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Mind-numbing numbers

May 1, 2003
Combing through a batch of first-quarter 2002 financial reports from publicly held electrical manufacturers and distributors taught me a few things about

Combing through a batch of first-quarter 2002 financial reports from publicly held electrical manufacturers and distributors taught me a few things about the industry that we live in.

I was amazed at how many blue-chip manufacturers or distributors experienced double-digit declines in sales or profits in the first three months of this year. These companies weren't fly-by-night operations or businesses new to the electrical industry — they represented a “Who's Who” of the electrical wholesaling business. They weren't companies where veteran managers were suddenly and inexplicably making incredibly stupid decisions or investments. They were all companies with seasoned electrical professionals grappling with a dearth of demand for their products as they guided their businesses through one of the worst economic tsunami this industry has ever seen.

Managing a business in a recession isn't any fun. These aren't the days when most businesses do the things that spark sales, like launching new promotional or marketing campaigns, opening new branches, starting up new divisions, breaking into new markets or acquiring businesses. More often, its hunker-down time: trimming back inventory levels: poring over Excel spreadsheets in search of line items that could be axed to satisfy the latest round of budget cuts; and, unfortunately, letting go of employees or shutting down branches.

Yet, most electrical companies survive these business downturns, and some manage to come out of them stronger than ever. Successfully weathering a recession is an accomplishment. Steve Tecot, for many years chairman of the board of Tecot Electric Supply, New Castle, Del., is generally regarded as one of the brightest individuals who ever worked in the electrical industry. In promoting his new consulting business, TDD Consulting Services, Boca Raton, Fla., Tecot says his distributorship “prospered and was successful as an independent distributor through at least four significant recessions over a 43-year period.” Now that's staying power.

Tecot believes other distributors can do the same if they devote their resources to properly managing receivables, payables, inventory, marketing, human resources, MIS, sales, vendor relations and other distribution basics.

“Electrical distribution is a business that is difficult in good times and can be fatal in bad times, like now,” he says in a letter promoting TDD Consulting Services. “The average gross profit before taxes in 2000 for electrical distributors was less than a meager 1.9 percent of sales, during the last year of the greatest economic expansion in the history of the United States. While the numbers are not in for 2001, the current recession all but guarantees worse results.

“There are many distributors whose bottom line is currently in excess of 5 percent and improving. There is no trick or exceptionally good luck required to obtain these results. These distributors are much more successful than the industry average because they have learned the most important basic principles about the distribution business.”

As chairman of the Industry Data Warehouse (IDW) task force that developed the conceptual model for the electrical industry's IDW, Tecot would agree that you can improve your bottom line by taking advantage of the under-utilized IDW and the IDX2 electronic communications network offered by the Industry Data Exchange Association (IDEA), Rosslyn, Va. The IDW is live with over 800,000 stock-keeping units (SKUs) of manufacturers' pricing and product data, while IDX2 is an electronic communications network with proven cost advantages over traditional value added networks (VANs).

In this month's cover story, “The Perils of Pricing,” learn how Mike Rioux, IDEA's president, and Beth Badrakhan, IDW manager, are reinvigorating these business tools to deliver accurate product and pricing data. Not enough companies are signed on with IDEA yet. That's a shame, because the firms not on board are missing out on some proven solutions to weathering today's economic storms.

About the Author

Jim Lucy | Editor-in-Chief of Electrical Wholesaling and Electrical Marketing

Jim Lucy has been wandering through the electrical market for more than 40 years, most of the time as an editor for Electrical Wholesaling and Electrical Marketing newsletter, and as a contributing writer for EC&M magazine During that time he and the editorial team for the publications have won numerous national awards for their coverage of the electrical business. He showed an early interest in electricity, when as a youth he had an idea for a hot dog cooker. Unfortunately, the first crude prototype malfunctioned and the arc nearly blew him out of his parents' basement.

Before becoming an editor for Electrical Wholesaling  and Electrical Marketing, he earned a BA degree in journalism and a MA in communications from Glassboro State College, Glassboro, NJ., which is formerly best known as the site of the 1967 summit meeting between President Lyndon Johnson and Russian Premier Aleksei Nikolayevich Kosygin, and now best known as the New Jersey state college that changed its name in 1992 to Rowan University because of a generous $100 million donation by N.J. zillionaire industrialist Henry Rowan. Jim is a Brooklyn-born Jersey Guy happily transplanted with his wife and three sons in the fertile plains of Kansas for the past 30 years. 

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