly $8 billion in sales, California generates 12 percent of all electrical supplies and apparatus sold by distributors.

As a result, California's markets are hotly competitive, and they offer multiple opportunities to grow business both in total revenues and in profitability. There are lots of niches to serve, and with smart marketing a distributor can differentiate its business from the competition.

The California market was ahead of the curve at the peak of the distributor cycle in 2000. Total U.S. sales were up 11 percent while total sales in California were up nearly 14 percent. The similarities end there. While the distributor-served industrial market advanced nearly 7.5 percent in 2000, the California industrial market was up a whopping 14 percent.

As the nation moved through the downside of the cycle, the California industrial market was more in tune with the overall U.S. performance. However, the distributor-served contractor market diverged significantly, and both distributors and manufacturers serving the contractor market in California nose-dived compared with the overall U.S. contractor market.

For example, U.S. distributor sales to contractors in 2002 declined 13 percent while in California they decreased nearly 17 percent. But while the U.S. contractor market in 2003 was off “only” 9 percent, the California contractor market continued its slide with another 17 percent decrease — this despite a fairly robust housing market.

Despite the fact that California is a good cross-section and representation of the distributor-served industries in the nation as a whole, California is clearly more influenced by the health of the local economy. The important message: Your best and brightest managers should be in the markets of greatest opportunity for your business. In that sense, everyone is not created equal.

Let's take a quick look at the comparative size of the major metro markets in California. The chart on this page shows the market size of the major metro markets served by electrical distributors. In total, these MSAs account for 99 percent of the total California distributor market.

California is a net importer of electrical supplies and apparatus. In other words, end customers located in the state consume more than distributors in California sell.

On the other hand, San Francisco is a net exporter. That is, end customers in San Francisco consume less than distributors in this MSA sell. This is in line with historical trends.

Finally, it's also interesting to compare the market mix of San Francisco with that of the state. The pie charts on page 18 show how San Francisco is comprised of a somewhat different mix than the state overall. This means that other trading areas across the state are quite different than the San Francisco trading area.

The message here? It's important to know the composition of your trading areas simply because you want to have the right resources to serve the “mix.” Once you have the right mix of resources, the market mix in this industry does not change significantly over time.


Herm Isenstein is president of DISC Corp., Orange, Conn., the market analysis and forecasting firm specializing in the electrical wholesale industry. Contact Isenstein at herm@DISCcorp.com or at (203) 799-3673.