Europe's endurance

Enjoy your sixth straight year of overall market growth. Things are not quite so bright for your peers across the puddle, where pessimism prevails.

The weakness of virtually all the European economies and the apparent inability of separate governments or the Economic Community to do anything about the situation were the twin preoccupations of most of the delegates attending the 42nd General Assembly of the European Union of Electrical Wholesalers (EUEW) in Rome, Italy.

National federation members from 13 countries, plus representatives from manufacturers and marketing groups-more than 200 attendees in all-were virtually unanimous in their unrelieved pessimism. Over the three-day meeting, rarely was heard an encouraging word.

Opening the proceedings, EUEW outgoing President Hans-Valentin Klein of Germany stated: "In most of our member countries, a decidedly weak economic situation prevails. This is due in part to rigorous fiscal measures that have been taken by most countries in order to meet the criteria for participation in the European Monetary Union. High unemployment necessitates increased social expenditures by government, which leads to higher taxes and a decrease in public purchasing power.

"With regard to electrical wholesaling in particular, this combination of events has had a devastating effect on our sales volume, leading to cutthroat competition in which too many products are being marketed that increase sales without generating any profit. The only way to combat this is to realize savings internally through optimization of work processes, improvement of quality and marketing of innovative, high-profit products."

The total sales volume growth for the EUEW declined markedly from an 8% increase last year to only a 4.25% increase this year, amounting to about $31.8 billion. Gross margins slipped 0.4% to 21.6%. In an overview of the composite EUEW picture, the group's executive secretary, Carl Hermans of Belgium, said, "The macroeconomic environment of Europe has not improved. The gross domestic product increase rate of most of our countries continues to fall; last year for our member countries there was a 2% GDP increase, while this year it dropped to 1.55%. The only good news seems to be that salary levels have decreased in many countries. An interesting statistic to note relative to the evolution of our industry is the fact that in 1992 domestic appliances still represented 16% of our business, while now it is down to 8%."

Reports given by the various national secretaries were similarly morose in tone and substance. A sampling follows:

Belgium. With unemployment running at a rate of 15% of the active population (18-65 years of age), and a national debt that is 20% of the GDP, there is little reason for optimism. Continuing tight economic conditions have resulted in a fallout in the independent electrical wholesaling ranks, with consolidations taking place and incursions being made in some cases by multinational chains. This combination of events has resulted in many distributors attempting to maintain market share at any cost, resulting in a weakened, price-driven environment.

United Kingdom. The market is generally flat with national inflation running at 2.7%, and that of the electrical industry at minus 0.6%, according to the country's federation executive secretary, Nigel Ellis. This has led to great pressure being exerted on the margins of both manufacturers and distributors. The situation has been caused largely by low cable and lamp prices and an increase in cheap imports from the Orient.

Bryan Barkes, a member of the U.K. delegation and a past president of EUEW, said, "The market penetration of imported wiring accessories in the U.K. has gone up over the last five years from 10% to nearly 30%. Metal conduit fittings now have 20% of the market. Even more alarming is that compact-fluorescent-lamp imports increased by 100% in 1995 and 500% in 1996. Imports of PIR tungsten halogen floodlights have wiped out our own manufacturers. The routes to market are totally accessible to all importers, and European law partially outlaws tight manufacturer specifications, so cheapest often wins."

Germany. This, the largest national member country in EUEW, continues to be plagued by the spiraling costs and unforeseen complications related to the reunification of the nation at the beginning of the decade. The economy of the eastern sector remains a drain on the nation as a whole, and the electrical industry is faced with shrinking margins, a low level of construction activity and an increase in salary levels as well.

Portugal. The general feeling is that there are too many very small electrical wholesaling companies in the marketplace, which nevertheless have access to manufacturers, making for extremely severe competition. In response, seven independent regional wholesalers have formed a marketing/buying group.

Switzerland. Electrical wholesalers have seen a serious drop-off in business to the tune of 3.3%. Contractors, who represent 70% of the customer mix of the Swiss electrical wholesaler, are suffering the highest unemployment rate in years due to the slowdown in construction. The distribution industry is depending moreand more on export business to maintain itself.

Sweden. After six years of a declining economy, including in early 1997 the lowest billing activity levels since 1945, the country in general and the electrical wholesaling sector is experiencing a modest upturn. Export business, including telecommunications products, is picking up. Federation Executive Secretary Hans Lofgren, remarked with cautious irony, "We haven't seen the light at the end of the tunnel yet, but at least we know we're in the tunnel."