2004 Market Planning Guide

Nov. 1, 2003
Electrical distributors shouldn't breathe a sigh of relief just yet, but it looks like the electrical market is ready to begin a slow, steady climb back

Electrical distributors shouldn't breathe a sigh of relief just yet, but it looks like the electrical market is ready to begin a slow, steady climb back to economic respectability.

According to EW's recent survey for this issue's Market Planning Guide, electrical distributors are looking for a 5.2 percent sales increase in 2004, putting total sales through this channel at $77.8 billion.

Electrical wholesalers are an optimistic bunch — perhaps overly optimistic at times. Last year, respondents to EW's Market Planning Guide (MPG) survey forecast a 5.8 percent increase in sales for 2003. This year, respondents tempered that 2003 forecast to an increase of 2.6 percent.

That may still be a bit high, judging from an EW survey of electrical distributors. When asked earlier this year to compare electrical product sales for the first six months of 2002 to the first six months of 2003, 57.5 percent of respondents said their companies' sales had decreased (31.3 percent) or stayed the same (26.2 percent). Overall, with mid-year sales up an average of only 0.6 percent compared with mid-year 2002 sales, electrical distributors sales would have to accelerate considerably the latter half of this year to make their revised 2003 forecast of a 2.6 percent increase.

Note, too, that respondents to the annual MPG survey have been overly bullish since the bubble burst in 2000. The original sales forecast for 2001 was an increase of 7.1 percent; final numbers showed a decrease of 2.1 percent. For 2002, electrical wholesalers originally forecast an increase of 4.5 percent; final numbers logged a decrease of 0.5 percent.

Many managers believe it's best to be overly ambitious when it comes to strategic planning because, by being overzealous, salespeople work harder to reach goals.

You also may want to factor two other market forecasts for the electrical wholesaling industry into your market forecasts. DISC Corp., Orange, Conn., expects electrical industry sales to increase 1.5 percent in 2004. (See article on page 12.)

The National Association of Wholesale-Distributors (NAW), Washington, D.C., expects electrical distributors' sales to increase 6.2 percent in 2004, according to its 2004 economic forecast for various wholesale-distribution trades. For more details on this forecast, check out www.nawpubs.org.

To help electrical distributors estimate their own sales potential and develop market plans, EW has provided readers with its annual market planning resource since 1978.

If you are a veteran user of this resource, you may want to skip over this section and get right to the data, but if you are new to the Market Planning Guide or need a quick refresher on how to use it, read on.

The market-planning data is divided into nine regions of the United States. For each region and state, you'll find sales forecasts for this year and next year, along with the four prior years' sales. In addition to the sales forecasts, which are prepared by Primedia's research department, you'll also find employment statistics for four of electrical wholesalers' major customer groups, and an economic snapshot of the region.

The employment numbers help develop forecasts for customer buying potential. The basis for employment data comes from the Bureau of Labor Statistics or the Census Bureau.

Primedia's research department has also prepared new sales breakdowns on a national and regional basis by the key customer types for full-line electrical distributors. You'll find this Customer Mix on page 32.

Electrical Wholesaling also breaks down sales by the major end-user market segments, such as residential construction and maintenance, industrial work, office construction and renovation, and utilities. This new Market Mix data is found on page 33.

Although the Product Mix data found on page 34 is a year old, it gives valuable insight into the product areas that have the most mind share with electrical distributors.

Getting the full picture on a market area isn't that difficult. When developing any market forecast, gathering some basic data on the size and makeup of the market is the first step. Much of the data you need is at your fingertips in the pages this Market Planning Guide.


Let's take a look at some of the ways you can crunch the numbers we've provided to tailor them to your specific business and market.

Wholesale electrical distributors' sales estimates form a crucial starting point for your business plan. EW computes sales figures for the nation and for nine regions and each state. For each area we give sales estimates for this year and next year, along with four years of sales history.


Are you wondering how you can use these sales estimates? One of the most common uses of this resource is for a business plan, whether it be for internal use as your guide for next year or for presentation to an investor or banker. You will need something that states the size of the local market, and these sales figures are a documented source you can use “as is.”

This data will also be helpful in establishing a sales forecast for your company and your region, comparing nearby or far-flung markets with an eye to opening or closing a branch, and evaluating promising areas of new business.

One question distributors should ask themselves — and suppliers will be asking — is: “Are our sales into the market at the level they should be?” Look at the estimate of the overall sales in your market in comparison with your company's sales.

In addition to sales forecasts, employment numbers also make up a large part of the regional profiles. The number of people employed by a company or in an industry tends to rise and fall with the volume of business it's doing. Employment figures, therefore, act as a kind of gauge to business prospects and conditions in end-user markets.


With the employee counts from each market, you can compare the relative sizes of various end-user groups in your area. You can also compare the makeup of one market area to another, and reflect on whether there are new customer markets or ones that you could be serving better.

(average percent change over 2002) Residential Industrial Commercial Institutional Government Utilities New England 8.3% 0.4% 4.1% 0.0% 0.7% 0.0% Middle Atlantic 3.2% -0.4% 4.0% -0.7% 0.8% -1.3% East North Central 3.0% -1.5% -0.9% 0.3% 1.7% -0.1% West North Central -0.1% -1.0% 0.6% -1.5% 0.3% 1.4% South Atlantic 2.3% -1.6% 2.5% 0.5% 1.4% -3.9% East North Central 5.9% 5.9% 4.3% 1.7% 2.1% 4.8% West North Central 3.8% 1.4% 5.1% 0.8% 0.5% 0.0% Mountain 5.9% -3.5% 4.9% -0.7% 1.3% -0.8% Pacific 6.4% 0.8% 0.9% -0.4% 0.0% 2.3% Multi-Region Companies 4.8% 1.1% 2.4% 1.6% -0.8% -1.5% National 4.3% 0.0% 2.3% 0.4% 0.8% -0.3% NATIONAL MULTIPLIERSMarket Economic Factor Multiplier Contractors Number of electrical contractor employees $35,999 Commercial/Institutional Number of people employed in professional and business services, retail trade, financial activities, educational and health services, and other services $147 Industrial MRO Number of manufacturing employees $601 Factory automation Number of manufacturing employees $175 Government Number of state and local government employees in the local area $142 Mining Number of employees among mining companies $706 Based on 2003 data

If you track the employment figures for each market over time, you'll see broad economic trends unfolding in your market. You can also use these employment figures to make your own multipliers or you can use the national multipliers we've already calculated.

Each multiplier is a dollar figure that represents the average amount of electrical products that electrical distributors sell to each particular type of customer, on a per-employee basis or other “economic factor.” (See EW's National Multipliers above.)


When used with the employment figures in the regional profiles, the multipliers help you establish the amount of business electrical distributors (could) do with four major customer groups in your area, and in total.

For instance, you can go into greater detail by using locally available sources of information on employment or other measures in end-user industries. The professionals at your local library should be able to direct you to a source for the numbers you need.

2002 SALES PER EMPLOYEENew England $385,010 Middle Atlantic $277,753 East North Central $299,843 West North Central $361,440 South Atlantic $271,722 East South Central $281,159 West South Central $330,253 Mountain $351,327 Pacific $345,344 Multi-Region Companies $349,022 National $319,704

These multipliers are also a good option for determining sales in an area of the country not covered in the list of major metropolitan areas in the regional profiles. The same approach applies if you want to look at one county of an MSA that covers six counties. You would have to obtain employment figures or economic factors from local sources.

For instance, to find the number of electrical contractor employees in a place like Addison, Ill., a city not detailed in the East North Central regional profile, you could contact the local Chamber of Commerce, a nearby union chapter, the state university, the state's department of commerce or the local library to track it down.

These multipliers come in handy if you want to approximate the amount of sales available from a particular account. An example: A manufacturer in northern New Jersey employs 200 people. By applying the national multiplier you would expect that the unit purchases about $120,200 worth of electrical MRO product.

You can use the multiplier approach to tailor your own multipliers. You might want to do that if you feel your area differs significantly from the national or regional average.

The multipliers are useful if you want to assess the relative size of various customer markets in dollars in the defined area. You can go on from there to do such things as select markets for new or increased sales efforts, advertising and promotion.

These forecasts give you handy ballpark figures for your business plans and general thinking.

Estimating the size of the market with multipliers is a process of building up a sales potential, piece by piece. Electrical contractors in Lawton, Okla., employ around 188 people, so the potential market for electrical contractor sales there would be 188 times the electrical contractor multiplier of $35,999 for a total of $6,767,812 potential electrical contractor sales. You would do the same for each of the other markets electrical distributors serve to reach a grand total for Lawton, Okla.

Using multipliers results in a dollar figure for market size that tells the level of business electrical wholesalers in the area could do if every potential customer there bought a typical amount of product from them. It tends to be a larger number than actual distributor sales.

If you are interested in developing a custom multiplier that may fit your company or market better than those provided in this article, check out the Market Planning section on www.ewweb.com for some tips on custom multipliers.