Once upon a time, Lamp Land was a sleepy place, a mature market with three dominant manufacturers carving up the terrain, making incremental advances in a technology that dated back to the late 19th century and the earliest days of electrification.
General Electric and Westinghouse had their own rival distribution chains with locations throughout the United States, and Sylvania fought them for the favor of independent distributors. Smaller lamp manufacturers worked underserved niches they found along the margins.
You could say nothing has really changed in Lamp Land. Yes, Westinghouse and Sylvania were acquired by giant European technology conglomerates — Royal Philips Electronics of The Netherlands got Westinghouse and rebranded it Philips (then sold the Westinghouse brand to a smaller lighting company in Philadelphia that's not part of the big three); Germany's Siemens AG bought Sylvania to combine with its venerable Osram unit. Smaller lamp specialist like Bulbrite Inc., Moonachie, N.J.; Eiko Ltd., Shawnee, Kan.; and Halco Lighting Technologies, Norcross, Ga.; have grown quite a bit larger over the years and have found their own product niches, but they are still much smaller than the Big Three lamp manufacturers.
And yet, over just the past few years, sleepy Lamp Land has taken on the feel of a boomtown, a wide-open place where marvels and mischief wait around every turn. Every source contacted for this article, including people with decades of experience and generations of perspective, agreed that there's never been a more exciting time to be in the lighting business.
Some boomtowns are born from the discovery of gold or oil. Lamp Land has discovered the light-emitting diode (LED).
“I'm firmly convinced that this technology is the kind of paradigm shift the industry hasn't experienced in the past hundred-some-odd years,” says Zia Eftekhar, CEO of Philips Professional Luminaires, a lighting industry veteran of 40 years who joined Philips when it bought the Genlyte Group in 2008. “This light source will replace the majority of traditional light sources. When we look at projections … we believe LED as a light source will be around 50 percent of the total market in the very near future — within a three-year timetable — and 80 percent by the end of this decade. Our company sees it as not just another addition, but as a very significant component of what the industry will look like.”
As with any disruptive technology, LEDs are beginning to affect the whole market channel for lamps. They require a different sales approach, invite a different array of participants playing changing roles, and the technology itself is still very much in a state of flux.
For electrical distributors, the changes bring a welcome shot of excitement and growth potential amid the doldrums of a global economic recession, but also a pack of new challenges as the landscape continues to shift.
The Whole Becomes More Important than its Parts.
LED lighting is new technology, but that hasn't seemed to dampen interest in it. The fascination with it has drawn a wave of new entrants selling LED lighting that often fails to perform as advertised.
“LED and solid-state lighting is still in its infancy, it's still a prototype industry. But the interest in it has been a perfect storm of the media age of information as well as all the interest in energy efficiency, which have forced prototype systems to market,” says Alex Boesenberg, technical program manager for the Lighting Systems Division of NEMA. “We're struggling to establish standards of quality and performance for those items and get products to market that satisfy consumer expectations while defending the market from overseas garbage.”
The U.S. Department of Energy is taking the lead along with manufacturers, associations and standards bodies in developing objective criteria for testing solid-state lighting systems and, through a program called CALiPER (Commercially Available LED Product Evaluation and Reporting), verifying that the products meet their manufacturers' claims.
Some of the products have proven to seriously underperform the claims in their marketing materials, to the detriment of LED lighting's long-term prospects. The hope is to avoid the kind of backlash the industry has seen in the past, most memorably with the introductions of self-ballasted compact fluorescent lamps (CFLs) and electronic ballasts.
The involvement of the DOE has been a positive thing, say the lamp manufacturers.
“What the DOE is doing has been an incredible help to the LED industry,” says Steve Briggs, vice president of marketing and global product management for GE Lighting Solutions. “Despite their great efforts there's still a widespread lack of product quality in the marketplace. If it wasn't for their efforts it would probably be far worse. They're a catalyst for the industry, but there's still a lot of bogus claims out there.”
One thing DOE has focused on is the importance of the whole LED lighting system — the LED light source, ballast, fixture and controls — in assuring performance, beyond the performance of any individual component. The importance of the whole system has been driving the major lamp manufacturers to integrate vertically so they can supply all parts of the system.
Osram Sylvania, Danvers, Mass., through its Osram Opto Semiconductor subsidiary, is the second largest LED manufacturer in the world (after Nichia Corp. of Japan), has alliances with many fixture manufacturers and is integrated clear down to the energy services and installation level through a joint venture with Traxon Technologies and its Sylvania Lighting Services operation.
Philips Lighting, Somerset, N.J., third in production of LED chips through its acquisitions of LumiLEDs and Color Kinetics, also added massive fixture lines with the acquisition of Genlyte Group in 2008.
GE Lighting, Nela Park, Ohio, in January moved to combine its fixtures and LED units into one business, GE Lighting Solutions.
The importance of this shift toward vertical integration may be muted over time, as industry standards make LED lighting system components increasingly interchangeable, modular and therefore upgradable. An organization called the Zhaga Consortium, “A consortium for standardization of LED light engines” (www.zhagastandard.org) was set up recently to foster standards that will promote this interchangability.
Expect to see a lot of announcements this month and next as lighting manufacturers introduce their latest modular solutions at the Light+Building 2010 show in Frankfurt, Germany, April 11-16, and Lightfair International in Las Vegas May 12-14.
The lamp manufacturers' push toward vertical integration may have a significant impact on distributors. Essentially, it may mean your lamp vendor, which already accounts for six percent to eight percent of your sales if you're a typical electrical distributor, may come to represent as much as 20 percent.
Bill Attardi, president of Attardi Marketing, Colts Neck, N.J., expects to see lamp manufacturers push for closer alliances with key distributors as a result. “Lamp manufacturers will be able to pick and choose who they want to do business with. I'm sure they're betting on the fact that, if they have the premier offer, why not offer that to the premium distributors?”
Lamp Sales for MRO will Drop.
Because LEDs will last almost as long as the fixtures in which they reside, the market's focus will shift to sales of the systems for retrofit and new construction where distributors already play a more prominent role than they do in the total market for light bulbs now.
“Solid-state lighting is largely a retrofit and new construction market, not all MRO like traditional lighting,” says Briggs of GE. “This requires the entire channel to focus on value selling and economics. Historically (for distributors) it's been a good blend of MRO and new projects, but for electrical wholesalers to survive in the future, that balance of MRO versus new projects is going to shift.”
Distributors that master this change will have a significant opportunity, says Karen Lee, head of marketing applications for Osram Sylvania.
“Electrical distributors have an opportunity to play a much more sophisticated role in the specification process than ever before,” Lee says. “With the emphasis on green building and increasing energy efficiency through the use of more advanced lighting systems, in addition to the increasingly stringent energy codes that must be met, it's more important than ever that distributors keep up with technology and understand the broad range of tools available to meet an end user's objectives for quality lighting that respects a business' bottom line.”
The manufacturers are gearing up to support this more intricate selling process with additional manpower and technical support. “We're adding application and design engineers, and we're doubling our field lighting system engineers,” says Briggs of GE.
There's a Lot to Learn.
Selling LED lighting effectively will require some new investment and lots of training for distributors. There's a lot to learn — not just the rapidly changing technology but the financial story needed to sell it as well as keeping an eye on the influx of new players into the market. The things you need to know are changing by the day. Fortunately, the manufacturers, the DOE, the National Electrical Manufacturers Association (NEMA) and other associations are lining up to provide training and information resources of all kinds.
“Throughout our organization, we're teaching about LEDs, not just our products. The role of the value-added distributor is crucial part of this transformation,” says Eftekhar of Philips.
The sluggish economy might present a perfect opportunity for catching up to this technology of the future, he adds. “Wholesale distribution is aware of LED, but because it's only a small part of their total business, it's not getting attention it should. Grand total, most distributors' LED sales are single-digit, small single-digit. That rate is going to change. In the present depressed economy, this is a good time to differentiate themselves from the non-players in the market. The customer can't go to a home center and get technical information on LEDs. It's going to be inferior to what they could get from the wholesaler.”
This is Going to Happen Fast.
If you aren't already ahead of the curve, you could soon find yourself behind it. It's not just the market driving this thing, the U.S. Department of Energy and all the associations are pushing solid-state lighting with a singular focus, and the continuing emphasis on energy efficiency and environmental responsibility, including energy-efficiency legislation such as the push to ban some incandescent bulbs, add their own fuel to the fires of demand.
“Historically, when there was new lighting technology, companies spent 5-15 years developing it in the basement so they had the product fairly stable and well understood, and can make performance and reliability claims before they go to market,” says Boesenberg of NEMA. “With LEDs, the technology is changing every single day, but they're also already available on the shelf.”
In some ways the economic downturn has helped convince customers to consider an upgrade to more efficient lighting.
“In some areas, we have certainly seen more price sensitivity. At the same time, we find that people are looking harder at the financial health of their business and are looking to make smart investments,” says Lee of Osram Sylvania. “With the energy savings opportunities available with today's most efficient technology, particularly when coupled with a good controls strategy, upgrading lighting systems is a smart investment.”
The stimulus dollars from the American Recovery and Reinvestment Act have also helped drive some sales that might not have happened otherwise. The amount of business it's driving has been smaller than the visibility it receives, said the manufacturers, but the visibility itself may be helping.
“Stimulus funding has led many people to evaluate the efficiency of their buildings,” Lee adds. “The added financial incentive from EPAct 2005 and other utility or government-funded programs has provided a reason to move those projects higher on the priority list. With lighting accounting for over 30 percent of the electricity consumed in a commercial building, it is a natural area of focus.”
Bernie Erickson, president of Facility Solutions Group's O.K. Electric, Perth Amboy, N.J., who has been out ahead of the curve pushing energy retrofits for decades now, has seen quite a bit of stimulus-driven business, but says the sheer paperwork it involves can stretch what would be a two- to three-week job out to two to three months.
Meanwhile, LEDs are Not All there is.
Solid-state lighting is the exciting new technology, but some of the best solutions, even from an energy-efficiency perspective, can be technologies that have been around for years. Manufacturers report that T5 fluorescents and pulse-start ceramic metal-halide lamps are still posting strong growth, and there's more interest in induction fluorescent lighting, especially for particularly inaccessible applications.
Compact fluorescent lamps, the previous star of the energy-efficiency show, are still good solutions, but most manufacturers say they fill a role as a transitional product until LED lamps are ready for replacing standard incandescents after they are banned between 2012 and 2014.