Recent Acquisition Thoughts

The last couple of weeks we've seen a couple of transactions that could be interesting:

• First is yesterday's announcement that Hajoca, the sister company of CED, acquired HD Supply's plumbing and HVAC group.  It wasn't much of a surprise that HD divested of the plumbing group.  Their "contractor" groups have underperformed since HD was created as an amalgamation of acquisitions. And bringing in someone from Ferguson to run it was a signal. It begs the question of "when will HD Supply sell its electrical group?"  They did sell their Canadian electrical group to Sonepar.In thinking of potential acquirers that make sense ... there could be some synergies for Sonepar (as well as some new territory expansion); CED given that Hajoca knows the right people and CED is always an acquirer at the right price; Rexel ????.  It doesn't make sense for HD Supply to sell the parts piecemeal (too many legal expenses).  We wouldn't be surprised to see something happen this year as the outlook for resi / commercial construction remains dismal.

• Secondly, Cree purchasing Ruud Lighting, which also sells to distributors under the BetaLED name.  Interesting that Cree is expanding into the fixture business.  Gives them 2 sets of reps selling LEDs, at least for now, and a business that is known for selling direct to contractors (Ruud). Will this put any more pressure on the major lighting companies to expand their LED offerings? Does Cree think it can accelerate LED sales? Is the fixture business more profitable than being an OEM supplier? Or did Cree think that competition for the LEDs is increasing and it needed its own fixture manufacturer to ensure its business?  With other electronics companies entering the LED space, are there more OEMs out there?  Click here for an interesting interview with Cree and Ruud but the question of "how will this impact the distribution side of your business" wasn't asked.  As a distributor, would you prefer to purchase from a BetaLED, owned by Cree, or purchase from one of the leading fixture manufacturers (Cooper, Lithonia, Philips Lumieres (Thomas Lighting, Lightolier, etc), Juno) or is the name of the game "value-engineering"?

And according to sources, we should expect more distributor and manufacturer acquisitions by the end of the year as there is a drive for market share and diversification at the right price.  As the market is changing, are you having "what if" sessions within your company?  What do you think of these acquisitions?

End Run on Distribution?

Recently the big buzz at Lightfair was about a "New Technology" named LED. LED's have been around for a while...distribution has struggled to gain some traction. But there is an end-run brewing in the retail world. It is a little early to be talking about football, but there are some plans that retail has up their sleeves to sell a few LED's.

The trouble about watts and lumens...is Education

LED's have been around since computers gained popularity, in the form of an Off/On button. The problem was that the buying public never recognized the LED for what it could be, namely a source of very bright light that costs less to operate.

But the cost to buy a LED replacement bulb needed some marketing and push. The overriding problem was brought to the surface in a June 1 Wall Street Journal Magazine article entitled "Stores Stock New Bulbs for the Light Switch".

The article describes how Home Depot, along with the help from major LED manufacturers, propose to educate (force) the buying public on what to buy.

And interestingly, in the article, they mention the different "coding" systems some of the major lamp companies will use (which will probably add to consumer confusion) and the article references Home Depot as a major LED brand ... in the same breadth as Philips, GE and Sylvania!

The End run on Distribution

Recently I had to make a quick trip to Lowe's and the local Home Depot along with a side trip to a Wal-Mart (no, I didn't purchase any electrical material!).  In walking the aisles it became apparent that not only were the stores stocked with longtime Name Brand Lamp manufacturers, they were well stocked with less familiar brands (their own private label brands) that were at eye level.

This was true in all three stores that I visited. (and I wouldn't be surprised if the private label product came from the same factory as the branded products)

Coincidentally all these private labeled,  second tier products, were about $4-$8 per unit less than the brand name products.

A Home Depot regional person explained that they intend to market the brand name products as specials and offer coupons for their products. They want the store traffic. Eye level product selection counts for a lot in the retail world.

Somewhere in the past I recall that Philips released some figures that they had sold more lamps through the big box stores than through distribution.

And a couple of other thoughts:

• Did you know that WalMart has 41% market share of the CFL market? Think they are waiting for LEDs to drop in price to then entire the LED residential market bigtime?
• With the cost of LEDs as a replacement lamp currently being expensive and people potentially having the need to relamp their house, could Home Depot or Lowes run a promotion tied to home relamp financing (on the Home Depot / Lowes credit card?)
• Why is Sylvania so focused on selling Lowes special LED lamps and fixtures?

While most distributors have abandoned the home replacement market, could the Home Depot / Lowes also be taking leadership in the education of LEDs.  Could this expand into selling LEDs to contractors? To property management companies? To hospitals, hotels and retail?  Could the lamp replacement market slowly move from distribution to "retail"?

So what is your plan to counter this end run? Tell us what you think can be done. Or do you think LEDs are just a fad and you'll wait till they are the same price of an incandescent?

LightFair 2011 and a Changing Lighting Market

The 2011 LightFair Show, held May 17-19 in Philadelphia, according to all we've spoken to was a resounding success.  While there was some initial trepidation about moving to Philly for a year and the potential for a decline in attendance, exhibitors gave Philly rave reviews ... great attendance, up to 30% less expensive (thanks to NY unions!) and plenty of great meeting space and restaurants.

While much has been written by others regarding LightFair, a couple of observations:

• Have you looked at the exhibitor list?  If not, check out this list and see how many companies you've never (or rarely) heard of?  The lighting industry is expanding exponentially. And all of these companies are selling to someone (and not necessarily through electrical distribution!). I've spoken to one company that had 314 end-user leads for direct follow-up.  This begs some questions:
• Is electrical distribution THE channel of choice or just A channel?  Why has this occurred?  Is this true in your area (and would you know if it isn't?)
• Whom are these companies that are buying direct and as an electrical distributor how do you reach them?
• What channels will customers purchase from?
• Why shouldn't a manufacturer sell projects direct if that is what the "customer" wants?
• As a small / emerging manufacturer, with distribution being difficult to reach due to the need for the "right" reps as well as rebates / marketing groups, what are the fastest, most effective, means to market ... direct? other channels?
• If you are a distributor focused on growing your lighting or energy efficiency business, were you / should you be at this show ... visiting booths and possibly exhibiting? Or maybe bring a "lightfair" show to your area?
• From lighting industry expert Bill Attardi's newsletter, "Did you attend Lightfair this year? In my fortunate life in the lighting industry, I have attended virtually every Lightfair Show.  For me, this was the most exciting show ever as it is clear to those of us who attended this one that the lighting industry is going thru a metamorphosis.  Major electronic conglomerates exhibited and are looking to participate in the unfamiliar digital electronic lighting industry of the future.  The unbelievable focus on solid state lighting (SSL) was something to see. This LEDfair is the harbinger of what's to come. I cannot wait to see how it will all shake out."

Bill sees the changes that are going on in the lighting industry and has designed a unique Solution Selling seminar.  According to Bill, "There is no question that to sell into this eclectic lighting market, new sales skills are a must. Start the learning process with Sales Pro Solution Selling: http://www.attardimarketing.com/salesprosolutionselling/".  Bill is the consummate salesman and with his experience as a manufacturer and in the distribution industry you can be sure that the content is on target.

In speaking with manufacturers and distributors, some lighting industry observations:

• What does it mean when ...
• GE and Philips start to use reps in the electrical industry?
• E-conolight, which sells to end-users / contractors direct (and sends lots of catalogs), is purchased by private equity?
• OSRAM Sylvania launches a line of lighting fixtures and a line of LEDs specifically for Lowes (and eventually they will have stock to make acquisitions with when Siemens spins them off through an IPO)?
• Companies many of us would portray as contractors don't mention the "C" word and position themselves as energy efficiency companies?

Is the lighting model changing or just becoming more diffused? If lighting is an important product category to you, do you want to be a demand creator or just a bidding house? Do you have someone who is focused on the lighting market for you? Are your lamp and key fixture lines sharing information with you about the market?

And what else are you hearing about lighting and lamp manufacturers?Think LEDs are just a short-term craze?  In speaking with a lighting manufacturer, he jokingly said "I actually saw a new technology that everyone seems jazzed up about – it was called LED’s"

2011 NAED Leadership Summit (aka National) Observations

The following post was originally posted on Wednesday, May 11. It is being reposted as Google / Blogger had technical issues on Thursday and "lost" the posting.

Last week I attended the NAED Leadership Summit in San Diego (yes, a long way to go for 2 days, but if need to be where the customers are!) and wanted to share a number of observations.
 Overall the feeling from many was "a good meeting", although this posting will be sent to, and read, by more people than attended the conference. According to the registration list, there were 80 unique distribution companies in attendance (84 if you included divisions of Rexel).  The distributor list seemed to have larger companies that are more industrially-focused, hence skewing marketplace feedback.  There were some manufuacturers and distributors that were on the list but never seen ... too busy in their suites having meetings.
 Some thoughts, observations and comments that we heard:

• A number of people commented on the distance (although San Diego had great weather) and the fact that the meeting was only two days.  The two days was an issue as most manufacturers and distributors were booked, having little time to meet with smaller manufacturers / distributors and no time for hallway meetings and networking. In fact, the second general session, which had a good speaker and an economic outlook panel, was poorly attended.
• Some asked about the branding of the meeting and felt that the name may make smaller distributors feel disenfranchised. Additionally, someone commented, regarding the brand, "where are the leadership type seminars to help senior management?"
• Showing the usage of technology, many were texting to confirming meeting times and places. The technological revolution has now hit the electrical industry!
• Heard from many distributors of manufacturers expanding into new product categories that are not their core and where they have no expertise - just looking to sell something or get on the latest craze.  This creates conflict for distributors.
• John Burke from Kirby Risk presented their supplier evaluation report at the Manufacturer Advisory Council Forum. Very comprehensive and professional. Terri Dumas from Rab presented their thorough approach for business development with a distributor.
• Social media was top of mind with a keynote presenter discussing it and a session at the Manufacturer Council (which was open to distributors). This social phenomena is having implications for manufacturers and distributors in how they interact with prospects, customers and employees. The opportunity is there, however, the speakers didn't share approaches or ideas on 1) how to develop an e-strategy, 2) setting goals for a social marketing initiative or 3) ideas for distributors / manufacturers to consider (afterall, everyone has heard of Facebook, YouTube, LinkedIn, a blog, Twitter, and Flickr).
• Overall business reports were encouraging with industrially-oriented distributors up 15-20% (and most have some type of energy initiative).  Did hear of some construction-oriented distributors doing "decent" but they were in larger cities and had been recipients of larger projects.  The resi / light commercial market is "nominal" - at best.
• On the lighting side, from speaking with a couple of fixture manufacturers, "LED, LED, LED" - and the product keeps changing requiring continuous education on the part of reps and distributor salespeople to stay even with customers.
• ElectricSmarts and IDEA announced a "strategic partnership" in conjunction with ElectricSmarts' launch of its new catalog system on Saturday night. Unfortunately didn't hear much about it during cocktail parties / at meetings. Here's an interesting snippet from their press release "Through the strategic partnership, ElectricSmarts Network will provide manufacturer-authorized IDW data to end-users, and IDEA will offer ElectricSmarts’ SMART eCat web-based e-catalog to distributors for use on their websites." The reality is that eCat will probably be syndicated to any distributor that wants it (not just IDEA members). It's interesting that ElectricSmarts is looking to get IDW attributed data to use in its NetPricer product to reach contractors. Does this mean that IDEA has its eyes on the contractor market and is planning to compete with Trade Service's TraSer SX (or let ElectricSmarts do it?) Also interesting that manufacturer content is being syndicated to a non-distributor.  Wonder if manufacturers approve of this?
• IDEA announced a service that they are soliciting feedback on called B2B Partnership Rating Program (PRP) which is essentially a scorecard of a manufacturer's data. They are seeking input and plan to release to the industry in Q3 2012! Sounds like a concept seeking approval. Interestingly, it was placed on general session attendee seats but there was no reference to it during the session ... did it surprise NAED or not receive support?

That was the highlights that we heard (other than we had a number of very effective meetings). If you attended, what else did you hear or find interesting? If you didn't attend, why and what would entice you to attend?