Electrical Wholesaling’s 2010 Forecast Calls for Minimal Market Growth Next Year

Nov. 6, 2009
Battered, bruised and at times a bit dazed, the electrical industry has almost made it through 2009’s house of horrors

Battered, bruised and at times a bit dazed, the electrical industry has almost made it through 2009’s house of horrors. It’s been a year of record sales declines, round after round of layoffs and market turmoil the likes of which the industry greybeards have never seen. It will all be something you can tell your grandkids about if they come into the family business — or never, ever tell them if you want them to stay with the company or sleep through the night.

However, it now feels like the electrical market has found or is near a bottom and that business will start creeping back to respectability within the next two quarters. Sales of electrical products through electrical distributors will increase by approximately $2.2 billion next year. This forecast puts U.S. sales for 2010 at $77.5 billion, a 2.9-percent increase from EW’s 2009 estimate of $75.3 billion, (a level of sales last seen in 2005). That 2009 sales figure is a 14.4 percent drop from 2008, one of the largest one-year decreases in industry history.

Our gut feel at EW is that the 2.9-percent increase for 2010 may be a wee bit optimistic. That percentage may have something to do with the methodology we have used since the late 1970s to produce this survey. The percentage we offer for the rate of change in sales through electrical distributors between 2009 and 2010 is actually the mean (average) of all the responses rolled together. This year that number seems to have gotten pulled upward by a handful of surprisingly optimistic (or downright whacko) respondents who said their sales would improve in the high double-digits. The largest cluster of respondents said they thought their business would stay the same as 2009, a sobering thought considering what EW’s readers have just been through, but at least a bit more realistic.

Our forecasts are based upon responses to EW’s annual Market Planning Guide (MPG) survey. Each year, the magazine asks electrical distributors for their previous year’s final sales results, sales predictions for the current year, and predictions for the following year. It also asks respondents how sales for the first six months of the current year compared with the first six months of the previous year. This year, EW mailed 3,050 surveys (both by mail and via e-mail) and received 271 usable surveys for a 5.9 percent response rate (an excellent rate by any survey standards). Respondents reported an average sales-per-employee number of $554,269 for 2008, close to the $541,872 respondents reported last year for 2007 but much lower than the $644,684 average sales per employee in this year’s Top 200.

A basic forecast you can use for your cocktail party conversations over the next few month is this: The market will bottom out by mid-2010 and conditions will improve market-by-market with the Midwest leading the country out of recession, followed by individual states and MSAs that didn’t fall as far in the recession. The last regions to recover will be those that crashed hardest because of loose residential lending and speculative real estate markets — Florida, Phoenix, Southern California and Las Vegas.

Before the downturn, these four areas were among the fastest-growing in the United States, and by many measures supported a huge amount of the national economy’s growth during the past decade. The big question is how fast these regional markets will rebound, and if or when they will hit their previous growth rates.

Each area has its own unique challenges. Florida actually lost population for the first time since World War II. Southern California has a massive diversified economy, but one wonders if the high cost of living will eventually price too many people out of the market. Las Vegas and Phoenix grew throughout several boom-and-bust cycles over the past decade, but many economists believe they must diversify their economies to withstand the next economic shock. — Jim Lucy