Product specialists are formidable competitors for electrical distributors. The second of two parts.
Editor's Note: This article is excerpted from An Electrical Marketer's Survival Guide, a book and training program to be published soon by Electrical Wholesaling. Part 1 of this article appeared in the magazine's June issue. For information on purchasing this book, call 800-543-7771
Product specialists: Over a dozen distinct types of product specialists exist, concentrating on everything from lighting fixtures, motors, lamps, industrial controls, wire andcable, energy-conservation products, utility products, datacom products, premises-wiring equipment, fuses and electrical insulation materials.
Residential lighting specialists: As much as full-line electrical distributors complain about Home Depot and other home centers, residential lighting specialists have an even bigger battle on their hands with home centers. Walk into virtually any home center and at least half--if not more--of the total square footage of floor space devoted to electrical products is soaked up by residential lighting fixtures. What hurts showrooms even more is that hanging on the walls and ceilings of home centers are some of the premier lines of lighting fixtures and ceiling fans.
Another seemingly perpetual challenge in this market is the problem with knock-offs, where some industry leader comes out with an innovative lighting fixture design, only to be soon followed by an imitation from offshore.
Savvy showrooms compete by concentrating on niche products, such as chandeliers; offering enhanced lighting packages to the new construction market; and working harder than ever to target the high-end residential market, where home centers are still weak.
Landscape lighting has become a popular niche market specialty, but distributors have to persuade customers about the advantages of the higher-grade lightscaping systems over the less-expensive pathway lights sold not only by home centers, but also by Wal-Mart, K-Mart and other retail giants. Future growth in this market would seem to center on getting the word out to a wider audience on four still-growing product areas-dimming systems, accent lighting, security lighting and energy-efficient lamps.
Product focus: Lighting fixtures, lamps and dimming systems for track lighting, downlighting, accent lighting, security, outdoor, landscape lighting in homes.
Primary customers: Homeowners.
Number of locations: An estimated 3,000 lighting showrooms exist in the U.S.
National association: American Lighting Association (ALA), Dallas, Texas, 800-274-4484.
Wire specialists: Wire and cable distributors were perhaps the first of the product specialists in the electrical market. Since this product specialty has been around the longest, it has also evolved the furthest, and in its development, one may see some trends that could occur in other specialty product channels. For instance, the wire and cable channel has produced several of the biggest electrical products distributors, such as Anixter Brothers, Inc., Skokie, Ill., and Houston Wire & Cable, Inc., Houston, Texas. Four new players have emerged in the wire and cable market over the past few years. Three companies built a presence by acquiring smaller wire and cable distributors: Anicom, Inc., Rosemont, Ill., Cable Design Technologies (CDT), Pittsburgh, Pa., and Communications Supply Corp., Stamford, Conn. Fueled by additional funding through its 1996 acquisition by Kent Electronics, Terry Hunt's Futronix Systems Corp., Houston, Texas is also in expansion mode.
Wire and cable specialists have the interesting perspective of being involved in both the more traditional products, like power or control cable, as well as products on the fast-growth track, like datacom wiring.
The bright side of what has been an awful couple of years for wire and cable specialists is this low-voltage end of the business. New wiring standards for datacom have standardized the types of acceptable cable, connectors and related products, which should help out sales for datacom wire and cable specialists.
Product focus: Depends on customer mix. Specialists that sell primarily to other distributors often concentrate on hard-to-find or oddball wire, while companies that go after the end user will have a much broader product mix. Other companies specialize in low-voltage wire and cable for the datacom, telephone, computer, security and signaling markets.
Primary customers: A few companies sell exclusively to other electrical distributors; most sell at least in part to a broad range of end users.
Number of locations: A count of these specialists is tougher to come by than for any other product focus because of a lack of a national association of wire distributors, the economic conditions in the wire industry that have driven some companies out of business, and the number of startups in the fast-growing datacom end of the business. Estimates range from 100 to 200 depending on your definition of a wire specialist (many of these companies do some manufacturing or relabeling).
National association: None.
Lamp specialists: While lamp specialists tend to be small companies with less than 10 employees and about $4 million to $5 million in annual sales, as this segment of the electrical market has matured, some lamp specialists now have multi-branch operations.
For lamp specialists in markets where utility-rebate programs were prevalent, the energy conservation craze was a huge impetus to sales. But since rebate programs died out in most markets, lamp specialists have had to use traditional lamp marketing strategies such as building audits and energy-use comparisons to sell products.
It may surprise some people to find out that many lamp specialists sell a lot more than lamps. It's not uncommon for these companies to sell energy-efficient lighting systems, including ballasts, reflectors and lighting fixtures, too. Like many distributors, lamp specialists are always searching for new growth areas; and as more and more customers upgrade to energy-efficient lighting systems with long-life lamps that don't require replacement as often, the core maintenance business will slow down. What's next for lamp specialists? Some are looking at the residential market, where energy-guzzling A-lamps and PAR lamps still rule the roost. With about 50 or so lamp sockets in each home, there's plenty of opportunity for the sale of more-energy-efficient incandescent lamps and compact fluorescent alternatives.
Product focus: Energy-efficient lamps and specialty lamps, ballasts, reflectors and lighting fixtures and lighting controls.
Primary customers: Retail stores and "Main Street" businesses, commercial and industrial users.
Number of locations: 400-500 companies in the U.S.
National association: About 100 of these companies are members of the National Association of Independent Lighting Distributors (NAILD), Buffalo, N.Y., 716-875-3670.
Datacom specialists: With its double-digit growth forecast stretching well past the year 2000, this market is often mentioned as the hottest growth area in the electrical industry. That's probably true, particularly when one considers how closely other parts of the electrical industry reflect the ups and downs of the construction industry.
No two companies are exactly alike in the datacom arena. The players include large distributors that have been in the market for years like Anixter and Graybar; wire specialists that are part manufacturer; distributors that build small quantities of cable/connector assemblies; regional companies that are subsidiaries or separate business units of full-line electrical distributors; and relatively small companies that go national with toll-free telephone numbers and next-day delivery.
The big news in this market is the move toward unshielded twisted-pair (UTP) and shielded twisted-pair (STP) as the cabling of choice. These cables became more popular because the far-reaching EIA/TIA standards have pushed the datacom industry to settle on a wiring architecture that will make it easier for products from different manufacturers to communicate with each other.
The market closely tracks the growth of fiber-optic cable. As field splicing techniques make it easier to use this high-capacity wiring medium, it will spread into more applications. Today's information needs in the office can usually be handled by unshielded twisted-pair cabling, however; and it will be a while before fiber will reach every desk in the office world.
Product focus: Wire and cable, connectors and other networking equipment for computer, telephone and video installations.
Primary customers: Any building with computer, telephone or video systems. Largest customers include computer-intensive service companies, hospitals, universities and industrial plants.
Number of locations: 100 to 200 companies concentrating solely on this market; over 500 if one counts other large distributors with strong datacom interests, such as Anixter and Graybar.
Service specialists: Another growing channel to market for electrical goods is populated by companies in service businesses--like motor repair, demand-side management or lighting maintenance. In motor repair, for example, as the cost to repair small motors has become prohibitive, the companies that used to fix them switched over to selling them. Now some are also getting into drives and controls, as motor repair becomes a smaller portion of their business. Some energy-service companies are acquiring, stocking and selling the products they recommend in their energy-saving analyses of customers' facilities.
Motor specialists: Motor distributors are now enjoying a windfall as federal minimum-efficiency standards spark demand for new motors, much as lamp laws did for lighting products distributors over the past decade. That's welcome news for motor distributors who as a group are still moving toward motor sales from their roots as repair shops. As it got more expensive to repair motors, customers bought new ones instead; today anything smaller than 15 hp is considered a throwaway. Some of the more progressive motor distributors are selling more than just motors, offering a full line of the latest in energy-saving variable-speed drives and other motor controls, too.
Product focus: Motors, starters, drives and related industrial controls.
Primary customers: Companies of all sizes in the industrial and commercial market.
Number of locations: 3,000-plus.
National association: Electrical Apparatus Service Association (EASA), St. Louis, Mo., 314-993-2220.
High-tech specialists: The technological shockwaves rocking computer hardware manufacturers, where yesterday's breakthrough product is tomorrow's dinosaur, are felt in the close-knit high-tech market, too. Take the programmable logic controller (PLC), the product most responsible for bringing the power of computers to individual manufacturing processes on the factory floor. In little more than a decade, the PLC has gone from the leading edge of technology to a stepchild overshadowed by the brainpower of the custom application software that tell these devices what to do. While this fast-track technology can make the shelf life of a distributor's inventory similar to that of fresh vegetables, it also offers a steady stream of new products for customers eager for any added production edge.
As this market has evolved, so have the purchasing habits of customers, who, to the frustration of distributors, are shopping their quotations for complex packages of products, services and training much more than ever. Years back, this market was known as a haven for 30%-plus gross margins, but in recent years, margins on some projects have hit the levels common in more traditional product markets.
The constant technological innovations in industrial controls shape the product specialties of these companies; in the past few years, some have added expertise in bar coding, as well as motion and positioning products. As with many other product specialists, most of these companies have less than $10 million in sales. Down the road, these distributors are looking for software programming to play an even greater role in the package of services they offer customers.
Product focus: Control products such as PLCs, industrial sensors, variable-speed drives, industrial computers, machine vision systems, bar-coding equipment and related automation products.
Primary customers: Industrials involved in virtually any manufacturing process and original-equipment manufacturers (OEMs), particularly machine-tool builders.
Number of locations: 300 to 350 companies in the U.S.
National association: About 160 of these companies belong to the Association for High Technology Distribution (AHTD), Philadelphia, Pa., 215-564-3484.
Energy-services companies (ESCOs): ESCOs offer the most sophisticated package of design, technical assistance, audit and, in some cases, installation services in the entire energy market. Relatively few of them function as distributors in the same sense as the other product specialist mentioned here, because their primary interest tends to be in design and installation, not in supply. If ESCOs use subcontractors for installations, they often leave the purchasing up to the discretion of these companies. As electrical distributors who have ESCOs in their markets will tell you, however, the ESCOs have a lot to say about what products are used in the installation of systems.
ESCOs have played a significant role in the electrical market for less than 10 years. They started out in markets with big utility-rebate programs, because they helped customers get the most out of them. When ESCOs engage in what is called "performance contracting," they help a customer purchase the products, and the customer then pays them back based on the electrical energy-use savings it gets from these more efficient products.
Public utilities like what they see in the ESCO business, and over the past few years, many utilities have purchased ESCOs to handle the design and installation of energy-efficient electrical systems, potentially forming a new channel to the market competing with the more traditional distributor-contractor relationship.
The electrical distributors with the best grip on the energy market see ESCOs as customers, not competitors, because they provide them with a reliable, full package of energy-efficient electrical products for their design and installation projects. As this channel evolves, though, electrical distributors may see more ESCOs buying direct from manufacturers, particularly with those companies owned by utilities. Utilities often buy direct because they purchase electrical products in huge quantities, and it's possible that they would continue this practice with the products that their ESCOs install.
Product focus: Relatively few ESCOs are interested in stocking equipment, but the ones that do carry inventory for their installations stock the full range of energy-efficient products: energy-efficient lighting fixtures, lamps, reflectors, variable-speed drives and other types of energy-efficient products.
Primary customers: Retail, commercial, industrial, institutional and government facilities.
Number of locations: 100 to 200 companies.
National association: National Association of Energy Service Companies (NAESCO), Washington, D.C., 202-822-0950.
Future channels: Where will the next alternate channels develop? Some industry observers look for new competition from Web-based companies that offer customers 24-hour access and overnight delivery of a basketful of products.
There's probably more potential for increased competition from distributors of other types of industrial or construction products, such as fasteners, industrial supplies and plumbing equipment, that want to expand past their previous market boundaries and get into electrical products.