The customer-demographic information that comes with online transactions is sometimes more valuable than the products customers buy on distributor's Web sites.
In a world of 24/7 shopping made possible by e-commerce leaders such as eBay and amazon.com, some folks have grown accustomed to shopping in their pajamas. Yet when it comes to the use of Web storefronts and e-commerce in electrical distribution, online orders account for only a small percentage of revenue. Still, customer access to product specs and inventory availability via distributor Web sites is what makes investing in Web technology so important for electrical distributors.
“If your imagination only extends to somebody getting on your Web site and placing an order, then you have missed a lot of richness that a Web site can offer,” said Bill Elliott, president of Elliott Electric Supply, Nacogdoches, Texas.
Don't underestimate the value customers place on viewing catalog and product information, checking product availability and shipping information, tracking invoices and looking at specification sheets.
“Online ordering is the tip of the iceberg,” said Adam J. Fein, president and founder of Pembroke Consulting, Philadelphia. “There is so much information available to the average customer, contractor or industrial buyer.”
W.W. Grainger Inc., Lake Forest, Ill., is an industry leader in the online segment. The company established its Web site in 1995 and added a storefront in 1996 — making Grainger one of the first distribution companies to offer an online storefront. At its 10-year online anniversary mark, www.grainger.com had more than 200 million unique visits resulting in 10 million transactions that generated revenue of more than $2 billion. In 2005, 15 percent of Grainger's $5.5 billion total sales came through its Internet channels — approximately $825 million in 2005 online sales.
General Pacific, Portland, Ore., is another distributor with innovative online efforts. The electrical distributor's business on the Web extends far beyond electrical products and its own storefront. Through its in-house Web hosting and design business — a five-year-old venture called Weberz Hosting — General Pacific manages more than 5,000 sites. Clients come to them for everything from basic e-mail to integrating customers' online bill payments to the complete maintenance of e-commerce sites. As a utility distributor, General Pacific came in No. 169 in Electrical Wholesaling's 2006 Top 200 listing with $39 million in sales and five locations.
“It puts us on the map as a small distributor with an internal expertise that most companies of our size don't have,” said Rich Hall, General Pacific's president and CEO.
According to Hall, General Pacific ventured into hosting and developing Web sites primarily to offset costs and challenge the talented folks in its IT department. The Web pages they host and design extend across all industries.
Beyond Sales Numbers
Fein said the typical electrical distributor today generates between 1 percent and 5 percent of total revenue from its online store — with larger distributors getting more and smaller ones getting less. Fein predicts that by 2012, small distributors will earn approximately 7 percent of their revenue from online storefronts, and large distributors will account for 10 percent of revenue this way.
Fein also said virtually all of the largest electrical distributors — those with annual revenue of $250 million or more — currently have an online store, while one-third of distributors with annual revenue of less than $50 million have an online storefront. However, he predicts that in the next five years most of the smaller distributors will develop a storefront.
“Internet technology is becoming pervasive, so a distributor's online presence is just one more way to complement the other ways that it interacts with customers,” Fein said.
To put the sales numbers in perspective, it's important to look at the breakdown of sales in individual companies. Rich Galgano, founder, Windy City Wire, Hillside, Ill., said the company started its storefront in 2000 and today 15 percent of his company's orders are placed online. General Pacific's Hall says approximately 3 percent of its revenue comes from their 5-year-old storefront and Web hosting business; and American Light, Austin, Texas, attributes 2.3 percent of total sales to its Web storefront, which launched nearly two years ago.
“The idea was always to augment what we do and enhance it, not to replace salespeople — never — because relationship selling is a lot of what we do, and we would not ever want to jeopardize that,” Hall said.
Although online storefronts are a popular option for many electrical distributors, online sales dollars are only one measure of the success of a distributor's Web presence.
“The principal use is not getting orders, but answering customer questions and making it more convenient to do business with us,” said Elliott Electric Supply's Bill Elliott.
With more than 21,000 customers and $213.5 million in 2005 revenue, Elliott Electric Supply cuts down considerably on the number of questions its employees would have to field without a Web site.
There are many reasons online ordering doesn't dominate more of the industry's sales. Pembroke Consulting's Fein said most distributors serve owner-operated contractors who manage their businesses at night or on the weekends. So the opportunity to buy electronically during the day rarely happens, and wireless devices for purchase are still too cumbersome for contractors to use on a regular basis.
Elliott said his online sales are limited because his products are not exotic or hard to find, not easily shipped and are primarily sold locally. Yet limited online sales doesn't concern Elliott.
“We feel like if we never sold anything on the Web site, it's been a good investment for us,” Elliott said.
Some distributors find it important to offer their entire inventory online — something that Elliott Electric Supply, Windy City Wire, American Light and General Pacific all offer. Elliott Electric Supply has found that more than half of the products it sells online fit into one of four categories:
Nipples, locknuts, bushings, washers and straps.
Steel boxes, covers and bar hangers.
Connecting materials such as wire nuts, tape and terminal blocks.
Lydia Fiedler, director of marketing and public relations for Facility Solutions Group, said American Light, a subsidiary of Facility Solutions Group, has discovered lighting is easily sold online when it's treated as a commodity product because everyone needs lighting products. “If people are not treating it as a commodity product, if they are looking to improve their facility, that's a difficult sell because you can't really see the effect of good lighting on a Web site,” Fiedler said. American Light is a specialty distributor with a focus on lighting products and ranked No. 134 on Electrical Wholesaling's 2006 Top 200 listing with approximately $50 million in 2005 sales and 11 locations.
Several industry insiders said contractors tend to be frequent Internet customers, and General Pacific's Hall said co-op utilities tend to use online ordering frequently as well. But overall, order placement seems to come from a relatively even customer mixture. Although customers place online orders 24/7, several distributors see a noticeable increase after 3 p.m. Nonetheless, online orders are placed at all times of the day.
To eBay or not to eBay
eBay has offered online storefronts for businesses for three years, so it becomes important to consider whether diving into such a venture might be profitable. With 157 million eBay shoppers and 100,000 new users a day, it may seem like the way to go. Summit Electric Supply Co. Inc., Albuquerque, N.M., recently set up an eBay storefront, but it's too early to determine whether it will be a success for them. eBay offers three store levels:
Basic, for companies just starting at a cost of $15.95 per month.
Featured, a more all-encompassing option designed to grow an online business at a cost of $49.95 per month.
Anchor, an advanced option for high-volume sales and large exposure on eBay at a cost of $499.95 per month.
After about two years with an eBay storefront, Becker Electric, Dayton, Ohio, pulled the plug. Becker Electric originally used the storefront to sell some dead stock. With overstocked product that customers needed, the distributor decided to try to sell the overstocks at low prices to get it off the shelves. They found others were selling some of the same products at lower prices through regular eBay auctions.
“We realized it would be a lot easier if we just auctioned off the items as opposed to paying the storefront price,” said Sean Patterson, who works in the IT department at Becker Electric.
Patterson said the eBay storefront might work better for smaller companies that don't have the funds to start their own storefronts and have unique items to sell.
“Even some large companies might be able to use it as a good tool, it just depends on what they are selling,” Patterson said. “If it's a common item, chances are it's going to be auctioned for a much lower price than what you are going to sell it for off your storefront.”
Patterson also said because of eBay's popular “Buy Now” feature, the profitability of an eBay storefront will be hindered because an independent seller can set their price lower than what any storefront offers because of advanced search capabilities. In essence, this accomplishes the same goals as having an eBay storefront, Patterson said.
To determine whether or not eBay is right for your company, eBay recommends potential customers consider that each inventory item a company lists in its store has an insertion fee, the price eBay charges to list an item for sale, and a final value fee, a fee charged to merchants if they sell an item.
The Role of Manufacturers
Manufacturers are beginning to understand how powerful the Internet can be as a source of driving product demand, Pembroke Consulting's Fein said.
“Manufacturers have an opportunity to provide a different kind of collateral — electronic collateral — to help distributors build their sites,” Fein said. “But more interestingly, manufacturers have a very inexpensive way to communicate directly with the end consumer, or even the contractor-customer, bypassing the traditional channel entirely.”
Fein says most manufacturers' Web sites provide standard product and sales information, such as material safety data sheets, owner's manuals and a distributor locator. Some advanced manufacturers are trying to build online communities of users, such as contractors using a particular type of power tool or plant maintenance engineers working with a specific type of electrical capital equipment. Fein said the next step is for distributors to submit orders to manufacturers in an electronic manner.
Hall said it's important for manufacturers to provide information such as ship dates in a timely and user-friendly manner so distributors can integrate this information into their storefronts. Elliott believes there will be more interaction between customer, distributor and manufacturer though Web sites in the future, with customers being able to send XML inquiries directly to the manufacturer from a distributor's site to check order status or if the distributor is out of stock. XML is a specific language that allows for easy networking and trading of documents online.
Many distributors use in-house software to develop and maintain storefronts, but this can require an investment in skilled staff members. However, most of these IT departments are relatively small. For example, General Pacific runs its Weberz Hosting business with two people on its IT staff.
But many distributors are more focused on the actual distribution portion of their business, so in such cases turning to software companies to manage storefronts becomes the answer. B2B Seller by Prophet 21/Activant, Yardley, Pa., has around 370 customers, with a growth rate of about 35 percent to 40 percent year over year, and the storefront programs offered by Inuit Eclipse, Boulder, Colo., have around 200 distributor customers.
Integrating a distribution software package along with in-house Web development design is an option as well. General Pacific uses Prophet 21/Activant (ERP) software to help manage its business and integrate product information into their storefront, but the utility distributor has customized its storefront in-house.
Windy City Wire has four to six people who work on its Web site and storefront. A specialty distributor of low-voltage wire and cable founded in 1994, Windy City Wire made Web processes a high priority from early on. Today it ranks No. 158 on Electrical Wholesaling's 2006 Top 200 listing with $41.5 million in 2005 sales. The distributor use the services of The Rubicon Group, Oak Brook, Ill., to help manage and develop its site.
Jeff Balentine, advance technologies manager for Intuit Eclipse, said if a company already has a software package from Intuit Eclipse, it generally takes between four and eight weeks for Intuit Eclipse to get a storefront up and running, depending on how much product data and content a distributor has ready to go.
Web Commerce, Intuit Eclipse's standard Web storefront software, typically requires less than a full-time employee on the part of the distributor to maintain a site, said Balentine. This varies based on the number of products offered, the amount of content going on the site such as images and spec sheets, and how often the product file changes. For customers who chose to go with Intuit Eclipse's Web Integration application, an XML-based package, the options for the look and feel of the site are unlimited, but maintaining a site using this software requires more work on the part of the distributor. Customers that use Web Commerce can choose from five different color schemes, and they have the ability to add links and text in the Web site and display their company logo and vendors' banner ads.
A distributor can use shopping cart software available to the general public rather than the storefront software available through distribution software vendors. According to toptenreviews.com, the top three shopping carts in 2006 were ShopSite 7 Pro, MerchandiZer Pro and Monster Commerce Pro. Even Google now has an online shopping cart for merchants.
Yet using these types of shopping carts doesn't appear to be a trend among electrical distributors. Balentine said he has not seen many distributors integrate this kind of shopping cart software with programs offered by Intuit Eclipse because such shopping carts often require product information to be in static tables, requiring the distributor to maintain two product files. Some distributors write their own shopping cart software in-house — which is what General Pacific, American Light and Elliott Electric Supply have done.
Advice from Those Who have been There
“Just because you have an e-commerce site doesn't mean people are going to use it,” Windy City's Galgano said. “It has to be marketed, and it has to be promoted. The salespeople have to promote it — you have to show customers how to use it.”
Part of this marketing and promoting includes making sure a site is easily found on search engines — a concept Bell Electrical Supply, Santa Clara, Calif., understands well. Although Bell might be a relatively small distributor with a sales volume of $22 million, the company's Web site, www.bell-electrical.com regularly beats www.graybar.com when it comes to Web-site hits, as ranked by Electric-Find at www.electric-find.com. Electric-Find uses search engine analysis tools provided by www.marketleap.com. The figures are impressive when one considers that Bell Electrical Supply has not yet launched its storefront.
Burt Schraga, Bell Electrical's president and CEO, said the company achieved a high ranking by figuring out the secret to appearing on the first page of every search engine. Schraga said Bell's site is most popular with original equipment manufacturers, home owners and facilities departments. The ability to be easily found on the Web will undoubtedly help Bell's online storefront when it launches in the near future using Prophet 21/Activant.
Fein said distributors should record every time an inside or outside sales representative hears a customer mentioning a price quote or information from a Web site. In addition, he said companies should have each of their sales representatives do an online search for the company's best-selling products and report back what they find. He also said every distributor should designate someone in the organization to follow new developments on the Web.
It's also important to remember that your online customer may be a different kind of customer than your company's traditional customers.
“The nature of Internet shoppers is they are real time — very fast — probably more demanding than our regular customers because they are out there looking for the best deal,” American Light's Fiedler said. “Their requirements dramatically change how we think about how long it takes to ship, which distribution center we are going to use, what the pictures on the Web site need to look like, and how easy our searches need to be.”
Because online stores give the opportunity for companies to sell nationally and even internationally, Schraga warns distributors to beware of fraudulent credit cards. Bell Electrical was hit with some high-dollar bad charges through e-mail and phone orders.
Over and over again, those in the industry stressed the importance of thinking like a customer when developing online stores. Fein recommends studying sites such as amazon.com and barnesandnoble.com to understand what makes them successful and easy to use.
What it all Means
With customers doing their product research online, it puts an increased pressure on salespeople to ensure they provide new and useful information to customers.
“Distributors are no longer the only source of information about products in the market. It's very easy for customers to gather their own information,” Fein said. “Therefore, the perceived value of a distribution sales force will go down unless that sales force provides something beyond the basic product information.”
Fein said while distributors have done a good job of not over-investing in technology, it's going to become difficult to not make significant investments going forward. Distributors not planning to set up a storefront need to carefully consider how they differ from other electrical distributors, he added.
At the same time, it's important to remember what the Internet can and cannot do. Fein emphasized that technology for the sake of technology is not going to advance the business. He added that Web sites don't sell products — but people can.
“Distributors need to understand that just because something is online doesn't make it better,” Fein said. “It just makes it online.”
What to Consider When Developing an Online Storefront
So you want to set up a storefront for your company, but you aren't quite sure where to begin. Ask yourself these questions to get started. Many of the questions are among those that Jeff Balentine, advance technologies manager for Intuit Eclipse, Boulder, Colo., asks distributors when they begin the process of launching a storefront.
What kinds of customers are you going to serve?
What products do you want to offer (stock or non-stock)?
Do you have good descriptions and images of the products you will offer on the Web?
Will customers be using their own part numbers to order? If so, you will need to get these loaded into the system so customers can use them to search and shop.
Do you have spec sheets? If not, can you get them and link them to the Internet?
What kind of look and feel do you want your site to have?
Given the answers to these questions, do you have the internal expertise to accomplish your vision? Or will you need help from a software company?
The “Dos” and “Don'ts” of Online Storefronts
Think like a customer. What has made your personal online shopping experiences easy? What has made them a headache? Incorporate what you have learned into your company's site.
Ordering capability isn't necessary for your Web site to be a success. Many distributors believe they need an ordering mechanism online, but there is tremendous value in customers being able to search products and account information online.
Keep it simple. “You want a site that is rich in content but very intuitive and easy to use. That way you can provide that functionality to a wider audience,” said Jeff Balentine, advance technologies manger for Intuit Eclipse. Lydia Fiedler, director of marketing and public relations for Facility Solutions Group, said American Light, a subsidiary of Facility Solutions Group, has learned not to overwhelm customers with too much product information. She said it's best to show a narrow group of product categories at first and then allow customers to click on each category to get more specific.
Provide a user name and password. This helps with security of information and gives you an even clearer picture of exactly who uses your site.
Spend money on search-engine capabilities. If a customer doesn't find a product on your Web site, it does you no good.
If you are going to let your customer see your price, protect it by a user name and password. The bid price of a project shouldn't be shown on the Internet.
Carefully consider how you display the quantity of your inventory. You want to have a “yes” or “no” answer on whether you have an item in stock, but you also don't want to let competitors know what you do and don't have.
Provide links to material safety data sheets (MSDS) and rough-in instructions and dimensions. As always, the more information the customer has the better.