These 25 ideas can help your company crawl out of the economic wreckage.
The electrical wholesaling industry is at a rather historical crossroads that for many companies will determine how far they will survive into the 21st century.
The past three years have been hell for most companies, but the worst is over and it's time to start planning for the new reality. After enduring the worst economy in the last 50 years, distributors, reps, manufacturers and end users want to know what this new reality looks like.
As is so often the case, it depends on your market perspective. If you are heavy into commercial project work, you may be eating beans for another year, but if you supply electrical MRO products for factories and commercial/institutional facilities, your recovery may have already started. And if you are real serious about lighting retrofits and have an ESCO division or work closely with energy-service companies, that part of your business may not have suffered all that much — and it may be looking at spectacular double-digit growth over the next 10 years. Perhaps you got into solar early because the local utility and state incentive programs combined with the federal tax incentives are driving installations like mad (hello California, New Jersey and Massachusetts). Maybe you took a pioneering interest in LEDs and have a head start on competitors banking on a wait-and-see strategy.
On top of these new market opportunities is a mobile computing revolution that will totally change how your customers order products and how your field salespeople work from the road. Whoever came up with the toast, “May you live in interesting times,” may very well have been hoisting a glass to 2011 and beyond in the electrical wholesaling industry.
To help you set your sails for what will be a most-interesting voyage, over the next three months Electrical Wholesaling will provide articles that will help you analyze the market opportunities that lie ahead. This article provides 25 ideas you can use to spark discussions with your sales and management team on where to channel your energy and resources as the economy improves. As an added resource, at www.ewweb.com you will find the online version of this article along with some scripted questions that you can use in your discussions on how the concepts presented in this article may relate to your company's future. Next month's 2011 Market Planning Guide will provide some insight into next year's sales potential, and the December issue's 2011 National Factbook will offer some valuable insight into the economic indicators that do the best job forecasting the electrical market's future direction.
Big Picture Stuff
- Watch your local economic indicators
The electrical market is at a tricky juncture right now and it's tough to know when to start stocking up. Hopefully, we have avoided a double-dip recession, but any real growth in the non-residential construction market could be a year away. Jump the gun and load up too much inventory too soon and you may be left with a big investment gathering dust in your warehouse. Play it too close and you may be out of stock when business picks up.
Obviously, it's best to keep in closer touch than ever with customers to gauge their supply needs, but if you need some forward-looking local economic indicators, monitor building permits, which are available by metropolitan statistical area (MSA) from the U.S. Census Bureau (www.census.gov/const/www/C40/table3.html), and electrician employment from the Bureau of Labor statistics (www.bls.gov/oes/current/oes472111.htm). For a broader advance indicator, check the Architectural Billings Index (ABI) published monthly by the American Institute of Architects (AIA), Washington, D.C. The ABI monitors billing activity at architects and leads the actual building starts by approximately six months (available in the “pressroom” section of www.aia.org). If you need more detailed economic data for your local market, check out sales forecasts sold by DISC Corp., Orange, Conn. (www.disccorp.com).
- Take a big-picture look at what new construction trends in your market area may mean to your business
Once non-residential construction picks up, it won't necessarily follow the patterns of the past. For instance, your market area's building community may have to design and build to suit new demographics or zoning requirements, or have the opportunity to utilize prime commercial real estate for new types of construction. For instance, in communities where buildable lots are scarce and the demographics point toward residents who want condo living close to amenities, you may find more “in-fill” new construction projects with a faux-urban feel, where people live in townhouses or apartments above street-level retail shops like restaurants, dry cleaners, beauty salons and other businesses.
Current real estate trends may offer new expansion opportunities for your own business, too. A struggling older shopping mall out on the highway with 50-percent vacancy rate may make a great “distributors' mall,” with supply houses from other construction trades such as plumbing, roofing or HVAC. Lease rates may never be more attractive than they are right now, and talk about plenty of parking!
- Keep Electrical Wholesaling's Electrical Pyramid handy
Before entering new markets, you should evaluate potential competition from niche distributors, retailers and other sources of supply. The Electrical Pyramid, which appeared in EW's July issue (p. 17), offers a framework that will help you evaluate the various channels manufacturers use to bring electrical products to market.
- Look outside your industry for ideas that can help you inside the walls of your business
One of the reasons we write so much about distributors from other trades in Electrical Wholesaling is that so many of the best practices in distribution management, sales and marketing apply to distributors from many distribution trades. It's a big reason electrical distributors join the National Association of Wholesaler-Distributors (NAW), Washington, D.C., where they can network with non-competing distributors from different lines of trade.
Want to learn about private labeling, running a lean distributorship or starting up branches on the fly? Fastenal Inc., Winona, Minn., private labels a big chunk of the nearly one million products it stocks, and it typically opens dozens of new branches each year. Fastenal sells a heck of a lot more than just the screws, nuts and bolts for which it's best known. The company now stocks 25,000 stock-keeping units (SKUs) in electrical products at its 2,300 branches.
Interested in building an online catalog? The online catalog at www.grainger.com developed by W.W. Grainger Inc., Lake Forest, Ill., will blow your mind. According to information at www.grainger.com, Grainger now offers customers the ability to order more than 300,000 products online and have them shipped directly to their job-sites or offices or pick them up at one of its 430-plus U.S. locations. The company says www.grainger.com was the “first transaction-capable web site in the industry” and that it achieved $1.5 billion in e-commerce annual sales in 2008.
- Rethink your concept of branches
Thinking about branch expansion? Here are a few new and old ideas that you may want to explore.
Do you have a major construction project underway in town that's far from any branch? How about setting up a mobile branch on site with a temporary job-site trailer? Load the trailer in the off-hours and have the supplies ready to go for the contractor in the morning.
Distributors have been stocking tool cribs on-site at customer facilities, but it's an idea that never grows old because customers are always looking for quick access to the most commonly used maintenance items.
Stuart C. Irby/ Sonepar have customized the concept of “twig” branches with Irby Electric Express. According to a company release, local service centers of 4,000 to 5,000 square feet are strategically located in permanent facilities close to dense construction locales.
- Find out from your sales leaders if the sales force needs any additional resources to sell “new tech” products
Many of the new sales opportunities you will see in the near future will be with new products or systems in the green market. Most evergreen selling skills still work, whether you are selling reels of THHN or the latest in T5 fluorescent lighting systems. But you have to make sure that your sales force has the necessary technical training that more technical products may require and the sales tools that will help them introduce new technology to customers. Whenever possible, get as many product samples as possible, because nothing tells the story like a product in hand. Also be sure your sales force has adequate sales collateral (technical specifications, brochures, etc.), or knows where they can download it online.
- Make sure your salespeople are comfortable selling the return on investment (ROI) for green electrical equipment and other products
As distributors handle more new-tech products such as energy-efficient lighting, photovoltaics and other renewables, this sales skill will become increasingly important. Your sales force must be able to walk CFOs and accountants through the ROI of these types of products because this is the language they speak and you will have to converse with them in it to get their buy-in.
- Find out how much business your distribution equipment and lighting manufacturers are taking direct — and where you may or may not fit into the equation as a local source of supply
Over the past few years, Schneider Electric, Palatine, Ill., and Eaton Corp., Cleveland, have been working directly with Fortune 500 companies, universities, the U.S. military and other larger customers who want a single point of contact for turnkey electrical projects. And in the lighting market, Sylvania Lighting Services, Danvers, Mass., has for years done a ton of retrofit and lighting maintenance business for large customers.
Eaton and Schneider Electric are just two examples of the electrical conglomerates that use their own designers and installers for these projects instead of local or regional contracting or design firms. While they still need electrical distributors to provide electrical products for some of these projects, you can bet they're handling a bunch of products directly. It may be time to have a heart-to-heart conversation with your factory reps from your larger manufacturers to see where they do and don't need your company on this type of project work.
- Utilize the online training available in the electrical industry
As you equip your sales force for the uptick in the economy, make sure they have the proper training. There's plenty of quality training customized for the electrical market that you or your employees can access without having to leave town. The EPEC program offered by the National Association of Electrical Distributors (NAED), St. Louis (www.naed.org/epec); online training by BlueVolt, Portland, Ore., (www.bluevolt.com); Electrical Wholesaling University (www.bluevolt.com/ewuniversity), produced with BlueVolt; and www.electricsmart.com are all options, as is training produced by the industry's largest buying groups — Affiliated Distributors, Wayne, Pa., and IMARK Group, Bowie, Md.
- Help small electrical contractors with their basic business skills
Most smaller contractors are long on technical skills but short on business acumen. We have all known plenty of contractors that got their start as a husband-and-wife team. Hubby and an assistant or apprentice wire like mad while his wife is doing the books back in the office (occasionally visa-versa). Where they struggle is in profitably bidding jobs, bookkeeping and basic financial management.
You can help, because sharp financial management is one of the core competencies of any successful electrical distributor. Follow the lead of Jones Electric Supply, Sanford Fla., (acquired by Consolidated Electrical Supply, Miami), which in the 1980s had a retired college professor on staff, Ted DeVries, who taught small electrical contractors one-on-one on how to run profitable contracting firms.
- Find out how many of your customers are using smart phones, iPads and other tools of the mobile computing revolution to order products and check order status from job-sites
Survey customers to make sure you are in step with their mobile communication needs. It doesn't necessarily have to be a formal survey with statistically verifiable results, but it should give you a good sense of where your customers are at with mobile computing. You could do an e-mail survey; survey customers at the counter; or have field and inside salespeople ask customers questions such as:
Do you or your employees use a smart phone such as a Blackberry, iPhone or PalmPilot, or an iPad or tablet computer in your business? If so, what type of device?
Are you using it to buy electrical products?
Are you using it to check order or delivery status?
How else do you or your employees use them on the job?
How could an electrical distributor make it easier for you to order products or check order or delivery status from the job?
- Cut down on data errors with IDEA's suite of e-business tools
If you aren't already taking advantage of IDX to transmit and receive orders and other business communications from suppliers or the Industry Data Warehouse (IDW) to build or update your electronic product database, get in touch with the folks from IDEA, Arlington, Va. (www.idea-esolutions.com).
- Experiment with tightly niched e-mail newsletters
Steal a page from the playbook of Electrical Wholesaling and its sister publication, Electrical Construction & Maintenance magazine, and develop e-mail newsletters focused on specific niches of your customer base or on specific content areas. These e-mail newsletters reach thousands of electrical professionals, and popular items attract hundreds of click-throughs on their hyperlinks. At www.ecmweb.com you can access e-newsletters on topics such as on the National Electrical Code (CodeWatch); the MRO market (MRO Insider): and power quality (PQ Newsbeat). To get a free subscription to EW's and EC&M's G-Biz on the green market, or EW Product Alert for information on new products, visit www.ewweb.com.
E-mail newsletters are very inexpensive to publish, but put some real thought and effort into each issue. If you don't offer some valuable ideas, new product information, news briefs or other content in each issue, your e-mail newsletters will end up in customers' spam folders.
- Familiarize yourself with Building Information Modeling (BIM)
BIM utilizes computer-based 3-D design, where architects build buildings electronically before they build them physically. BIM has been evolving over the past few years, and it's at the point now where architects are starting to show some real-world savings from it. Several of the stadiums built for this year's World Cup soccer tournament in South Africa utilized BIM software developed by Tekla International, a Finnish firm. According to a recent article in Forbes, a California architectural firm used BIM in a hospital design to cut five months off the schedule and $100 million from the budget. Electrical distributors, manufacturers and reps need to familiarize themselves with BIM because some electrical product data is used in BIM-generated designs for electrical systems.
- If you are into green, spend some time on the Department of Energy's web sites for lighting and renewables
Over the past few years, the DOE has built up huge online resources in the lighting (www1.eere.energy.gov/buildings/ssl) and renewable (www.eere.energy.gov) areas well worth your time if you are thinking about expanding in either of these markets. You can learn about new government financing incentives for installation of these products; get presentations from DOE subject experts; access news; and sign up for free e-mail newsletters.
- Decide if solar makes sense for your company
Distributors and reps in states such as California, Massachusetts and New Jersey that have attractive utility rebates or state financial incentives for the installation of photovoltaic systems have already had to decide to pass or play in the solar market. Some of the full-line electrical distributors that have already moved into the PV market in a big way include Border States Industries, Fargo, N.D. (www.borderstateselectric.com); Munro Distributing, Fall River, Mass. (www.munroelectric.com); National Electric Supply, Albuquerque, N.M. (see EW's August cover story on the company at www.ewweb.com); and Turtle & Hughes Inc., Linden, N.J. (www.turtleenergy.com), which recently landed a $30 million contract for a PV installation with the Lawrenceville School, Trenton, N.J.
If you're are interested in the PV market, an important resource to check out is the Database of State Incentives for Renewables & Efficiency (DSIRE) at www.dsireusa.org, which is the best online resource for up-to-date information on the status of utility rebate programs in each state. And while being able to blend utility rebates and state financial incentives with federal tax breaks for PV installations is an important aspect of any initiative into solar, no effort will go very far if your state's utilities don't offer “net metering,” which allows utility customers that produce their own power with PV panels, wind turbines or other power sources to feed any excess power they don't use at their facilities back onto the electrical grid and get compensated or credited for it. According to DSIRE, 43 states along with the District of Columbia have adopted a net metering policy.
- Get to know ESCOs or become one yourself
Regular readers of Electrical Wholesaling have seen plenty of articles on the role energy-service companies (ESCOs) play in the lighting retrofit market (most recently in the August issue's “The World of ESCOs” now available at www.ewweb.com). As you can read online in that article, ESCOs are looking for distributors that can provide a dependable flow of electrical products to their job-sites for the retrofits. If you want to become an ESCO yourself, you can learn a lot from Horizon Solutions, Rochester, N.Y. (www.hs-e.com), which in 2008 acquired the ESCO, Lighting Resource Management (LRM), Newburyport, Mass., and is using what it learned from them to build out its Lighting and Energy Services business in New England and upstate New York.
Another distributor that's ahead of the curve in the ESCO niche is Facility Solutions Group (FSG) (www.fsgi.com), Austin, Texas, which distributes and installs energy-efficient lighting systems. The company's ESCO business got a big boost with the 2006 acquisition of Bernie Erickson's O.K. Electric Supply, Perth Amboy, N.J., which for years had been doing lighting audits and service work at Fortune 500 companies and government facilities.
- Look into LEDs
There's been a ton said and written about light-emitting diodes (LEDs) over the past few years. Much of it is right on target, but some of it is hype, or just plain inaccurate information. But one thing is for certain — you know LEDs are changing the face of the lighting industry when a major player like GE Lighting is spending more than half of its research and development dollars on LEDs, and the booths of LightFair, the industry's largest trade show, are bursting with new LED products.
Legitimate manufacturers are doing everything they can to produce top-quality LEDs, but there's still way too much junk out there in the market giving LEDs a bad name. If you are researching the LED market, check out the DOE's solid-state lighting website, www1.eere.energy.gov/buildings/ssl and look for a listing of LED manufacturers whose products have passed the tough performance standards of the CALiPER program developed by the DOE and leading lighting associations. EW University also has a free 20-minute webcast (www.bluevolt/ewuniversity.com), “LED Lighting: Where It Is and Isn't a Sales Opportunity,” that provides a quick overview of the market.
- Hit the road
Want to get really good at green? Invest in a trip to Chicago next month to see GreenBuild, Nov. 17-Nov. 19 (www.greenbuildexpo.org). As you are walking the aisles of the trade show or attending the seminars, try to figure out how electrical products fit into the whole sustainable movement and LEED-rated buildings. You will see they are both an integral element in the whole concept of sustainable building, but at the same time must battle for the mind share of architects and engineers with other energy-saving building products such as windows, HVAC systems and roofing materials.
If you are thinking about expanding into the lighting, wind or solar markets, three trade shows to consider for next year are LightFair 2011 (www.lightfair.com) in Philadelphia, May 15-19; Wind Power 2011 (windpowerexpo.org), May 22-25 in Anaheim, Calif.; and Solar Power 2011 (solarpowerinternational.com), Dallas, October 17-21.
- Take another look at residential voice-data-video (VDV)
While many electrical distributors decided whether or not to get into VDV years ago, many electrical contractors are expanding into VDV work because of all the action with flat-screen televisions, home theaters and moderately priced residential security systems. While residential VDV installations in new homes are still weak in most housing markets because of the dearth of construction activity, retrofit work for home entertainment and security systems in existing homes is available. If you want to get a good sense of this market, check out www.cepro.com, the website of CE Pro, a magazine for custom installers of home theaters, security systems and other custom electronics for the home.
- Reacquaint yourself with your local utility
Just because utility products aren't your bag doesn't mean you shouldn't be familiar with your local utilities. And it's not just the rebate programs mentioned earlier for the installation of green products. As part of smart-grid initiatives, more utilities are installing new-generation digital meters for their customers so residents and building owners can more closely monitor their electrical usage.
- Don't forget about ARRA federal spending — there's still money left
An estimated $130 billion of the total $787 billion in American Recovery and Reinvestment Act of 2009 (ARRA) was budgeted for the construction market. To date, retrofits of lighting systems and switchgear and the installation of advanced metering equipment at federal buildings and facilities have been most common.
- Help local builders differentiate themselves
Some of the national builders are starting to incorporate photovoltaic systems and the latest in lighting, home security and backup power so their homes stand out from those of other builders. You may not have had much direct contact with local or national builders in the past, but you should establish or strengthen your relationships with them before they start ramping up production.
- Start doing your preliminary research in “over-the-next hill” potential markets such as electric vehicles and the smart grid
It may be several years before you stock products for electric vehicles or the advanced metering systems that will be required by the smart grid, but you should factor in the market for these products in your long-range planning, because they may have mammoth impact on the electrical market. Last month's cover story (“Race of the Chargers,” p. 18) offered a nice reality check on the state of electric vehicles, and you can find regular reports on the smart grid in EW's archives at www.ewweb.com.
- Never lose your focus on the basics
New-generation products and mobile computing devices like Blackberries and iPads may be having a huge impact on the electrical market, but providing the right products and services at the right time and at the right price will always be the most important element of success for any company.