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When baseball philosopher Yogi Berra said, “When you come to a fork in the road, take it,” he wasn't referring to the current state of the U.S. economy and the trickle-down effect it has on the electrical market. And that's probably a good thing, because he would have had to choose between an economy that may have a 40 percent chance of falling back into a recession (according to some economists), and a slow- to no-growth scenario that won't produce any notable sales spikes for at least another year. Even the brightest construction economists on the planet aren't sure which path the economy will take and for the first time in forever are providing dual forecasts, one incorporating a recessionary scenario and another outlining an extended era of slow growth.
Another quote by Yogi, “You can learn a lot by watching,” also applies here, because you can learn from the forecast data EW presents in this issue. In addition to the 2012 Market Planning Guide, be sure to check out Herm Isenstein's 2012 sales forecast on page 20 and theEW/KeyBanc quarterly survey on page 12. When it comes to finding out what may make the market tick next year, these three information sources are a triple play that even Yogi could appreciate if he was in the electrical business. Let's get right to the numbers.
Electrical Wholesaling's 2012 national sales forecast calls for a 5.1% increase. We hope our respondents are correct, but this forecast strikes EW's editors as a few points high. That being said, around this time last year we were worried that the 2011 national sales forecast of 5% was high, too. As it turns out, they were a wee bit conservative.
According to this year's Market Planning Guide survey data and a survey we did of Top 200 distributors back in the second quarter, the industry topped this forecast with estimated growth number of more than eight percent. This sales increase for 2011 is also within shouting distance of DISC Corp.'s 2011 sales forecast of 9.4%.
This all being said, it's interesting to note that of the 236 electrical distributors who provided a 2012 sales forecast on the survey, 41 percent said they expected their sales to stay the same — the single largest group of responses.
Distributor optimism is being fueled by a willingness to invest in their businesses
Distributors are a pragmatic, gutty bunch of entrepreneurs, and they don't part with their hard-earned dollars unless they see a solid payback. That's why EW's editors were impressed by the willingness of many respondents to invest in their businesses in this economic climate. Forty-eight percent of them (159 companies) said they are planning to hire new employees next year, and 33.8% (112 companies) said they will be investing in their company's IT systems or capabilities. In addition, 12.1% (40 companies) said they will open a new branch, and 11.5% (38 companies) plan to make an acquisition. In addition, other respondents said they plan to upgrade or expand existing locations, add inventory, invest in new markets and become certified by the General Services Administration (GSA) so they can sell to the U.S. government. It sure sounds like these distributors don't expect another recession. This conviction to invest in their business may be at least partially based in a belief that the commercial lending environment is improving. According to our data, 42.6% of respondents don't expect any major challenges in obtaining a commercial loan.
In past recessions, you could count on the residential market recovering first, followed by the commercial market and then the industrial market. This time around, it's seems the order of recovery has been decoupled from the past. The industrial MRO market never fell as far as other segments of the nonresidential construction market and has provided much of what little growth there has been over the past few years in the electrical construction market.
The commercial construction market is saddled with challenges like tight lending practices, lack of demand and astronomical office vacancy rates, but it will still probably recover before the residential market in many regions of the United States.
Even in the darkest days of the recession, distributors could still count on retrofit work — particularly in the lighting market — to provide some sales. On a more macroeconomic level, that's exactly what's been happening over the past few years.
Multi-family housing may lead the residential market to recovery. After bottoming out at 135,000 annual units in 2009 — a 70% drop from the 445,000 units in 2007 — McGraw-Hill expects a 17% increase to 205,000 multi-family units in 2012, the third consecutive double-digit gain. Growth in the number of empty nesters and young adults and a push toward downtown redevelopment support this trend.
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The market-planning data is divided into nine regions of the United States. For each region and state, you'll find sales forecasts for this year and next year, along with the three prior years' sales. In addition to the sales forecasts, which are prepared by Electrical Wholesaling's research department, you'll also find an economic snapshot of the region and employment statistics for four of electrical wholesalers' major customer groups: electrical contractors, the commercial market, the industrial market and government.
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Our forecasts are based upon responses to Electrical Wholesaling's annual Market Planning Guide (MPG) survey. Each year, the magazine asks electrical distributors for their previous year's final sales results, sales predictions for the current year, and predictions for the following year. It also asks respondents how sales for the first six months of the current year compared with the first six months of the previous year. This year, Electrical Wholesaling mailed 3,050 surveys (both by mail and via e-mail) and received 331 usable surveys for an 11% response rate (a very respectable rate by any survey standards). Respondents reported an average sales-per-employee number of $541,519 for 2010, down from the $574,756 respondents reported last year for 2009 but quite a bit lower than the $624,204 average sales per employee for the 132 respondents to this year's Top 200 survey who provided both sales and employee figures for 2010. Regional sales-per-employee numbers are provided on page 16. Be sure to check how your company's productivity compares with the national and regional averages when it comes to sales-per-employee.
The employment numbers help develop forecasts for customer buying potential. Compiled from publicly available data at: www.bls.gov, the website for the federal government's Bureau of Labor Statistics (BLS), the Regional Factbook data published in this issue is just a small sampling of what what's available from BLS. If you want to drill down into more specific types of customers, search for the Current Employment Statistics (CES); if you want to dig into specific types of jobs look for the Occupational Employment Statistics (OES). For those of you keeping score of employment trends at home, you may notice that we don't include the retail establishment data as part of “Commercial” employment because BLS changed how they present this data and it wasn't as readily available for publication.
If you're looking for sales breakdowns for full-line distributors' key customer and market segments, you'll find the Customer Mix and Market Mix and on pages 32 and 34, respectively. The Market Mix data was updated this year. The Product Mix data found on page 33 gives valuable insight into the product areas that have the most mind share with electrical distributors. Over the years, some of the product categories have been consolidated or eliminated because their contributions to electrical distributor sales were consistently less than one percent over the years. See the text accompanying the chart for a full explanation of the changes.
Getting the full picture on a market area isn't that difficult. When developing any market forecast, gathering some basic data on the size and makeup of the market is the first step. Let's take a look at some of the ways you can crunch the numbers we've provided to tailor them to your specific business and market.
One of the most common uses of this resource is for developing a business plan, whether it be for internal use as your guide for next year or for a presentation to an investor or banker. You will need something that states the size of the local market, and these sales figures are a documented source you can use “as is.”
These data will also be helpful in establishing a sales forecast for your company and your region, comparing nearby or far-flung markets with an eye to opening or closing a branch, and evaluating promising areas of new business. One question distributors should ask themselves — and suppliers will be asking — is: “Are our sales into the market at the level they should be?” Look at the estimate of the overall sales in your market in comparison with your company's sales.
In addition to sales forecasts, employment numbers make up a large part of the regional profiles. The number of people employed by a company or in an industry tends to rise and fall with the volume of business it's doing. Employment figures, therefore, act as a gauge to business prospects and conditions in end-user markets.
- Employee counts can help you compare the relative sizes of various end-user groups in your area.
- You can also compare the make-up of one market area to another, and consider new customer markets or ones that you could be serving better.
- If you track the employment figures for each market over time, you'll see broad economic trends unfolding in your market.
- You can also use these employment figures to make your own multipliers or you can use the national multipliers we've already calculated.
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Each multiplier is a dollar figure that represents the average amount of electrical products distributors sell to each particular type of customer, on a per-employee basis or other “economic factor.” (See EW's National Multipliers on page 15). When used with the employment figures in the regional profiles, the multipliers help establish the amount of business electrical distributors could do with major customer groups in your area, and in total.
For instance, you can go into greater detail by using locally available sources of information on employment or other measures in end-user industries. The professionals at the nearest business library should be able to direct you to a source for the numbers you need. These multipliers are also a good option for determining sales in an area of the country not covered in the list of major metropolitan areas in the regional profiles. The same approach applies if you want to look at one county in an MSA that covers six counties. You would have to obtain employment figures or economic factors from local sources.
For instance, to find the number of electrical contractor employees in Addison, Ill., a city not detailed in the East North Central regional profile, you could contact the local Chamber of Commerce, a nearby union chapter, the state university, the state's department of commerce or the local library to track it down.
These multipliers come in handy if you want to approximate the amount of sales available from a particular account. For example, if a manufacturer employs 300 people, by applying the multiplier of $685, you would expect the facility to purchase about $205,500 worth of electrical MRO products this year.
Using multipliers results in a dollar figure for market size that tells the level of business electrical wholesalers in the area could do if every potential customer there bought a typical amount of product from them. It tends to be a larger number than actual distributor sales. You can also use EW's multipliers to track sales through different types of customers over time. Let's do that for sales through electrical contractors. At the peak of the current business cycle in Oct. 2007, electrical contractors had 943,700 employees, nationally. Using EW'smultiplier of $43,880 in sales for each electrical contractor employee, that's $37.3 billion in sales at the market peak. With the drop in employment at electrical contractors to 755,400 as of August data, potential sales slid 20 percent to an estimated $33.1 5 billion.
Here's a forecast you can use for your cocktail party conversations over the next few month: A recession is a possibility, but a surprising number of distributors appear to be optimistic. The fragile recovery is happening in some regions of the country faster than others, and in some end-user markets months or even years before it may improve in other market segments. One sign of this is how many distributors plan to invest in their businesses in 2012.