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Defining the Universe

Nov. 1, 2010
Counting the number of distributor locations in the United States is an inexact science.

Most people don't spend much time thinking about the North American Industry Classification System (NAICS), which the U.S. Census Department uses to collect and organize data for all U.S.-based businesses. As you will learn in this issue's 2011 Market Planning Guide (page 17), the U.S. Census Department uses an extraordinarily broad definition of an electrical distributor in “NAICS 423610 — Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers.”

NAICS 423610 is confusing because it includes not only the full-line “pipe-and-wire” distributors that sell most electrical products, but also niche distributors of security systems, batteries and some other products outside the electrical mainstream. By including these distributors in its count, the Census Department says “merchant wholesalers,” of electrical supplies (not counting manufacturers' sales branches and offices) operated 13,277 locations and sold approximately $94.2 billion worth of electrical supplies in 2007. This figure is $4.5 billion more than the $89.7 billion EW estimates to be the industry's 2007 sales volume.

In the world of statistical sales forecasts, that's reasonably close. While Electrical Wholesaling and the Census Department may be sitting in the same ballpark with sales estimates, we aren't even in the same county with our counts of distributor locations. EW's editors believe 3,500 to 4,000 distributors of electrical supplies (full-liners and product specialists) are operating 7,500 to 8,000 locations — at least 40 percent fewer branches than the Census Department's estimate.

Why the huge difference? As always, the devil is in the details, and in this case I believe it's in the definition of an electrical distributor. The National Association of Electrical Distributors (NAED), St. Louis, has approximately 475 to 500 members that operate a combined total of 4,400 locations. Many of these companies are members of either Affiliated Distributors (A-D), Wayne, Pa., or IMARK Group, Bowie, Md., the industry's two largest buying groups. A-D and IMARK (including Equity Electrical Associates) together have at least 1,100 member companies running more than 3,100 locations.

Many of these companies are on EW's Top 200 list, which accounts for 5,458 locations. If you add up all of the companies in NAED, all the companies on EW's Top 200 list, and all the members of either A-D or IMARK and then eliminate the duplications, those companies probably run about 6,000 branches. For argument's sake, let's add 1,000 additional branches run by “unaffiliated” smaller full-line distributors who aren't members of any of these groups, probably do less than $10 million in annual sales and operate no more than two or three branches. This brings us up to an electrical universe of full-line distributors with 7,000 locations.

Now let's look at product specialists, which I believe account for a big chunk of the discrepancy between EW's estimates and the Census figures. The best-known niches are lighting equipment, wire and cable, residential VDV, industrial automation, and utility products. These specialty distributors combined probably run less than 1,000 branches, bringing our estimate up to 8,000 locations.

Two other types of specialty distributors included in the Census figures but generally not considered to be part of the electrical mainstream may bring us a little closer to that 13,277 figure — distributors of motors and security products. Whether you agree or disagree that these companies are distributors of electrical supplies, the Census Department counts them as such and they have lots of locations.

Well over a thousand motor repair shops sell motors and related supplies, according to the Electrical Apparatus Service Association (EASA), St. Louis. And according to Security Systems & Integration magazine, the 10 largest distributors of security systems did a combined total of $8.2 billion through 1,010 locations in 2009. The largest security distributor, ADT Security Systems Inc., Boca Raton, Fla., accounted for just over half of total sales, with $4.2 billion in 2009 revenues through 240 branches.

Adding the estimated 2,000-plus branch locations of motor and security distributors brings our estimate up to around 10,000 branches, but that still leaves us more than 3,000 locations short of the 13,277 branches the U.S. Census Bureau reports. In the coming months, EW's editors will be attempting to reconcile this figure with our own distributor count.