What is it about the electrical market that keeps people in it and, in some cases, coming back? We are talking about a business where only the best-run companies can squeak out a net profit before taxes of more than a few percentage points, a market that struggles to attract fresh talent, and a place where products change about as much as the styles of bankers' business suits.
But maybe there are other reasons why the business fits so many folks. I was thinking about this while driving back to Denver from my visit with the folks at Blazers Electric Supply in Colorado Springs, Colo., for this month's cover story, “Thrill of the Game,” (page 18). In my conversation with Steve and Mike Blazer, they talked about why they got back into the electrical wholesaling industry after selling Blazer Electric Supply to Westburne back in 1999. They missed “the game” — growing a business from scratch, hiring employees and watching them grow in their careers, and kibitzing with customers. The Blazers also wanted to build a company where their children could work, much like their father and grandfather had done with Judd Co. in Minnesota.
Starting up business is a gutsy move in this economy, even in a dynamic market like Colorado Springs, and as you will read this month's cover story they have had some surprises with Blazer Electric Supply 2.0. But when you read the article, you will also see exactly why so many family-owned businesses survive and thrive in this market.
Executives from lots of companies much larger than Blazer Electric Supply talk about “basic blocking and tackling” and focusing on strong inventory, good employees, having flexible hours and helping make customers successful. But when two entrepreneurs who have their own skin in the game say it their words carry more weight, because if they don't excel at the basics they won't be around very long. With razor-thin margins in a down economy there just isn't much margin for error.
Small companies can and do survive in this industry precisely because they do excel at basic blocking and tackling. The numbers stand testament to their successes. Yes, the five largest electrical distributors in the United States - Rexel USA, Dallas; WESCO Distribution Inc., Pittsburgh; Graybar Electric Co., St. Louis; Sonepar USA, Philadelphia; and Consolidated Electrical Distributors Inc., Westlake Village, Calif. — account for approximately 26 percent of total industry sales, and the 200 largest electrical distributors account for close to 60 percent of total sales. However, all but a few of EW's Top 200 distributors are family-owned companies, and even taking them into account there are still at least 3,000 more family-owned distributors of electrical supplies.
Despite the dozens of acquisitions over the past three decades, family-owned companies still account for the lion's share of the business. It's not like that in some other distribution-based businesses like electronics, pharmaceuticals and office supplies, where four or five large publicly owned companies account for the vast majority of sales.
Why is the electrical wholesaling industry so different from these other industries? One of the biggest reasons is that electrical contractors are and will always be the biggest single customer group for electrical distributors (accounting for 36 percent of sales through distributors according to estimates in EW's 2010 Marketing Planning Guide). The vast majority of them are small locally owned businesses who still appreciate and need the personal touch that's the foundation of so many successful independent distributors. Heck, Mike Blazer still sees contractors coming into his counter area with their orders written on stubs of 2-by-4s.
And that's why the electrical market fits so many people like a favorite suit. The personal touch doesn't matter enough in Corporate America these days, but in the electrical wholesaling industry it never really goes out of style.