This is a part of the 2016 Distribution Trends Special Issue. The annual feature was researched and written by MDM based on interviews with dozens of distributors, industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this issue.
2016 Distribution Trends Special Issue
The electrical sector shows mixed results. A handful of companies are doing well, including Sonepar North America, again the No. 1 distributor on this year's Market Leaders list after 2015 revenue of $9.6 billion, a 12.9 percent increase. Others were flat. Average revenue growth for the Top 25 electrical distributors was 3.4 percent.
The rankings at the top of the list shifted, with Anixter International Inc. falling to sixth from third due to the sale of its fasteners division. Certain geographies performed better than others, especially those with more aerospace and technology exposure – the Northeast, West and Midwest – while those with oil & gas exposure – the South and Canada – showed weakness. "The market has changed to a patchwork economy," says David Gordon, Channel Marketing Group.
Consolidation is on everyone's minds, whether they are buying or selling. Electrical distributors are keeping an eye on how consolidation will play out in the coming years and how they can best position themselves to buy or sell. Sonepar North America made 10 acquisitions in 2015, and CEO Dave Gabriel explained at the National Association of Electrical Distributors' national conference how M&A is such a critical component in today's slow-growth environment. "Execution on organic (growth) is extraordinarily important to all of us, and then selective targets on the acquisition side is even more important," he said.
While plenty of deals occurred in electrical distribution last year, none moved the needle as much as Anixter International Inc.'s $825 million purchase of the HD Supply's Power Solutions division, which gave Anixter added depth and breadth in its electrical and electronic wire & cable business.
Despite all the consolidation taking place, Gabriel understands that it remains a fragmented industry and that entrepreneurs will continue to break off and start their own distributorships, furthering an S-curve for the industry. "I don't see a world that comes down to a few (companies)," he says
Talent acquisition remains an uphill battle for most companies. Distributors remain concerned about the growing generation gap as they lose retiring employees without qualified replacements behind them. "There's not a lot of youth coming into the industry and those that do come in have a different mindset than the baby boomers do," says Prudence Thompson, Egret Consulting. "They're staying in their jobs for two or three years maximum … whereas the baby boomers would stay for 30 or 40 years in one company and retire there. Those folks are starting to leave and it's causing a deficit, and the folks that are filling in the gaps have a different way of looking at their work life."
Thompson says companies must take a different approach to talent management. Not only should they be fully immersed in college programs by providing financial and curriculum support, but once they land recruits they must challenge them with ample training opportunities that allow them to move up based on merit and not just the old method of "You do your time and then you get promoted," she says. "You have to cross-train them so they can move from operations to sales to finance to logistics, so you're offering those opportunities internally. That approach helps address millennials' itch for change."
- Companies must focus on their value proposition in their market "to get the growth they want," Gordon says.
- "Lighting is going to become a connectivity and data collection tool. What business model does that create for a distributor?" Gordon says.
- The rate of change in technology is advancing faster than most distributors can handle, but they need to be ahead of the curve to remain competitive. "The advancement of technology in our space has done more probably in the last six months than it had done in the previous 20 years," Says Mike Connors, CEO, Bulbs.com. "That makes it really exciting to see how the product technology is changing, how the user experience now is different."
Merger & Acquisition highlights in 2015:
Anixter International Inc. paid $825 million for HD Supply's Power Solutions division.
While Sonepar didn't make any acquisitions as splashy as it did in 2014 with the purchase of Industrial Distribution Group, the company did buy 10 companies last year, including Rexel's Latin American operations.
WESCO International Inc. acquired electrical distributor Needham Electric Supply and Hill Country Electric Supply.
Graybar acquired Advantage Industrial Automation.
Average growth for companies on the Electrical Market Leaders list: 3.4%