Speaking Out: 16 Distribution Industry Trends for 2016

March 1, 2016
Here’s what electrical distributors and electrical manufacturers should consider to increase sales and ensure profitability in 2016.

Talk to manufacturers and distributors today and you hear about the challenges in the industrial space and slow to moderate growth in the construction market that depends on the region or regions of the country where you do business. We are also hearing a lot about a challenging first half of 2016 and a second-half upturn.

While the U.S. economy undergoes macro-economic gyrations within the world economy and global politics batter the economy and the petrochem markets, distributors and manufacturers need to focus on issues within their control and address what they can, and in some cases will, do to differentiate themselves, take market share to outperform on the top line and, perhaps most importantly, ensure a healthy bottom line. In our opinion, we think  you should focus your growth strategies on these 16 trends.

1. Much has been spent by some on e-commerce and more will be spent in 2016, with costs declining and industry-focused resources gaining increased visibility. The distributor(s) who, once launched, invest in the resources/strategies to gain customer adoption will attain customer preference. While you want your site to generate sales, it needs to answer the question “Why you?”, provide application content to generate demand and act as an e-branch/alternative order-entry system.

2. Business beyond your e-store will take on greater prominence, require more investment and generate new management challenges. Think about connecting direct to customer purchasing/estimating systems through punch-outs, marketplaces and integrating with contractor estimating systems. Issues such as CRM (customer relationship management), content marketing, content syndication, virtual showrooms/branches/vignettes, microsites, local advertising, BIM, SEO and more will require focused personnel with an unclear ROI. Is it an added cost, enhanced revenue stream, future revenue stream, customer expectation or a retention tool?

3. Connected systems, be they lighting, building automation, home networks, IoT and more become new customer expectations. Distributors can sell the equipment (lighting fixtures/LEDs), maybe the software/service, perhaps participate in subscription fees, be engaged in data monitoring/management/reporting and offer analytic services. The question will be, “Will manufacturers let distributors participate?” Distributors may need to hire engineers and analytic personnel to provide services, but will manufacturers and lighting reps let them be compensated? Will distributors be able to sell monitoring, data analysis, marketing services, commissioning and other services that connected systems will eventually create? This can represent recurring revenue and other service fees, but will electrical distributors participate or will manufacturers or reps sell direct, or will IT VARs (i.e. CISCO VARs) be the beneficiaries?

4. Do more with less. More will, and has been, requested of distributors. But with material pricing keeping material costs down, (due to commodities, competition, lack of inflation, etc.) and operating costs continuing to rise, distributors need to use technology and process-improvement initiatives to continue driving down operational costs to maintain net profit levels.

5. Distributor information collection will need to improve. Distributors need to know more about their customers, their customers’ customers, the projects they do, their key contacts, what they sell,and their key challenges so they can more effectively promote the right information to the right people and provide better service. Data matters and it’s not just sales data or product data.  What your customer don’t use matters, because it identifies sales opportunities.

6. Voice of the customer as a stakeholder is important. If you are a manufacturer, this means your reps/sales organization, distributors, their branch managers and/or salespeople and end-customers. For distributors, it’s your salespeople, your reps, key factory personnel and your customers. All impact your profitability and the key to success is capturing their share of mind. They can help answer the question “Why you?”

7. Live your brand. To customers, aside from some product lines and perhaps selected individuals with specific expertise, distributors can sound like a commodity. Everyone has good service. Everyone has good people. Everyone sells quality products. Everyone says they carry inventory. Everyone says they can deliver. Customers often struggle to see the difference between you and your competitors. Live your brand and measure your performance at the customer level.

8. Want improvement? Invest in a metric management culture. Reviewing data and crafting metrics provides insights to drive direction and engender accountability. If you don’t commit to objectives, then qualitative criteria can be perceived as favoritism or enabling mediocrity, which lowers morale and overall performance.

9. Acquisitions will continue but the “core” has been taken out of the middle. Those who were considering selling have sold. Those who haven’t have probably been approached and either desire to keep their businesses and grow them (but could still sell if the price was right) or are not interested. There will be fill-ins/bolt-on acquisitions and purchases where nationals seek to fill-in holes.

10. As uncertainty in the market place increases, decision making slows down. Many managers and owners/CEOs have aged (some say lost interest) or are comfortable where they are.  Inertia is a powerful competitor.

11. There’s a rebirth/resurgence in private labeling. In late 2006 and throughout 2007 we wrote about the emergence of private labeling in the industry as a way to reduce acquisition cost and increase margins. It’s coming back. The use of un-labeled and private labeled products from contract manufacturers grows. Is this a rush to the bottom of the market place? Or is it time to improve profit and weigh the risk versus reward of private labeling? The aggressiveness of some companies leaves others in their wake as bid price margins increase. Or will more companies consider Tier 2/Tier 3 suppliers and sacrifice brand cache? (E-mail us for our Private Label series or go to www.ewweb.com and search “private labeling.”)

12. Distributors that use their own number schema  may open  up their purchasing to broader horizons. In our opinion,  most items are essentially generics. Additionally, some distributors use “scrambled” SKUs online to inhibit product price comparisons. This is prevalent in the retail lighting industry. But if you use non-labeled, current-carrying product, protect yourself against potential product liability.

13. Synchronized data increases faster SPA claim backs. Some  distributors claim  SPAs within seven days of sale and are credited back the morning of the seventh day.  And there are more operational, productivity, pricing and profitability benefits with synchronized data.

14. Learn from baseball executives and their Money Ball philosophy of data analytics. Product data synchronization, combined with predictive analytics can grow top-line revenue and bottom-line results. While tools exist for medium to large distributors, companies like Insight Analytics target the <$30 million distributor with a SaaS outsource model. Larger distributors are using analytics through tools like Phocas, Tableau, Microsoft BI, Zilliant and others.

Some CRM systems like Sales Management Plus, Tour de Force and Microsoft CRM also integrate sales analysis and some marketing automation tools, which can pay results when used properly by salespeople, sales management, marketing, pricing and purchasing. The increased insight can pay dividends. If you have enhanced your back office productivity using your computer ERP system, you can increase your bottom line and strengthen processes for future benefits.

15. Lighting opportunities will accelerate for those who invest. Investment in specialists is critical, unless you want to be an order-taker. The traditional Big 3 lamp lines are evolving fast and the fixture line-up is changing. Committed companies will invest in product management people and will develop new models to provide installation, commissioning and monitoring of facility lighting systems while generating new revenue streams.

16. The electrical patchwork economy continues. Some areas soft, others not. Those who take share will be ones that can out-sell, out-service and out-think  the competition while optimizing processes and managing costs. Proving you’re the best is different than hoping your customers experience it. Some basic initiatives can win the game if you’re willing to invest and are thinking beyond the 2016 horizon. Ask us how to capitalize on these 16 distribution trends for success in 2016.