Nicely Niched

While winning teams have powerful offenses and stingy defenses, special teams frequently deliver the winning edge. Be it a kick-off return that positions the offense for the winning touchdown or a kicking game that provides the defense with strong field position, the little things win games. The first two articles in this series (EW — Nov. p. 53, and EW — Dec., p. 45) offered tips on how to pump up your sales efforts and refine your internal operations during a down market.

On this “third team” in the electrical industry are niche market opportunities that exist even in a down market. As we enter 2008, several specialty areas represent opportunities for distributors. Some of these niches are “knowledge based,” in that they may require distributors to learn some new technical subject matter. Others are customer- or application-based. In many cases, these are new sales opportunities for products that you already stock. All are worthy to explore. With a strong offense (growth strategies) and a tough defense (operations), developing new niches can help differentiate and diversify your company and ultimately provide you with a winning year and an opportunity to take market share.

Knowledge Niches

You can create new niches for your company by investing some time studying two subject areas of critical importance to electrical contractors and other end users: changes in the 2008 National Electrical Code and the new arc-fault requirements. These customers don't expect you to become an expert in this hyper-technical subject matter, but if you can draw together some educational resources for them on NEC changes covering arc-fault requirements, they will appreciate it.

Use changes in the 2008 National Electrical Code (NEC) to create sales opportunities. On page 50 of this issue in “Code Changes 2008,” NEC expert Mike Holt discusses some key changes in the National Electrical Code that will offer sales opportunities for the products you sell. For instance, the new NEC requires ground-fault circuit interrupters (GFCIs) and combination-type arc-fault circuit interrupter (AFCI) protective devices to be used in more applications in dwelling units; they now also require tamper-resistant receptacles in new dwelling units, too. Check out www.ecmweb.com for other new NEC changes.

Consider promoting the products that meet these NEC requirements in newsletters, via message-on-hold, on your web site or in a separate section of your counter area. You can also add value to customer relationships by conducting Code seminars hosted by manufacturers whose products are most directly impacted by these changes or by an NEC expert. Additionally, you can become a greater resource to local inspectors by getting them involved in your Code initiatives. Familiarity with the Code can position your organization to capture increased face time with your customers and increased sales opportunities.

Familiarize yourself with the sales opportunities offered by arc-flash protection products, systems and work practices. The National Fire Protection Association (NFPA), Quincy, Mass., describes an arc flash as “a dangerous condition associated with the release of energy caused by an electric arc.” Electrical safety, and specifically arc flash, is covered by NFPA 70E, which covers safety-related work practices, maintenance, special equipment requirements and installation. It focuses on protecting people and identifies requirements considered necessary to provide workplaces free of electrical hazards. OSHA bases its electrical safety mandates on the information in NFPA 70E. Basically, OSHA is the “shall” and NFPA 70E is the “how.”

Several manufacturers agree that arc-flash offers distributors significant sales opportunities. Bob Simon, director of marketing, Bryant Electric/Hubbell, Milford, Conn., equates the arc-flash sales opportunities to “this decade's lockout/tag-out.” Initiated in 1989, OSHA lockout/tagout regulations for working on circuits continue to create sales opportunities for locks and signage that alert maintenance personnel when circuits are being worked on down the line.

A spokesperson for Eaton Corp., Cleveland, says significant opportunity is in the health-care and educational markets and that any facility over 15 years old probably has an arc-flash issue.

Specific product opportunities include the purchase or upgrade of switchgear equipment and motors, fuses, wiring devices, personal protection equipment (gloves and clothing), tools, labeling and more. According to Joe Weigel, product manager for Square D Services, Palatine, Ill., his company believes every dollar a customer invests in analysis generates $20 in switchgear and related equipment purchases, plus another $10 in ancillary product needs.

To date, most of the demand has been driven by end-users, manufacturers or national chains, say several manufacturers. The opportunities for all appear to be plentiful. According to Weigel, distributors can benefit by introducing their customers to suppliers who can help solve their problems while profiting from supplier-provided training, supplier-conducted analyses and incremental sales generated at an acceptable profit margin.

Melissa Martin, director of commercial and industrial marketing, Leviton Manufacturing Co., Little Neck, N.Y., says customers that institute arc-fault protection gain compliance and have a safer work environment, hence potential insurance savings, productivity benefits, improved energy efficiency from newer equipment and decreased downtime.

Developing an opportunity requires some homework on your part, as well as a finely tuned sales and marketing focus. After learning about arc flash, conduct seminars for your salespeople to get them up to speed, too. Here are some ideas on how to profit from arc-flash mandates:

• Identify opportunities by getting to know safety managers at your customers' facilities and ask, “What are you doing about NFPA 70E compliance?”

• Conduct an Arc Flash Hazard/NFPA 70E seminar to acquaint end-users and contractors with the issue. Many suppliers' programs are available, including Leviton's Safety Learning Lab; the eight courses offered by Littelfuse's Powr-Gard Services group (see Speaking Out on page 74 for more information on Littelfuse's involvement with arc-fault protection); and three training programs offered by GE's energy safety team. In addition, Square D has a division devoted to arc flash and many resources available to its distributors.

• Offer arc-fault analysis services conducted by a manufacturer but sold by your company.

• Charge for safety training.

• Work with your suppliers to generate a bill of materials.

According to some distributors, salespeople may be concerned about profit margins associated with arc-fault jobs. Suppliers may quote the customer but if a distributor unbundles the order and substitutes products, that electrical supply house may be able to improve their margin. According to one distributor, “While we want to work with our prime manufacturer, there are other combinations in certain instances, where we can improve our profit by as much as 5 percent to 8 percent. The main problem we run into is where a SPA (special pricing authorization) has been developed for a customer and, if the unit price is exposed and it doesn't happen to match, we get called on it. What we do not appreciate is when a manufacturer tries to dictate our profit level, even by implication.”

Both parties should discuss margin parameters prior to providing price to the customer, and partnering should be discussed. Since switchgear suppliers can realistically only actively support a finite set of distributors focused on arc fault in each marketplace, the question becomes, “Is this an opportunity for you?”

Climb on the energy bandwagon. Whether you call it energy efficiency, green, conservation or energy management, it makes sense and can be a growth area for your company. Your customers are always looking for methods to reduce operational expenses, improve their work environment and increase productivity. When they go green, they also make a public statement that their company is environmentally friendly, and that it's trying to reduce its “carbon footprint.” According to www.carbonfootprint.com, a carbon footprint is a measure of the impact human activities have on the environment in terms of the amount of greenhouse gases produced, measured in units of carbon dioxide. Companies are starting to measure their carbon footprints to determine the impact they have on the environment.

This green initiative extends into the residential, commercial, industrial, institutional and government markets. According to the Department of Energy (DOE), the industrial market represents 32 percent of energy usage; the residential market represents 22 percent; and the commercial market another 18 percent.

Your product opportunities here are extensive. While 29 percent of non-residential electrical usage is related to lighting, motors represent another 7 percent and installation of these products requires additional electrical material. According to the Freedonia Group, Cleveland, the market for advanced lighting will grow 14 percent annually through 2011. The report says the growth will be powered by compact fluorescent lamps (CFLs) and light-emitting diodes (LEDs), with CFLs posting the fastest growth. According to the Environmental Protection Agency (EPA), six major retailers sold almost 46 million CFLs in the first quarter of 2007 — a projected $300 million for the year from only six companies.

Distributors can participate in this growing segment either passively or aggressively. They can wait for someone to identify the need, develop the bill of materials and send out a bid, and then submit a bid and wait for the opportunity to deliver material. Or, they can actively focus on end-users and influencers to generate demand. They can use EPAct (the federal government's Energy Policy Act) or LEED (the Leadership in Energy and Environmental Design standards developed by the U.S. Green Building Council, Washington, D.C.) to identify and create a need for energy-efficient products. This approach positions you as a problem solver.

Many distributors mistakenly think creating demand for green products is the role of the manufacturer or rep. But progressive electrical distributors are recognizing this strategy as an opportunity to “move up the food chain,” because when they help create demand they can become more influential in product selection, and position themselves to earn the business.

Some electrical manufacturers say too many electrical distributors are passing up the chance to establish themselves as the channel of choice for getting green products to market. Some are even wondering if they need to seek alternative channels to generate growth — some of which could be going direct. Here are questions all electrical distributors should be asking themselves about this niche:

• Do I have a lighting department? How about an energy group?

• Am I contacting end-users, architects and specifying engineers?

• What would be the benefits of LEED certification? Should my company join the USGBC? Can my sales force effectively communicate the benefits of EPAct to end users and potential buying influences?

• What are my customers (and their customers) looking for?

• What manufacturers' tools are available?

• Should the electrical wholesaling industry launch a “Got Milk?” type of campaign that would grow the pie for everyone?

According to some electrical manufacturers we spoke to as part of our research for this article, national chains have strategies to go after the green niche but are weak on execution. In contrast, these manufacturers say some independents have been very aggressive and successful in the green market. One challenge distributors need to overcome while developing battle plans to attack the green market is coordinating multiple manufacturer field sales support efforts into a cohesive green marketing strategy. The question becomes: Who drives demand? Do you want to wait for the order or have the potential to control it?

Consider servicing contracts for managed accounts and property management firms. Managed accounts are comparable to national accounts, but on a regional or local basis. For many years industrial distributors sought contracts to service customers in their trading areas. Distributors such as WESCO Distribution Inc., Pittsburgh, elevated the concept to national companies, thereby taking share from independent distributors, who countered with alliances such as Vantage Group, Crystal Lake, Ill.; Vanguard National Alliance (VNA) Natick, Mass.; and SupplyForce, King of Prussia, Pa.

The same concepts have moved to the commercial and institutional markets with contracts for MRO (maintenance and repair operations) replenishment for commercial developers and medical community purchasing groups. While it's difficult for independents to compete in this arena, identifying local organizations to gain contracts geographically is feasible. The niche is service, availability and competitive price. Product categories in demand include indoor and outdoor lighting, lamps, ballast, low-voltage equipment, circuit breakers and ancillary products needed for installation. From an electrical perspective, each has the need for MRO-type product replenishment, re-lighting and building retrofits to trim electrical bills. Distributors are identifying opportunities to service:

• Local franchisees in the food service/fast food, hospitality, retail and comparable industries.

• Local/regional distributor chains (some may require drop shipping).

• Commercial developers either privately owned or run by real estate investment trusts (REITs).

• Local medical groups that operate facilities such as clinics, labs, commercial buildings and doctors' offices.

• Apartment complexes.

• Managed care/retirement care facilities.

• Local government contracts.

• Capital projects — which typically will be bid through contractors.

Additionally, developers such as Trammel Crow typically sign national account agreements to standardize on products and streamline costs. Usually one price exists for the item across a large geography. Contracts range from 1,000 electrical “prime items” to 5,000-plus items, which may include multiple product categories. Terms specify that they must buy “on contract” if the material can be delivered within a specified time. “Off contract” buying is allowed, but the price must be within 5 percent of the contract price. These agreements represent opportunities to cherry pick and become a “Tier 2” supplier; develop alliances to duplicate the breadth of offering but with guaranteed local service; and learn from others to become the electrical resource in your area.

These accounts can be targeted with your key contractors. Your customers often have relationships with these accounts because of major project work they have done there, but they may not have handled the MRO work done by in-house electricians.

Drill down in to customer niches. The industry frequently talks about the industrial, commercial, and institutional markets in general terms. Sometimes it helps to take a deeper dive and look at specific market segments. In some instances, opportunities may be present for MRO materials, others could be OEM (original equipment manufacturer) relationships. Others may represent instances where you could be a profitable secondary supplier due to relationship, product availability, delivery, timeliness or price. While each customer niche may not be applicable to you, in a slowing market, it makes sense to consider all opportunities.

Energy companies

Niches include petrochemical, mining, ethanol and energy-conversion companies including utility companies (their facility buildings), oilfield service truck inventories, drilling platforms, petro-refining, gas well converter stations and oil/drilling tool companies.

MarketTrack, a product of DISC Corp., Orange, Conn., helps identify account potential by SIC (Standard Industrial Classification). For instance, in the oil and gas extraction market, SIC 13, there are over 36,000 establishments throughout the country with an annual electrical spend per employee of $1,850. MarketTrack also has the ability to identify four-digit SIC by county to help identify niche potential.

Shipping companies

Whether they are long-haul carriers, short-haul or hot-shot companies, shippers buy products for their vehicles for transfer and for warehouses. If the company is a regional player, then they are probably buying from local companies. Shipping is big business. According to MarketTrack, a segment of this niche, railroad transportation (SIC 40) contains over 7,500 establishments throughout the country with an average electrical spend per employee of $1,475 per employee.

Marine shippers, both at inland ports and along the coast, purchase more electrical product than you may think. Most shippers use some special electrical products and buy in fairly large quantities. While some niche distributors specialize in selling to the marine industry, being an alternate supplier can be profitable because the business is based upon availability and/or price.

Phone, Internet, wireless, cellular companies

Most cellular companies build or lease their towers, and these towers utilize electrical products. Phone lines eventually run through switches that require sheet metal boxes and other electrical products. These towers are built and installed by contractors (not the phone company). While the design/specification work is developed by telecom engineers, much material is bought locally. Once the towers and networks are installed, most companies have a service group to maintain their facilities. Frequently, the driver/installer makes decisions where to buy product from an approved list.

Crossover contractor markets

While many distributors do not venture into other verticals, opportunities exist with HVAC (heating, ventilating and air conditioning), low-voltage, plumbing and mechanical contractors. Contactors, switches boxes and wire can be sold to these contractors. HVAC contractors generally run service trucks that carry some electrical inventory, and low-voltage contractors that specialize in alarm systems, sound systems and fire protection also have need for electrical materials. Mechanical and plumbing contractors also may represent an opportunity.

Solar and wind

While currently a niche, significant growth is expected. You may not ever stock solar panels, but other electrical equipment is needed for solar installations. If you are located in the Southeast or Southwest, you may want to consider residential retrofit solar products and or wind power needs. While this may not be a growth market just yet for electrical distributors, the availability of tax credits, appeal of reduced utility bills and the desire to “go green” will drive demand. It's an emerging market.

Small regional mom and-pop stores

These can be anything from IGA grocery stores to 7-Eleven convenience stores that are independently owned. This market is frequently served by catalog companies or DIY retailers, and for years W.W. Grainger Inc., Lake Forest, Ill., has serviced them through its catalog and online ordering. Distributors can service these accounts in the same fashion and through monthly product flyers. These customers understand private shipping companies and U.S. Postal Service. Grainger uses radio to advertise local store locations and their 800-telephone number. Paper catalogs cost money and have a long lead time, but e-catalogs, web sites and fliers can be easier to develop.

Opportunities abound. Special teams, like special markets, can deliver the difference between winning and losing. Sometimes it's the extra edge that provides the boost to a strong offense and a stingy defense. Growing in today's marketplace requires an ability to deftly balance the needs of being focused while embracing diversity.

Allen Ray is principal of Allen Ray Associates, Kennedale, Texas, www.allenray.com. Allen Ray Associates helps companies improve profitability by proactively identifying changing market trends and issues. Executive briefings or in depth research helps a client to receive fresh and objective analyses. Ray can be reached at (817) 704-0068 or [email protected].

David Gordon is principal of Channel Marketing Group, Raleigh, N.C., www.channelmkt.com. Channel Marketing Group develops strategic plans and marketing strategies for manufacturers and distributors. He can be reached at (919) 488-8635 or [email protected].

To keep up with issues in the electrical wholesaling industry, visit www.electricaltrends.com.