The residential structured wiring market is experiencing some hefty growth. In 1996, only 1 percent of new homes included structured wiring. Today, 58 percent of housing starts include structured wiring, according to a February study conducted by the Consumer Electronics Association (CEA) and the National Association of Home Builders Research Center (NAHBRC).
Industry professionals expect more growth as consumers realize the benefits of home theaters, whole-house audio, lighting control systems, connecting personal computers and whole-house subsystems that control security and HVAC systems.
Richards Electric Supply Co. Inc., a Cincinnati-metro electrical distributor with five locations, 125 employees and $58.2 million in 2003 sales, entered the residential structured wiring market about five years ago.
“They always say Cincinnati is a little behind the times, but right now we're seeing home-owner demand,” says Jim Wahl, who heads both residential and commercial datacom sales efforts at Richards Electric.
Still, the demand for residential structured wiring products is not as great as executives at Richards Electric had once predicted. “Five years ago, we had imagined working with all the builders that build 50-plus homes a year, but the larger production builders have been reluctant to let us help them sell it.
“We made an effort to work with builders to go out and train their salespeople, put on training classes, even get involved in front of the home owner,” says Wahl of Richards Electric's early attempts to garner the interest of Cincinnati's builders, electrical contractors and consumers.
The strategy paid off with Cincinnati custom builders, but production home builders have been more difficult to convince. “We're getting back in the door with some larger builders. They're starting to come back and say, ‘Hey, we realize that we need this now. Potential home buyers are asking about it now.’”
It's helped, too, that pricing on the “basic” structured cabling products has come down in the last year, making it easier for electrical distributors to sell to builders of the more moderately priced homes.
Five years ago, Cincinnati's production builders resisted structured wiring because they didn't see potential profits and didn't see a reason to change, says Wahl. Builders resisted installing and home-running Cat. 5 cable then.
The next step was getting builders to install a structured wiring panel. “Now that you're home-running it, we want you to put a metal box in there for this much money to house all that,” says Wahl. “Well, they don't necessarily need it. So I think that was just a cost that no one wanted to incur. It was a battle trying to get them to do that.”
In the Pacific Northwest, Platt Electric Supply Inc., with headquarters in Beaverton, Ore., initially encountered opposition from builders as well.
“Builders didn't like increased material prices,” says Jay Poe, Platt's datacom sales manager. Platt Electric has been selling residential structured wiring products since 1998 when Leviton, Little Neck, N.Y., launched its Leviton Integrated Networks product line. “It took a couple of builders to step up and see that this is making a difference in the sale of homes.”
With 75 branches in Washington, Oregon, Idaho, Montana, Utah and California; more than 750 employees; and annual revenues of $270 million, Platt Electric Supply expects sales of residential structured wiring products to increase between 10 percent and 20 percent for the next three or four years.
Although 76 percent of all U.S. home builders now offer structured wiring, 27 percent say there is “too little profit potential,” according to the CEA/NAHBRC study, “The Second Annual State of Builder Technology Market Survey.”
But the potential for greater profit growth comes after the initial structured-wiring run, according to Ian Hendler, director of business development for Leviton Integrated Networks. Leviton's structured wiring product sales have increased over the past three years, and Leviton envisions the structured wiring penetration to continue increasing in the next two years before leveling off.
“The new technology ‘extensions’ of structured wiring such as home theater, distributed (whole house) audio, and AV (audio video) networking with new IP (Internet Protocol) technologies will continue to experience dramatic growth for the foreseeable future,” says Hendler. “These ‘extension segments’ will result in more revenue per installation and growth for both Leviton and our distribution partners.”
“That's where we want the growth,” says Richards Electric Supply's Wahl.
That growth is emerging. Consumers in the Cincinnati metro are requesting lighting controls and whole-house audio. “Take a builder that's building 500 homes a year — the more moderate priced homes — we're seeing more offer whole-house audio packages,” says Wahl.
Home audio is requested more frequently in the Northwest, too, says Platt's Poe. Platt Electric is also seeing more demand for security integration as well as for lighting controls. Poe points out that the lighting control work gives Platt's electrical contractor customers an edge over specialty contractors when it comes to installing residential structured wiring systems.
“Lighting control requires an electrical contractor because it deals with line voltage, so you tend to take out the specialty contractor who was only doing low voltage,” says Poe.
“When this market first started, it was kind of a jump ball whether an electrical contractor should even be doing this type of work,” says Tom Lyga, marketing manager, Pass & Seymour/Legrand. With headquarters in Syracuse, N.Y., Pass & Seymour offered its first residential structured wire products in 1999 and sells only through electrical distributors.
As residential structured wiring products reach middle American homes — as opposed to just the custom homes — the electrical contractor is best positioned to do the work, says Lyga.
There's still time for some electrical distributors and electrical contractors to position themselves for this product, though. Geography plays a big role in today's penetration of residential structured wiring. While the technology is more easily making its way into homes in the Southeast, Southwest and Middle Atlantic, other geographic regions offer big opportunity.
Jesco/Interstate Electrical Supplies, with headquarters in Sioux Center, Iowa, launched its datacom division, which includes commercial, industrial and home automation, just 16 months ago. With $57 million in 2003 sales, Jesco/Interstate has 11 electrical supply operations in western Iowa, eastern South Dakota, southern Minnesota, and Nebraska.
Leaders at this Midwest electrical distributor realized that to grow sales, they had to branch out into new product markets.
“The economy isn't our friend,” says Doug Maasen, vice president of sales and marketing for Jesco/Interstate. “We can't rely on the economy to make our business grow. We've got to look for more products to take to our market now.”
Leaders at Jesco/Interstate also believe that it's only a matter of time before consumers in their area will demand structured wiring and home automation products in their homes. This year, Maasen estimates as many as 1,000 of the near 5,000 new homes in Omaha, Neb., will be built with a structured wiring panel.
“I think that there's a big future,” says Maasen. “As youth become home owners — with the technology that they're exposed to from day one — they're going to say, ‘I want it.’ That's just going to be a given. They're going to want as many toys as they possibly can afford.”
And, as baby boomers begin to retire, they'll have money to spend on some of the “gadgets and niceties” structured wiring delivers, says Maasen.
“There's a very big pie out there right now to split up,” says Pass & Seymour's Lyga.
According to Lyga, the electrical distributors with the better success rates in this market dedicate at least one employee to drive the initiative. “Where we've seen a builder champion or residential technology champion — someone along those lines working in a distributor — that's where they've been able to gain some momentum with the local builders and the residential contractors doing work for those builders.”
Jesco/Interstate hired a datacom person for commercial, industrial and home automation. The team is rounded out by three people shared with the design lighting control group, a new-hire with AV experience and an entry-level support person.
Bringing the rest of the company's employees up to speed is also a priority for the distributor. “We've got 181 employees in a four-state area. Everybody knows somebody that could be a potential customer,” says Maasen.
At Richards Electric, Wahl is the only employee devoted entirely to datacom, but all of Richards' salespeople are cross trained and familiar with structured wiring products. “Since we are not that broad in technical expertise, we find that focusing on a few manufacturers and knowing those products really well is more effective,” says Wahl.
Compared with Richards Electric and Jesco/Interstate, Platt Electric has an army promoting datacom sales. Poe estimates a quarter — or about 200 — of Platt employees are directly involved. Each of the 75 branches has a key datacom inside salesperson. About 100 outside salespeople are on the streets with datacom in their arsenal of wares. And, there are 16 regional specialists as well.
Platt's residential structured wiring customer is a combination of the electrical contractor and the specialty contractor. Electrical contractors tend to do the work for large builders mass-producing homes whereas the folks at Platt tend to see specialty contractors doing the work as the application gets fancier and more customized.
Unlike the many resistant builders Platt Electric and Richards Electric first encountered when launching residential structured wiring products, the distributors' electrical contractor customers have been more open to learning about this still-emerging technology.
In the late '90s, both electrical distributors offered in-house training to their electrical contractor customers to help jump-start interest in the technology.
Richards Electric also encourages electrical contractors to obtain additional training through CEDIA (Custom Electronic Design & Installation Association) or BICSI (Building Industry Consultant Services International).
Indeed, the majority of Platt's product promotion has been through educating its contractor customer base. With Platt staff members certified to train on behalf of Leviton and offer the Leviton warranty upon completion of a test, Platt Electric is growing its own customer base through education, Poe says.
“The electrical contractor has decided they don't want to give up the last 10 percent of a project, and they're learning how to do the low voltage,” says Poe. “Anybody who's not doing it is missing out. Of Platt electrical contractor customers, those not participating in the residential structured wiring market would be a very small percentage.”
Jesco/Interstate, still in its early infancy of carrying residential structured wire and related products, is reaching out to electrical contractors, builders, architects, and security and AV installers. While Omaha-market electrical contractors are not yet showing much interest, AV installers that previously procured materials via the Internet see the benefit of having local inventory and support from a master distributor, says Maasen.
So, how do electrical distributors continue to grow this market?
“The key to the growth opportunity is being a resource for both products and knowledge,” says Leviton's Hendler. “This is a very fast paced, technological market segment and the installer/electrical contractor is always looking to expand their knowledge or have specific questions answered with these products at the point of purchase.”
Partnering with manufacturers that provide sales associates good training and support is key. “Some of our manufacturers go out and call on the builders without us even talking to them, which is great,” says Richards Electric's Wahl. “They're out there planting the seeds, and we love that. If we go together, that's even better.”
Having access to good manufacturer sales literature is also important, says Wahl. “The more they can give us, the more professional they look, and it … can help us represent ourselves as a structured cable distributor.”
Continue obtaining training from vendors and reps, as well as CEDIA and BICSI, for both distributor sales associates and customers.
Encourage builders to produce marketing pieces explaining various available structured wiring packages and how those packages will make the home owners' lives better.
“To sell this category of product, it's all about selling life styles and what the products do for you as opposed to selling the features and benefits of the product itself,” says Pass & Seymour's Lyga. “It's a different type of sell. It's a very easy sell, but it's different than the traditional electrical product sales.”
With P&S structured wiring sales up 30 percent this year over last, the manufacturer will soon launch an advertising campaign in builder trade publications to build brand recognition within the builder community.
“This is a business the electrical contractor and electrical distributor will participate in for many, many years,” says Lyga. “If a distributor does not get involved in it, it's not a business they're choosing not to get into, it's a business they are losing today.”