In recent editorials, I have explored the jaw-dropping speed at which LED lighting is revolutionizing the lighting market and the impact of new domestic production of oil and natural gas. Here two more big questions to ponder.
How big does an electrical distributor need to be to afford an online storefront? Plenty of the comments by manufacturers, distributors and reps in the “Sea Changes” series of articles by Tom and T.J. O’Connor are sure to have rattled some cages in our industry. But to me, one of the study’s most potentially explosive observations is what one large distributor had to say about which distributors can afford to build and maintain an online store.
“We are embracing online purchasing,” he said. “It takes a significant investment to do it right. The national chains and super-regionals can afford to do it. But the regional independents are hard-pressed to do it, and the smaller independents can’t afford to do it. It becomes a differentiator for the national chains and super-regionals to capture market share.”
If this industry ever evolves into a world of “digital haves and have-nots” as this distributor expects, it could have dramatic implications. I think it’s quite possible many smaller distributors will figure out how to build online storefronts, but the time is coming fast when it may no longer be an option.
You are probably sick of hearing about the millions Grainger has spent on www.grainger.com, and how the company hopes to have 50% of sales flowing through its online storefront by 2015. But Grainger is far from alone in its digital endeavors. At the recent annual conference of the National Electrical Manufacturers Representatives Association (NEMRA), Marie Coisne-Roquette, chairman of Sonepar SA, Paris, the world’s largest electrical distributor, said in some of her company’s global markets outside of Europe 50% of its business is done online, and she left little doubt Sonepar’s U.S. North American operating companies will be doing more business electronically in the very near future.
Will the electrical market benefit from Tesla’s plans to build a Gigafactory for electric vehicles? Elon Musk, CEO of Tesla Motors and chairman of SolarCity, is not afraid to dream big. When he announced last month that he wants to build a 10-million-square-foot plant covering up to two square miles to build lithium-ion batteries and electric vehicles — quite possibly the largest commercial/industrial construction project now on the drawing boards in the United States — he attracted plenty of attention. The news apparently helped him increase his net worth by over $1 billion in a single day through the dramatic increase in the share prices of Tesla Motors and SolarCity after the announcement.
Musk, who is also the co-founder of PayPal and chief designer for SpaceX, a developer of rockets and spacecraft for missions including but not limited delivering cargo to the International Space Station, believes the facility will help Tesla manufacture lithium-ion batteries on such a grand scale that it will drive down the price of electric vehicles enough for them to appeal to the mass market, and offer SolarCity an inexpensive on-site storage battery to store electricity produced from its PV power systems.
If it opens in 2020 as planned, the Gigafactory would offer Tesla a truly massive increase in manufacturing capacity. The company expects to manufacture 35,000 electric vehicles in 2014, but with its Gigafactory Tesla says it would have the capacity to manufacture 500,000 electric vehicles annually.
If the Gigafactory really helps Tesla drive down the cost of lithium-ion battery packs for mass-market electric vehicles and offers SolarCity a dependable source of on-site electrical power storage, these initiatives could potentially create some outstanding sales opportunities for electrical distributors and their customers related to the sale and installation of electric-vehicle charging stations and PV power systems for residential, commercial and industrial customers.
The work by Tesla Motors’ Elon Musk in battery development could revolutionize the auto and power industries, and the move by more distributors to online storefronts could be equally disruptive to how products are bought and sold in the electrical market. Both are interesting developments you should watch.