This is a part of the 2015 Distribution Trends Special Issue. The annual feature was researched and written by MDM editors based on interviews with dozens of distributors, as well as industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this issue.
2015 Distribution Trends Special Issue
The shortness of the "bench" is dire in the electrical sector. Distributors are having trouble competing for technical and sales talent; many lamented their ability to compete against companies such as Apple, Google, Facebook and LinkedIn. On top of that, a capex boom across the U.S. is draining the available pool of electricians, a trend that could wind up delaying projects and negatively affecting distributors, says David Gordon principal, Channel Marketing Group. Gordon heard a contractor at an NAED panel say that he needs 20 to 30 percent more electricians for work the company has in the pipeline. "Even as much as manufacturers come out with labor-saving products, you still need people to do certain things," Gordon says. "So that could be a big issue."
More LED manufacturers are selling direct or through different channels. Electrical distributors hoping to tap into the growing LED market are finding stiff competition."I’ve seen LED manufacturers sell through foodservice distributors, through petroleum distributors, through medical suppliers," Gordon says. "So the market has become much more fragmented, and there’s many more channels to market." That's not the only trend in LED – a "transformation is going on in that business," because of the "continued merging of the plant floor with the IT systems," says Scott Sellers, executive vice president, operations, McNaughton-McKay Electric Co., Madison Heights, MI.
Smaller companies know they must have a robust e-commerce presence but are still daunted by the cost barrier to entry. "Getting really clean data and then getting a functional Web store that can compete with the big guys," are chief concerns for Burt Schraga, CEO, Bell Electrical Supply, Santa Clara, CA. He says a decent e-commerce platform starts at about $125,000, but he figures he'll need to spend much more to ensure it does what his customers want from it. "They not only want to place an order, they want to check on their back orders, they want to know pricing, they like to look at their accounts payable, perhaps just go in and cost a job out and save it as a quote, and then turn a quote into an order. You better have a solution and you better do it pretty soon."
Sonepar continues to lead the sector's consolidation, but electrical remains fragmented. Sonepar's purchase of Industrial Distribution Group last year resonated throughout the industry as the electrical distributor expanded its reach into the integrated supply and MRO space. Other distributors were active with strategic acquisitions, and private equity continues to eye financial assets in the well-performing sector. But electrical remains fairly fragmented, with Gordon citing the large number of "lifestyle businesses in the industry" that have little interest in selling. "These are one-, two-, three-, four-location distributors that are happy servicing their marketplace," he says. "There’s nothing wrong with them. And the costs for those big companies to make the small acquisitions is significant from a percentage viewpoint."
Merger & Acquisition highlights in 2014:
Sonepar continued its acquisitive streak, completing dozens of acquisitions globally, including Industrial Distribution Group, No. 22 on the 2014 Top Industrial Distributors list. Other North American acquisitions included: IESA in Costa Rica; Melexa in Colombia; Platinum Electric, Streamwood, IL; and Dixon Electric and MGM Electric Limited in Ontario.
Average growth for companies on the Electrical Market Leaders list: 7.8%