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2021 Electrical Pyramid

Aug. 31, 2021
This year's analysis reveals some new customers and competitors in the market for energy-efficient electrical products.

Even though Electrical Wholesaling’s Electrical Pyramid has been published for more than 25 years, the magazine’s editors learn something new about the electrical market every time we update it. The channels of distribution in the electrical wholesaling industry are constantly evolving. Full-line electrical distributors continue to be the primary channel to market for electrical manufacturers that want to supply electrical contractors, facility maintenance personnel and other end users. Although  they most likely account for more than 70% of all electrical products sold, product specialists, hybrid distributors like W.W. Grainger and Fastenal and online merchants like Amazon Business also have an intense focus on various pieces of the product portfolio that electrical distributors sell.

GREEN CHANNELS OF DISTRIBUTION

As we studied some new channels of distribution that have emerged over the past year, we were struck by all of the activity in the green market on the part of not only full-line distributors, but also product specialist and online merchants bolstering their presence in the lighting and renewables niches. For example, Consolidated Electrical Distributors (CED), Irving, TX, likes to keep a low profile, but its Greentech business, a full-service distributor of solar, electrical and renewable energy products, proudly promotes itself as the largest solar equipment distributor in the nation. Greentech lists 64 locations across the United States at www.cedgreentech.com.

There were also some big acquisitions in the green end of the electrical market. In Sept. 2020, Kinzie Capital Partners, a Chicago-based private equity firm, bought Chelsea Lighting, New York, a 27-year-old lighting and controls specialist with a strong emphasis on the PoE market (Power over Ethernet). The press release announcing the acquisition said Chelsea Lighting, ranked #82 in Electrical Wholesaling’s 2020 Top 200 at the time of the purchase, was the Big Apple’s biggest lighting distributor. And in the wind market, earlier this year Bruce Hammett, chairman and founder of the nation’s largest distributor of products for commercial and utility wind farms, took on Theresa Eaton as partner. Hammett, a 40-year wind industry veteran will remain as chairman and Eaton will be CEO. Along with WECS’ focus on solar and land-based wind farms, Eaton and Hammett are eying the offshore wind market as a new market opportunity.

Our research also uncovered an interesting lighting retrofit specialist based out of Denver that goes after the very same customers that full-line electrical distributors sell to. Founded in 2010 by Erin Shine, Shine Retrofits promotes itself as a “commercial lighting e-commerce products distribution company that focuses on LED, induction and fluorescent lighting retrofit projects to save energy and help the environment.” On Shine Retrofits’ online line card at www.shineretrofits.com, you will find a whole bunch of blue-chip lighting manufacturers, so you know that Shine Retrofit is very much a player — and a competitor for electrical distributors — in the lighting game.

If you want to get a sense of the diverse mix of customers and competitors in the green market, spend some time at the www.nalmco.org, the website for the interNational Association of Lighting Management Companies (NALMCO), Ankeny, IA. NALMCO’s members typically focus on the installation and supply of lighting system for retail or lighting systems and very often for the largest of the national retailers. Over the years, several full-line electrical distributors have been NALMCO members, and the membership list on the NALMCO website currently includes two very well-known names in the electrical market — Facility Solutions Group, Austin, TX, and Rexel Energy Solutions, Taunton, MA, the energy business unit that Rexel built out with its 2012 acquisition of Munro Distributing. Rexel Energy Solutions now specifies and sells not only lighting products, but products for solar, electric vehicle, water conservation, air quality, motor and drive applications as well.

Facility Solutions Group, ranked #67 on Electrical Wholesaling’s Top 150 ranking with 178 employees and 30 locations, has long been a major player in the national accounts business, as well as the electrical construction market. Along with building out its presence along the East Coast, a 2006 acquisition of O.K. Electric Supply, Perth Amboy, NJ, gave it additional access to lighting projects at Fortune 500 companies and federal government entities through O.K. Electric’s Energy Solutions division, a fully functioning ESCO (energy service company). A giant resource that came with this acquisition was Bernie Erickson, O.K. Electric Supply’s owner and a towering presence in the green market who over the past 40 has sold just about every lighting job you can imagine and engineered many of the unique energy audit and retrofit services that O.K. Electric Supply offered.

Along with these distributors, NALMCO’s membership list includes at least two lighting maintenance companies with a national focus – Solis Lighting and Electrical Services, San Clemente, CA, and YESCO (Young Electric Sign Co.), Salt Lake City, UT — that should be the near the top of any distributor’s prospect list. Solis Lighting and Electrical Services (www.solisusa.com) provides a wide range of services across the United States that in addition to lighting maintenance includes electric-vehicle charger installation, electrical maintenance and control system repair and installation through an in-house staff and “satellite technicians.” Once vetted, these technicians received qualified project leads from Solis and can buy products through its group purchasing program.

The 101-year-old YESCO (www.yesco.com), a sign and lighting service specialist, has more than 85 locations and an estimated 1,000 employees and has maintained some famous signs over the years, including “Vegas Vic,” the waving neon cowboy along the city’s Fremont Street and its iconic “Welcome to Las Vegas” sign. In addition to designing and building custom signs, gaming displays and outdoor billboards, the company also provides electrical maintenance services in some market areas.

YESCO recently announced that fourth-generation family members Ryan, Joshua and Nathan Young have been named to the Young Electric Sign Co. board of directors. In addition, Ryan Young has been named president and CEO of Young Electric Sign Co., the parent company of YESCO, while Joshua Young has been appointed president of YESCO Custom Signs and YESCO Sign and Lighting Service.

BUILDING YOUR OWN ELECTRICAL PYRAMID

This information above offers a glimpse of some of the biggest changes in the green market channels covered by Electrical Wholesaling’s Electrical Pyramid. You can also use it to look at other channels, such as online merchants, product specialists, other distributors from other industries that also sell electrical products. And while EW’s 2021 Electrical Pyramid is a snapshot of the electrical market as a whole, it can also be used as a tool to analyze the channels of distribution in your geographic market of choice. So, get out your magic markers and whiteboards and start drawing your own electrical pyramids. EW’s editors think this article does a pretty good job of summarizing the biggest channels to market in the electrical industry. If you find other bricks that belong in the pyramid, draw them in and send them to us at [email protected]. We may include them in our next edition of Electrical Wholesaling’s Electrical Pyramid.

One other key thought to remember before you dig into the valuable exercise of building your own electrical pyramid: Remember that there really isn’t any right or wrong combination of channels of distribution. EW’s Electrical Pyramid is in some ways more like a kaleidoscope than a snapshot of the electrical channel, in that the bricks in it shift on a product-by-product or market-by-market basis.

For instance, a manufacturer that wants to grow in the New York-New Jersey metropolitan area may have entirely different Electrical Pyramids for the five boroughs of New York and suburban Westchester County or Long Island in New York and Bergen, Hudson and Passaic Counties in New Jersey because the channels of distribution and local buying influences can be very different. And the bricks in the pyramid that a local electrical distributor will build to analyze his competition for a slice of that same market will look different from that manufacturer’s pyramid.

The Electrical Pyramid is going to be much more valuable if you build your own and customize it to your own unique market needs. But like lots of things, the devil is in the details. It’s a fun exercise, so don’t be afraid. Here’s how to get started.


Schedule at least a half-day

Invite your management team and best strategic thinkers to this session. If you can do it off-site in a conference room, all the better, but if time or budget don’t allow it, find a quiet room in your building where you can spread things out a bit.

Bring the right equipment

If you are leading the discussion and are a white-board type of guy or gal, you will have fun with this assignment. Bring ample erasable markers — you will be building an Electrical Pyramid brick-by-brick and will be thinking on the fly. Or, if you aren’t into white boards, get hold of a large roll of newsprint from an art supply or craft store and bring along a handful of markers. Other resources you should have on-hand include laptops (internet access is a big plus in this meeting); copies of this article; and sticky notes. If a PDF of this article would be helpful for the session, contact EW at  [email protected]. The analysis in this article will provide a high-altitude overview of the various channels (bricks) in each tier of the pyramid. Your job in this exercise is to bring this analysis down to ground level for the market area under discussion and identify all the key players in it.

If you want to get creative and make it a fun hands-on exercise, you may even want to try bringing along some large wooden building blocks and Legos or Duplo bricks. Assign the person in the room with the most artistic talent with the job of inscribing each brick with the channel of distribution under discussion.

Assign one person to be the “scribe”

If you are going with the building block idea, you have your man or woman. But make sure you have someone who is copying down all the ideas sure to be flying around the room.

Build your pyramid level-by-level, starting with full-line distributors

Here’s where you will need a copy of EW’s Electrical Pyramid illustration shown at the bottom of this article. You may find it easiest to start at the top with full-line electrical distributors and work your way down through the seven tiers shown in the illustration. The rest of this article will walk you through each tier:

  •               Full-line electrical distributors
  •               Product niche distributors
  •               Service/product niche distributors
  •               Hybrid distributors
  •               Retailers selling electrical supplies
  •               Distributors from other trades selling electrical supplies
  •               Other channels
  •               Web-based companies

If you are a distributor, go around the room and start listing all competitors

Group them by national chain, regional chain or local independent. If you are an electrical manufacturer or independent manufacturers’ rep, do the same thing, but you may want to group them by the amount of business you do, don’t do or want to do with them. Depending on the type of analysis you are doing you may also want to pencil in which buying/marketing groups the distributors are in, if any.

And don’t forget to factor in the huge role independent reps play in any local market. Depending on your position in the market (distributor, rep, manufacturer, consultant, etc.) you may or may not want to list and profile all of the independent manufacturers’ reps in the market, and possibly the factory-employed field salespeople who cover the market as well.

You may find that creating an Electrical Pyramid leads to the creation of a “customer pyramid,” where you analyze your market’s key accounts by size, type of company, market focus, the level of service required and how they buy product. And remember psychologist Abraham Maslow’s “hierarchy of needs” pyramid from that Psychology 101 class, which illustrated our basic need for food, water, shelter, companionship, respect, etc.? You could draw up a customer’s “hierarchy of needs,” where you illustrate the importance of price, delivery, education, return policy, etc.

Okay, now the hard work starts. Compiling a list of distributors (or reps) in your market may unearth a few surprises and provide some valuable information. But to make this information really work for you, sketch out a profile for each of these companies and drill down to their strengths and weaknesses. The basic company profile should include key management personnel; estimated sales volume; market share; and primary market focus. You also need to get answers from your assembled team to questions such as:

  •               What value-added services does this company provide that we currently don’t offer?
  •               On the flip side, Which services do we offer where we have a clear advantage?
  •               Who are their biggest accounts?
  •               With which customers are they most vulnerable?
  •               How has this company’s sales strategy changed because of the COVID-19 coronavirus?
  •               Have they developed any virtual sales or digital market strategies that we can borrow?

The five largest full-line distributors accounting for 36% of the market

The electrical wholesaling industry continues to consolidate, and as mentioned earlier over the last few years, the five largest national distributors have increased their market share to well over a third of a $100 billion-plus market, and the Top 150 largest distributors (see EW’s June issue) account for 72% of total.

Product specialists

Now move down to the next tier of the Electrical Pyramid. Go around the room and get people to brainstorm about all of the niche distributors in your market area that focus on a specific product category. The biggest product specialists typically include residential lighting, lamps, wire and cable and utility products. Others include fuses, voice-data-video (VDV) products and utility supplies. You may be surprised by how many product specialists in your market area compete with you on a few product lines. Depending on how in-depth you want to go with your analysis, you may or may not want to develop company profiles for each of these product specialists.

Service/product niche distributors

Find out what ESCOs and lighting maintenance companies are doing in your market. Service/product niche distributors have a heavy emphasis on design, installation or repair. Although they sell electrical supplies, product sales may not be their primary function. These companies focus on providing a complete service solution to their customers.

Pay special attention to ESCOs, which provide the most sophisticated package of design, financing, technical assistance, audit and, in some cases, installation services in the energy market. The sale of electrical products is a relatively small piece of the overall package of products and services that ESCOs provide. ESCOs occasionally need for distributors to provide local warehousing support and logistics for their lighting retrofit projects. The National Association of Energy Service Companies (NAESCO), Washington, DC, offers some good insight into the world of ESCOs at www.naesco.org.

You should also pencil in lighting-maintenance companies into this tier of your pyramid. These companies, which typically have contracts for the maintenance and retrofit of lighting systems in stores, parking lots and other retail or commercial facilities and are often NALMCO members, are emerging as skilled players in the energy game, as discussed earlier.

Hybrid distributors

Don’t overlook Grainger and Fastenal. Grainger and Fastenal are tough to categorize because they don’t carry a full line of electrical products. But they are competitors to full-line distributors because of their intense focus on the industrial MRO and facility maintenance markets, rock-solid balance sheets and progressive internal operations. Electrical products, lighting and motors account for 8% of Grainger’s $11.8 billion in U.S. sales, but there’s plenty of other products for the factory floor or construction site that you can find on www.grainger.com or in its branches that its total sales of interest to electrical distributors are probably over $1 billion. Add in Grainger’s sheer size, willingness to invest in its e-business capabilities, distribution network and branch infrastructure, the company is a formidable competitor. If you have a Grainger branch in your neighborhood, add a brick to your pyramid for them.

By some measures, Fastenal may be a peripheral player in the electrical market. But with almost 4.7% of its $5.65 billion in sales (over $231 million) in electrical products and 1,959 branches in the United States, you need to keep an eye on them. Add another brick to your pyramid for them.

Another hybrid distributor to watch for is MSC Industrial Supply, Melville, NY, with $3.2 billion in MRO supply sales through 97 locations in the United States. The company has 1.9 million SKUs in its e-commerce channels and if you estimate that MSC has the same percentage in electrical (4%) as Grainger and Fastenal, its electrical sales are about $127.7 million.

Retailers selling electrical supplies

While electrical supplies account for roughly 9% of a home center’s total revenues, over 4% of that figure is in lighting, which for the most part are largely residential and may not be of as much interest.

Hardware stores and co-ops. There are more than 14,500 hardware stores in the United States, according to a research report at www.ibisworld.com. Many of these independently owned and operated stores are members of one of the hardware industry’s three largest buying cooperatives — Ace Hardware, True Value and Do It Best. If you take the total combined sales data of each of these co-ops and use that 9% electrical multiplier from home centers, members sell an estimated $1.7 billion in electrical supplies. True Value, with 5,000-plus members and an estimated $8 billion in electrical sales is the largest, followed by Ace Hardware, with 4,500 members and $7.8 billion in estimated electrical sales.

Distributors from other trades selling electrical supplies

That distributor down the street may be a competitor. When you have at least 1,000 industrial distributors, 1,000 tool specialist distributors perhaps 100 specialists in power transmission products in the United States, you know some electrical sales are flowing through these often-overlooked channels. If you have any of these types of distributors in your market, as well as distributors of electronics components, HVAC equipment, plumbing supplies or other specialty distributors, they may be worth further study to see what kinds of electrical products they might be stocking.

It makes a lot of sense to get to know the distributors from other trades in your local market area. In a sense, you are in the same business but are just shipping different stuff in the boxes. Find some non-competing distributors from other trades and compare best practices in sales, warehousing, delivery, e-business and operations. You may also want to consider joining the National Association of Wholesaler-Distributors (NAW), Washington, DC (www.naw.org), which provides some terrific venues for networking with distributors from other trades and an insider’s perspective on legislative issues of interest to distribution firms.

Other channels

Always changing but always growing. Any single brick in this level of the EW Electrical Pyramid may or may not account for a ton of electrical sales in your market. This level of the Pyramid may be toughest to track because it’s where the new and potentially competing channels of distribution first start out.

Do you have any reps in the spec-grade lighting niche selling direct? Pencil them in. And if solar is growing in your market area, find out who is selling the photovoltaic (PV) equipment. It might be a small PV contractor who is also a dealer for a limited number of lines.

Another hotly debated sales channel is the manufacturers selling direct. Outside of providing large quantities of wire and cable for massive projects in the utility market; gigantic turnkey switchgear or automation projects; spec-grade lighting packages; and now LED lighting solutions, this historically hasn’t been a widespread issue in the mainstream electrical wholesaling industry. However, we expect more lighting manufacturers to sell their customized LED lighting solutions direct to end users.

Online merchants

Depending on your market position, these bricks in the pyramid may be changing the fastest. The most obvious bricks here include www.amazonbusiness.com, www.ebay.com and online LED merchants. While Amazon Business doesn’t break out sales by individual product category, it did announce this year that its total sales had hit $25 billion. According to a report at www.digitalcommerce360.com and a forecast by Justin Post, a Bank of America securities internet analyst, Amazon Business is on course to surpass $30 billion in gross sales this year and surpass $80 billion by 2025.

At least one full-line electrical distributor is using the Amazon Business marketplace to sell its own products. Turtle & Hughes, Linden, NJ, has for many years focused on both the electrical and industrial supply markets, and has 2 million products listed in the Amazon Business Store, according to a post at Amazon Business. Ajay Kamble, the Turtle & Hughes chief information officer, says in the Aug. 2020 post, “We want to accommodate our customers who want to interact with us digitally, give them the same support they expect from us when we’re physically on site and we want to be available wherever they’re looking to source.”

Summary. After you build your own Electrical Pyramid, check out www.ewweb.com for more information that EW’s editors have posted on some of the fastest-growing alternative channels of distribution over the years. Just type “electrical pyramid” into the search engine.