Watch for wireless communications, photovoltaics and online purchasing to change the business in the next few years.
Every once in a while, an idea or invention truly revolutionizes how we live, work and play. Videocassette recorders, cell phones, fax machines and the Web had this impact on us over the past 10 to 15 years.
Some things are on the horizon that could have a similar impact on the industry. Although they have all been around for a while in some form or another and haven't yet blossomed into the "next big thing," they are coming, and they're all worth tracking closely. Here are my votes for three trends that could shake the industry:
Wireless systems revolutionize communications. Wireless communication between cell phones, computers and industrial devices is becoming a reality, thanks to Bluetooth technology, which provides short-range wireless connectivity between devices. A recent Allied Business Intelligence report says that although Bluetooth is now most widely used in the cellular phone business, manufacturers of computers, consumer electronics and industrial equipment plan to embed Bluetooth receivers in their products. For electrical distributors into the industrial automation market, think about how wireless communication between industrial controls on the factory floor will change the product mix they stock and sell, and the new training their customers will need to install these systems.
The price of photovoltaic cells finally makes solar energy cost-competitive with conventional forms of power production. Producing electricity from the sun's rays hasn't yet been commercially viable on a large scale because of the high cost of manufacturing solar cells. According to Allied Business Intelligence, Oyster Bay, N.Y., two technologies that could make solar power directly competitive with grid power are organic dye stabilized with titanium-dioxide and polymer photovoltaics. This research firm forecasts that worldwide production of photovoltaic power will increase from 300 MW this year to 800MW in 2005. As this market matures, your customers will see new business from wiring solar panels to existing power grids, as well as from homeowners who want to "live off the grid" and businesses that see photovoltaic power as a backup source of energy. A handful of electrical distributors in areas where photovoltaic power is common already focus on this market niche.
Online ordering becomes a more important - but not dominant - piece of the purchasing puzzle. Manufacturers, distributors and Web firms have spent millions of dollars constructing Web sites to entice contractors to buy online. According to a recent New York Times article, W.W. Grainger Inc., Lincolnshire, Ill., will invest $120 million this year in its portals and expects to take in $400 million from its Web ventures by year-end.
The growth hasn't come easy. Grainger had to reengineer its core www.grainger.com portal by adding additional features such as pop-up lists of a customer's commonly ordered supplies, and the company swapped its www.orderzone.com site and $21 million for a 40% equity stake in Works.com, Austin, Texas, which services the office equipment and maintenance supply needs of small businesses. To date, about 6% of Grainger's total sales come over the Web.
For all the millions spent on developing online portals, they probably don't account for 10% of all electrical products purchased, and some industry observers wonder if this number will ever hit 20%. From our best estimates in the Intertec Electrical Group, 75% to 80% of electrical products are still purchased through electrical distributors.
One reason for the slow acceptance of online portals is that suppliers often build them because they make their lives easier by slashing the paperwork and order processing costs of traditional purchasing methods - not because customers are demanding to buy online. It seems that most end users have an "if it isn't broke, don't fix it" attitude in regard to their purchasing habits.
Storefront shopping mechanisms bring customers just a few clicks away from a purchase, and with credible online merchants, the transactions are secure. But your customers will still look to buy from their most dependable electrical distributors as long as they offer the personal touch and local stock. That will be tough to top for even the most savvy online merchants.