While many of the respondents to Electrical Wholesaling’s annual ElectroForecast survey dared to dream of a year of single-digit sales increases in 2004, concerns over a shrinking industrial base were on their minds, too.
Most respondents saw sales growth of up to 5 percent in 2004; several of the more bullish reps, manufacturers and distributors think they can achieve sales gains of 6 percent to 9 percent. They were most optimistic about sales potential in the residential, educational, government and institutional market segments and decidedly less excited about the sales prospects for the industrial and OEM market segments.
Any rep, distributor or manufacturer who had anything to do with the industrial market had concerns about low sales demand and the flight of factories to China and other less-expensive manufacturing locations.
Said one rep, “Manufacturing has moved south of the border or to the Pacific Rim. This will make it very difficult for the industrial sector to come back. There are too many lost jobs, and the people that do come back to work are making less money than they were before.”
Another rep said one of his biggest challenges was finding new business to replace what was lost due to manufacturers moving out of his market area. “The continuing loss of manufacturing to China and Mexico is shrinking our OEM and MRO segments.”
Yet a surprising number of respondents didn’t see any economic danger signals for 2004. However, one common concern was the lack of inventory carried by manufacturers and distributors.
“Any spike will create shortages,” said Jim Amey, principal, Robert A. Amey Inc., Portland, Ore. “Inventories are very low.”
“The supply pipeline is empty beyond the ability to accommodate a 5 percent business increase,” agreed another rep.
Christopher Hartmann, president of Thomas and Betts’ electrical division, Memphis, Tenn., echoed the opinion of many respondents, saying the economy is on solid footing for modest growth in 2004. “The only significant risk on a macro level would be another major geopolitical or socioeconomic event such as a terrorist act or scandal in the financial markets,” said Hartmann.
Survey respondents had many different opinions on consolidation’s impact on their companies. A few distributors and reps said it would not affect their companies at all, while some said even though national or large regional distributors already owned most of the key locations in town, consolidation would continue. Others are in active acquisition mode and plan to use consolidation to grow their businesses. Generally, respondents didn’t think 2004 would be a particularly active year for consolidation.
Said T&B’s Hartmann, “Industry consolidation will not heat up again until 2005 and will not have a major impact on the market or our company in 2004.”
From the reps’ perspective, consolidation affects the lines they carry and the vendors that distributors can stock. “We see more of this, and it really has had a dramatic impact on reps,” said Thom Hiemer, MWE Inc., North Kansas City, Mo. “We all work hard to grow a particular line, and then it consolidates with another manufacturer. Who the rep winner is will always be an extensive debate.”
However, the tone of most respondents reflected a certain inevitability that consolidation would continue in the future. Said Bob Powell, principal, Kunz Powell and Associates, Malvern, Pa., “It is a fact of life. We cannot control it, and we must keep options open so it does not consume us.”
Special Pricing Authorizations (SPAs) also frustrate survey respondents. Several respondents said the industry needed a standard for SPAs and a method of transmitting them electronically and were in favor of net pricing.
“This issue continues to consume too much time and energy,” said Duff Greenwood, principal, Cleaves-Bessmer-Marietti Inc., Kansas City. “Manufacturers need to apply resources to get a better handle on the competitive levels in each territory and provide appropriate prices, products or services to meet the situation. Distributors need to spend more on education and training of their personnel to develop a professional, knowledgeable sales force that adds value and increases profit margins.
Added one manufacturer, “SPAs will never go away under current channel models. The industry could cut down on the time spent on SPAs if manufacturers did a better job of setting published prices and pricing policies, and distributors did more proactive selling and demand creation on things other than price.”
When asked what the electrical industry could do to cut down on the amount of time distributors and manufacturers spend on SPAs, one distributor said succinctly, “Net pricing. Go electronic.” Jim Lucy, EW