With sales soaring and acquisitions at an all-time high, the electrical industry's largest distributors grabbed an even bigger piece of the electrical market.
Five themes played out throughout the responses received for this year's Top 200 listing: growth; industry consolidation; concerns about the cost of copper and other base metals; attracting, training and keeping good people; and the 2008 economic outlook.
Last year was a banner year for electrical distributors who made this year's Top 200 listing, as sales for the group as a whole increased 14.9 percent to $51.7 billion. This followed the increase for Top 200 distributors of 15.1 percent in 2005 and 14.9 percent in 2004.
The top five reasons for 2006 sales increases were, in descending order, a good business climate, market share increases, price spikes, internal growth or operating strategies and acquisitions. Many companies increased their sales by taking market share from competitors, and others said they grew through acquisition or starting up new branches. Steve Bellwoar, president, Colonial Electric Supply, King of Prussia, Pa., said his company continues to post double-digit increases with a multi-faceted growth strategy.
“We are moving forward on a plan to increase our sales by 10 percent per year for 10 years straight,” he said. “We have achieved this every year through acquisitions, adding people and start-ups.”
With sales up, many Top 200 electrical distributors reinvested in their businesses. At American Electric Supply Inc., Corona, Calif., Mike Pratt, president, redesigned the company's warehouse operation to increase efficiency. “We installed the ‘Route View’ system to manage our truck fleet and saved considerable operational dollars,” he said.
Schaedler Yesco Distribution Inc., Harrisburg, Pa., invested in a new corporate headquarters and a new branch. Matt Brnik, the company's president, was busy opening a new branch in conjunction with a plumbing/HVAC distributor and a PVF distributor, and relocating the company's central distribution center and corporate headquarters into a totally remodeled 150,000-square-foot facility.
At least one electrical distributor made an aggressive move into the energy market. Dickman Supply Inc., Sydney, Ohio, added an EPAct specialist to help customers earn tax incentives with lighting upgrades. John Maltby, president, Maltby Electric Co. Inc., San Francisco, also saw growth in the energy market and said the construction of wind farms and commercial solar installations were a big boost to his company's sales in 2006.
Many electrical distributors have invested in new computer systems, but none on so large a scale as Graybar Electric Co., St. Louis. The company installed an SAP system several years ago, and that system paid dividends in 2006, according to Richard Offenbacher, the company's senior vice president of sales and marketing. “The recently implemented ERP system is generating increased productivity and allowing for quicker reactions to market conditions,” he said.
The industry's largest electrical distributors are gunning for big-time growth in 2007, too. According to respondents for Electrical Wholesaling's annual survey for the Top 200 listing, the economic party is not quite over in the electrical market. Many respondents were surprisingly bullish about their sales prospects for 2007. Of the respondents who offered a sales projection in the online survey, 35 percent forecast a sales increase of 10 percent to 15 percent, and approximately one-quarter expect their sales to increase 6 percent to 9 percent. Six respondents said their sales would increase by 16 percent or more. While you must factor in several percentage points of price inflation due to the continued cost increases in copper, steel and other base materials, as a whole electrical distributors expect a strong 2007 (Check out the chart on page 32 to get a sense of what Top 200 distributors are thinking about increases in copper price for 2007.)
Several respondents with sales increases in the 10 percent range said half their sales increases were related to the surge in copper prices, and the other half came from real growth. While the Top 200 survey did not ask respondents for their 2008 forecasts, most industry observers are expecting a cyclical decrease in market conditions.
Despite the good economic news, electrical distributors apparently have plenty of worries keeping them up at night. When asked about the biggest threat to their profitability over the next five years, their concerns included a softening economy, the increasing cost of health care, attracting, training and keeping good employees, new foreign or private-labeled products and declining margins.
American Electric Supply's Mike Pratt has seen more end users willing to use generic products. “The contractor has become more willing to move away from the major brands on many products and has shown an interest to purchase off-shore products,” he said.
Down the road, he is looking at an all radio-frequency warehouse and wants to revamp his company's benefit package to keep employees more engaged in their jobs. In addition to increasing traditional benefits such as insurance and profit sharing, he is exploring training focused not only on products, but also on outside interests such as health and fitness, and adding benefits such as fitness boot camps and chair massage services.
At Electrical Equipment Co., Raleigh, N.C., T. Jackson Lawson, president and CEO, said, “The same puzzle always exists: ensuring that we understand what customers really want (what they perceive as adding value) and that we focus our resources on those things that add that value.”
To provide better service to its customers during 2006, Electrical Equipment Co. improved inventory control systems, and began a redesign of all logistics systems. The company also added a human resources department last year to help manage its most important resource: its people. Lawson says finding, training and retaining the best personnel is a challenge. It's even tougher with the escalating costs in health care and the fact that significant growth is necessary just to cover those increasing costs, he said.
Several distributors said foolish competitors cutting prices were their biggest worry. But more than one respondent said electrical distributors need to look in the mirror more often. When asked about the biggest threat to his company's profitability over the next five years, George Adams Jr., president, Electrical Supply Inc., Tampa, Fla., simply responded, “Ourselves.”
This year's Top 200 listing will show a big shift in sales dollars due to acquisitions. According to Electrical Wholesaling estimates, more than $5 billion in sales dollars (6.3 percent of total industry sales) changed hands in 2006, led by the purchases of GE Supply, Shelton, Conn.; Communications Supply Corp., Carol Stream, Ill.; Hughes Supply, Orlando; CLS, Hartford, Conn.; Electrical Wholesalers Inc., Hartford; and Edson Electric Supply, Phoenix. These companies were acquired by Rexel Inc., Dallas; WESCO Distribution Inc., Pittsburgh; US Electrical Services Inc., Exton, Pa.; and Home Depot Supply, Atlanta, respectively.
In total, 12 electrical distributors from the 2006 EW Top 200 were acquired last year. Rexel's acquisitions helped propel it the top spot on this year's listing, a position held by WESCO for a year. Graybar was for years the largest electrical distributor in the United States. It's now the third largest electrical distributor with $4.78 billion in domestic sales and $5.03 billion in total sales. The company's 31 locations outside the United States produced $250 million in revenue last year.
While the electrical wholesaling industry is consolidating, the market's largest distributors have a fairly small market share compared to other distribution-based industries. With an estimated $21 billion in combined 2006 North American sales, the five largest full-electrical distributors — Rexel; WESCO; Graybar; Consolidated Electrical Distributors, Westlake Village, Calif.; and Sonepar USA, Philadelphia, — account for 25.4 percent of total industry sales. The combined market share of these firms is expected to increase significantly in the near future. But according to Electrical Wholesaling's estimates for total industry sales, nearly 75 percent of the market is still accounted for by smaller full-line electrical distributors and product specialists. In less fragmented distribution markets such as the electronics components and pharmaceutical markets, four or five distributors account for up to 80 percent of total sales. Top 200 electrical distributors account for an estimated 61 percent of the electrical industry's $84.4 billion in 2007 sales, as reported in Electrical Wholesaling's 2007 Market Planning Guide (November 2006 issue, page 22).
By the numbers
The Top 200 distributors that provided figures for number of employees and locations (or where we could provide a solid estimate) employ at least 74,766 employees at 5,273 locations. At least 29 of these companies are product specialists, including 11 utility specialists, eight wire and cable specialists and six lighting or lamp specialists. For the 139 electrical distributors that provided both annual sales and an employee count, sales-per-employee were $640,910, up from $593,506 in 2005.
To place a firm on the list, Electrical Wholesaling magazine sent approximately 400 surveys via e-mail and mail to electrical distributors believed to have annual sales in excess of $20 million. The survey list was compiled from contact data from previous Top 200 listings and Dun and Bradstreet's “Million Dollar Database.”
Top 200 distributors are ranked by sales volume insofar as possible. If an electrical distributor does not provide sales data, we estimate a company's size for placement in the listing based on our own data, Dun &Bradstreet, www.hoovers.com, annual reports, company Web sites and publications and other publicly available databases.
When responding to the survey, distributors have the option of providing data on a confidential basis. We then use that data to accurately place a firm on the list, but we do not print the sales number. When we use our own estimates or other data, we do not print a sales number.
Of the electrical distributors ranked, approximately 70 percent supplied sales data or provided it confidentially. Although a majority of distributors recognize the prestige that comes with making the list, some electrical distributors prefer to keep their numbers — and their business practices — private. The editors of Electrical Wholesaling respect their privacy, but to make the list as complete and accurate as possible, we must resort to estimating sales for placement in the listing.
The listing includes both full-line electrical distributors and product specialists, because the magazine's editors believe full-liners and specialists both play an equally important role in supplying end users with electrical products. The survey form asks respondents to identify themselves as specialists if the majority of their sales are in a specific product areas such as wire and cable, lighting or utility products.
Top 200 Electrical Distributors Acquired in 2006
2006 will go down in the electrical industry's history books as one of the most active acquisition years ever. Electrical Wholesaling's editors estimate that the 12 Top 200 companies acquired in 2006 had a combined total of more than $5 billion in annual sales in 2005. That's approximately seven percent of all industry sales for that year.
|Company||2005 Electrical Sales||Purchaser|
|GE Supply Inc., Shelton, Conn.||$2.5 billion||Rexel|
|Hughes Supply Inc./Electrical Division||$1.41 billion||HD Supply|
|Communications Supply Corp., Carol Stream, Pa.||$510 million||WESCO|
|CLS, Hartford, Conn.||$235 million||Rexel|
|Electrical Wholesalers, Hartford, Conn.||$150 million||US Electrical Services|
|Edson Electric Supply, Phoenix||$137 million||HD Supply|
|Friedman Electric Supply Co., Exeter, Pa.||NA||Sonepar|
|DH Supply Co., Atlanta||$70.5 million||Rexel|
|Calvert Wire & Cable, Brook Park, Ill.||NA||Communications Supply Corp.|
|Wiedenbach-Brown, New Rochelle, N.Y.||NA||US Electrical Services|
|Monarch Electric Co., West Caldwell, N.J.||NA||US Electrical Services|
|Boggis-Johnson Electric Co., Milwaukee||NA||Sonepar|
|2005 estimated sales of Top 200 acquisitions||$5.3 billion|