As a very young child during the last years of World War Two, I recall my parents listening on the kitchen radio to a newscaster by the name of Gabriel Heater every Sunday evening. I can still hear his opening words, “Ah, there is good news tonight.” Or, “There is no good news tonight.” And then he would begin to analyze what was going on in the European theater of operations or in the Pacific.

Unfortunately, I feel like Gabriel Heater, reporting there is no good news for the electrical industry at this point. The industry's core economic drivers are still heading south, and there's no possibility that industry sales will behave any differently than the direction and the intensity of these key economic indicators. However, there is a one bit of good news: It's not all gloom and doom because individual businesses are not locked into that global scenario.

Few businesses follow the exact script that the industry overall follows. That's because most businesses follow a subset of the overall key economic indicators that impact total industry sales. But every business does follow some script or a subscript of the overall industry. I believe every business — deliberately or not — follows some model that can describe and capture the economic indicators that drive the individual business.

Understand Your Company's Economic Drivers

They won't be global, like gross domestic product (GDP), and instead will be much narrower. If you know what they are, then you will have a better understanding of why your business is behaving as it does and how you can direct your resources to get that next order. That's where the rubber meets the road. Unfortunately, if your business is tracking commercial construction, not a lot of rubber will be meeting the road this year or next year.

But at a higher and more important level, it's all about the marching orders you give to your people. And that means knowing what sub-segments will perform better than others. If you don't have a plan to manage and direct your resources into the economic areas that have relative strength, then there is no order to the business. And if ever there needs to be order in the business it's when the economy is in turmoil, like now.

Manage Your Resources to Take Business Away from Your Competitors

Every business in this industry is in a weakened position. Resources are scarce everywhere and every business is working very hard to do the things that need to get done because so few resources are available. The scarcer the resources, the more exposed a business is to losing customers. Know your business, but look very carefully at your competitors' scarce resources and the weakness in his business that's part of that scarcity.

Managers are taking on responsibilities usually delegated to other employees, because many of those employees are no longer there. Growing your business has always been about having quality managers, but because of the scarcity of resources, it is doubly important to have top-quality managers. Very focused and high quality management has a better chance of taking share in these times than in good times. From top to bottom these are difficult and stressful times for all, but quality management will always win out.

Productivity is Critical

There are other issues as well: First, having sliced into your resources you need to see significant productivity gains to generate cash and still serve a market potential that's a good 35 percent less in 2010 than in 2008. Two big questions become apparent:

Can you identify the gains in productivity for your company?

With the gains in productivity can you manage to make money in another down year?

Keep Close Tabs on Employee Morale

You can't maximize your productivity unless your people are working together. It's an issue that's easily forgotten in good times, even more so in trying economic times. What about the troops? A very astute manager once said, “The success of a business turns on its esprit de corps.” Morale is the most important ingredient in your day-to-day operations. If you want to make your numbers, having an upbeat organization is absolutely crucial. Quality managers always do as much as they can to maintain and build esprit de corps.

Let's Do the Numbers

Now let's review where we are and where we are going. Improvement is relative. If you are consoled by industry performance showing improvement, then I can report that 2010 will be an improvement over 2009. That is not a whole lot of consolation in the face of an expected industry sales decrease of about four percent in 2010. This is on top of the 30 percent decline we are expecting this year. After the severe downturn experienced this year any improvement is positive.

How can a four percent sales decrease be termed “improvement”? That's easy. We have improved by about 26 points from a negative 30 percent to a negative four percent. Maybe that's an accounting trick that stockholders would not look on with favor. The important point is that a terrible situation is getting better. The fever is still there but it is coming down.

The real story is always in the individual market segments. In the previous down industry cycle in 2001, the distributor- served industrial segment led us into the downturn. This was followed by a cyclical downturn in the distributor-served contractor market. In the current industry downturn, the same thing is happening again. Here's a key takeaway — in both situations the upturn is led by the distributor-served industrial market. To the extent that opportunities exist in 2010, they will be more concentrated in the distributor-served industrial market than in the distributor-served contractor market. If you can direct more of your efforts to the distributor-served industrial market in the coming year you should see better growth opportunities.

Finally, I cannot ignore the real improvement in the contractor sub-segment — the residential market. Consider that nonresidential construction expenditures are expected to tank another 17 percent in 2010 on top of the 19 percent decline this year. At the same time, consider that residential construction spending is expected to reverse course next year and increase nearly 10 percent. Contrast this with a 20 percent decrease in residential construction spending this year.

Regional and Local Variances

Chart 2 shows the growth rates for the nine regional geographic areas, while Chart 3 shows the growth rates for the top ten metro areas for this year and next year. Each metropolitan statistical area (MSA) shown here is ranked by dollar value in 2008 and had electrical distributor sales potential of at least $1 billion. By the end of 2010, Cleveland, Philadelphia and San Jose will have fallen from the ranks of the billion dollar club.

While these MSAs stand out because of the sheer sales volume they represent, other MSAs stick out like a sore thumb because of their sales decreases. For instance, the dismal economic climate in Flint, Mich., is well-known. Some other MSAs having a tough year are also listed in Chart 4. To give you a sense of some other markets currently struggling, look at the other MSAs in the chart. For instance, after a stellar performance year in and year out, it's surprising to see Las Vegas and Phoenix on this list — victims of the chaos in the credit market.

2011 and Beyond

It will be another year before we see meaningful daylight. When I am writing this column next year at this time, I think I will be painting a rosy economic picture for 2011 with a growth forecast of about 12 percent, and a 15 percent industry sales gain in 2012. In the meantime, it's going to be another tough 12 months.

CHART 3: IN TOP 10 TRADING AREAS — CHANGE IN SALES THROUGH ELECTRICAL DISTRIBUTORS 2008-2010
Total percent change from previous year
Trading Area Name 2008 2009 2010
1 Chicago 0.7 -31.4 -4.5
2 Los Angeles -0.6 -29.2 -3.4
3 Houston 8.5 -23.9 -4.1
4 Dallas 6.1 -24.3 -1.3
5 Atlanta -1.4 -37.9 -8.5
6 New York 2.2 -27.8 -6
7 Anaheim, Calif. -0.4 -27.9 -4.2
8 San Jose, Calif. 2.1 -31.2 -5.7
9 Cleveland 1.9 -21.8 -3.4
10 Philadelphia, Pa. 1.0 -28.1 -3.3

Herm Isenstein is president of DISC Corp., Orange, Conn., the leading forecasting company in the electrical industry. He can be reached by phone at (203) 799-3673 or by e-mail at herm@disccorp.com. Learn more about DISC Corp at www.disccorp.com.