Last month's article on specialty wire and cable distributors, (see “Wire World,” June 2006, page 40), hit a raw nerve for many electrical distributors: the commercial voice/data/video (VDV) market. Not all that long ago, this was supposed to be the Next Big Thing for full-line electrical distributors, an explosive market opportunity that would outpace the pipe-and-wire business by growing at double-digit annual growth rates for years.
In the mid-1990s, with the Web emerging, every business consultant on the planet looked into their crystal balls and saw an insatiable appetite for the nuts-and-bolts of the VDV infrastructure that would support digital communications for businesses around the globe. Many full-line electrical distributors expected to cash in on this exciting new business.
Some funny things happened on the way to the bank. Standing in line in front of full-line electrical distributors were Anixter Inc., Glenview, Ill.; larger regional players like Communications Supply Corp., Carol Stream, Ill.; Black Box Corp., Lawrence, Pa.; Graybar Electric Co., St. Louis; and smaller VDV specialists. These companies had years of experience, tons of inventory, armies of technically oriented salespeople with all the right certifications and customized value-added services that fit the needs of a diverse customer base. Their customers included everybody from two-person cabling contractors and fly-by-night “trunk slammers” to Fortune 500 companies, schools and universities, hospitals and large government facilities.
Electrical distributors had a few other things going against them. Most of them didn't know how to spell “balun,” “multiplexer,” “RS 232 connector” or a new-age laundry list of other basic commercial VDV products. Their timing was off, too. Electrical distributors took an interest in this market shortly before the dot-com bust, which eliminated a substantial piece of the expected demand for high-end commercial-networking products. A contributing factor to the dot-com bust that had a direct impact on the commercial VDV market was the massive overbuilding of the fiber-optic backbone that carried long-distance communications.
The 2001-2003 recession and 9/11 also put a crimp in their expansion plans, because the commercial-office market softened. During these years, not as many new office buildings were being built, and companies were slow to update their VDV networks in existing buildings because of budget concerns and employee layoffs. VDV specialists had the stomachs to weather these storms, but most electrical distributors moved on in search of greener pastures.
Sue Smith, vice president of marketing, Pass & Seymour/Legrand, Syracuse, N.Y., draws a distinction between the commercial VDV market and the residential-structured market, which she says is clearly a growth business with electrical distributors and their contractor customers. Smith sees many electrical distributors reaping the rewards of their investments in the residential structured-wiring market but says the commercial datacom market is an entirely different business. The commercial datacom market offers full-line electrical distributors steady shelf-goods sales in the basic Category 5E products that cabling contractors need when they perform the “moves, adds and changes” in existing VDV networks, but Smith says it's not the market opportunity many of them expected. Five years ago, she saw electrical distributors hiring commercial datacom specialists and going after big-project business. That's no longer the case, she says.
“I would no longer characterize commercial datacom as a high-growth business with most full-line electrical distributors,” she says. “But many of our distributors carry the basic components of Category 5E networks, and it's a steady business. They may not be in the major new projects, but there's what I would call a steady ‘flow-goods’ business of basic patch panels, 5E jacks and wallplates that has been established. It's profitable, and it's healthy. Electrical distributors are turning it and selling it. It's not a star, but it's not a dog.”
Several wire and cable specialists say if electrical distributors are going to succeed in the commercial VDV market, they have to outrun Anixter, Graybar and Communications Supply Corp., which have the advantages of size, vendor relationships and expertise. Steve Riordan, CSC's CEO, says because of these factors, the barriers to enter the commercial VDV market have never been higher.
Bigger Seems to be Better
The size of the commercial VDV market depends on your perspective. In the broadest definition, it includes everything from large-scale installations for major telecommunications providers such as Sprint Nextel and AT&T, to VDV networks for commercial, industrial, institutional and government facilities. A fast-growing segment of the market that's been getting more attention recently is low-voltage wiring for security applications. Niche VDV players tend to specialize within these market segments, although some of the larger distributors are a force in all market segments. While the market's boundaries are debatable, no one will dispute that Graybar, Anixter, Communications Supply Corp. and Black Box Corp. are the biggest players in the business. Niche VDV specialists compete profitably in this market, too, but these four companies account for the lion's share of the business. They sell billions of dollars in VDV equipment, but because of their substantial interest in the residential structured-wiring market, not all of the revenue is in commercial VDV products. Here is a look at the largest players' 2005 revenue and some interesting background information about each.
The 197-location wire specialist had $3.8 billion in 2005 sales (36 percent from outside the United States). The company provides its 95,000 customers with access to 325,000 VDV products and offers supply-chain management tools, such as inventory-management services, just-in-time delivery, quality-assurance testing, advisory-engineering services and e-commerce capabilities.
With $860.8 million (approximately 20 percent) of its $4.3 billion of total revenue in VDV sales, Graybar is just as much of a force in the VDV business as in the electrical wholesaling industry. Although the 250-location Graybar is known best as a full-line distributor, its VDV presence is too large to ignore and must be included within the scope of this article.
Black Box Corp.
The 168-location VDV specialist earned its $721 million in 2005 sales from 175,000 customers in 141 countries. Many of its 118,000 products are privately labeled under the Black Box name. The company has a major focus on the small-office/home office (SOHO) business.
Communications Supply Corp.
The 30-location distributor of data-communication products has 669 employees and tallied $510 million in 2005 VDV sales. It stocks more than $60 million in VDV products. The company was built largely through acquisitions of VDV specialists, including this year's purchases of Liberty Wire & Cable, Colorado Springs, Colo., and Calvert Wire & Cable, Brook Park, Ohio.
The Small Still Survive
Although the largest players in the VDV market are formidable competitors, a spirited band of smaller niche specialists continue to grow. They survive because they often carry many of the same brands as the giants, offer customers just as much market expertise and have tight bonds with local accounts. They also rely on unique value-added services to differentiate themselves.
Windy City Wire, Hillside, Ill., recently launched its Smart Wire Design Tool, which allows customers to design their own low-voltage wiring installations online. Windy City's sales personnel also use the tool to design installations for customers, and they can even suggest customized color-coded striping schemes for cabling so installers can quickly identify cables on job sites.
The system uses the company's Smart Wire brand of cabling products for all designs and produces customized stick-on wire labels for customers. “We tell our customers, ‘You send us your plans or blueprints, and we will design it and lay out the job,’” says Galgano, president and co-founder.
The Smart Wire Design Tool is also integrated in the company's suite of e-commerce capabilities. When a customer places an order, Windy City Wire ships all boxes and spools with product labels and related wiring schemes to identify the applications and device “addresses.” Although the company's customer base is primarily commercial, it recently used the design tool for a wiring job at a 20,000-square-foot home that required 500,000 feet of cable.
In an ever-more-digital world, well-entrenched commercial VDV specialists will continue to thrive. It's a tough, but not impossible, market for outsiders to crack. The companies that do it successfully rely on some distribution basics. They devote their energies to several carefully selected niches and then hammer away at these markets with customized value-added services, well-trained salespeople, well-stocked warehouses and 24-hour delivery.