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Online Distribution Fits Tight Niches

Aug. 23, 2013
Just starting out, BgB Supply is still feeling its way to discover what the market wants and will support. It plans to continue building its product offering to include anything that touches or goes inside a control panel.

The disintermediation of distribution that once was foretold by doomsayers in the electrical distribution industry, back in the early days of the Internet, has not yet come to pass, though recent moves by Amazon.com and Google are raising some of those old concerns. Meanwhile, the cost-efficiencies of electronic commerce are making it possible for startups to mine niches of the market that couldn’t be served as well with older business models. Some creative thinkers see opportunity in serving customers that traditional electrical distributors might be glad to lose.

One example of this approach appeared this spring in a sort of “soft launch” and only this week decided it was time to make some noise. BgB Panel Supply, bgbsupply.com, is an online distributor of a closely cropped assortment of electrical equipment, all geared to electrical control panels and the equipment and accessories that go along with them. BgB stands for “Beyond the Gray Box.”

Based in Omaha, Neb., BgB Supply has a business plan focused on taking care of smaller panel shops that tend to be seen as money-losing accounts among traditional full-line distributors.

Matt Howe, BgB Supply’s e-commerce manager and one of its founders, saw the potential for an online source of panel components from his days in traditional electrical distribution. Howe came from a background in the industrial end of the electrical market, having worked at industrial-oriented Consolidated Electrical Distributors (CED) locations such as Rensenhouse Electric Supply, Kansas City, Mo.

During that time Howe saw that even those customers who were very devoted to their preferred distributors would buy about 85% of their purchases there. The other 15% or so of their equipment was bought from non-traditional sources for various reasons. There are also small panel shops in rural areas that may have to drive two hours to reach their preferred distributors and can benefit from getting part of their needs taken care of online and delivered. Those are the pockets BgB is going after.

“Anyone who’s doing just a couple-thousand dollars a year (in purchases from a traditional distributor) — when you think of the cost of serving that customer, it’s expensive. Some call them ‘BSL’s — blood-sucking losers — and we thought maybe there’s a way to soak up the ‘C’ customers distributors don’t really want to do business with anyway,” Howe said.  “If we can take these customers away from traditional distribution, then the distributor is not really doing a very good job for those customers.”

Howe said BgB has been careful to heed the traditions of electrical distribution in setting up its vendors and pricing. The BgB site features some high-profile electrical brands, including Rittal, SolaHD, Cooper B-Line, Hubbell Wiring Devices, Micron, Cutler-Hammer, Klein Tools, Thomas & Betts, Mersen, Ideal, BICC, Arlington and Panduit. With each of its major lines, BgB has set up direct relationships, buying from the factory or its authorized rep agencies, Howe said.

All of the manufacturers he approached were very protective of their distribution channels and at the same time saw the value of having an ally going after smaller customers. “The scary part for most of these people is to think about eroding margins and battles over price,” Howe said. “With a premium manufacturer line, they have rules in place where you can’t sell below a certain cost. So you’ll see our prices are close to list. We err on the side of caution with pricing — we’re not going to drop our pants and drive down the market price, that makes absolutely no sense.”

Just starting out, BgB Supply is still feeling its way to discover what the market wants and will support. It plans to continue building its product offering to include anything that touches or goes inside a control panel, but Howe doesn’t expect BgB to ever get into commodity lines where traditional distribution has distinct advantages.

Working from a small Omaha warehouse with a staff of nine people (website development is outsourced), BgB Supply is concentrating its initial marketing on the surrounding region where it can guarantee next-day delivery. The initial push is a combination of direct marketing, Google AdWords and search engine optimization, referrals from vendors and building viral buzz through existing customers’ social networks.

Serving this market of small, far-flung panel shops requires careful attention to detail to keep from losing margin on each account, so extensive use of drop-shipping and having customers pay by credit card are important parts of the plan, Howe said.

More important, as an e-commerce-based operation, the company is focused intently on building out its e-commerce capabilities with robust and detailed product data, a challenge any distributor with e-commerce aspirations can identify with. BgB Supply draws manufacturer product data from both Trade Service Corp. and IDEA, but Howe finds the e-commerce content frustratingly thin. Building out that data to make it easier for customers to find exactly what they want is the biggest challenge immediately ahead for BgB Supply.