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Fads Can Fade

May 1, 2015
Residential datacom installations, of course, were mooted by WiFi routers and broad bandwidth connections. And yet the idea of the Smart House is now being revived and embellished with the bigger and incomprehensibly more ambitious idea of the Internet of Things.

Like most industries of any kind, and human culture in general, the electrical industry over the years seems to pass from buzzword to buzzword as the threat or opportunity of the moment captures widespread attention. Publications such as Electrical Wholesaling certainly play a role in the process, with extended features, special sections and ongoing coverage of the hype versus the reality and the nuances of change as it takes hold. Our editors have always given a cautious eye to new-fangled things, or we try to, but we’re by no means immune to the excitement of radical new opportunities or overwhelming threats that promise to bring major changes to the industry as we know it and the lives of the business owners, managers, salespeople, support teams, associates and friends who make up our reader family. Also, big change is fun to write about.

But if there’s a rule about these big stories, it would be that they almost never go the way either their proponents or opponents foretell. The truth is many of the buzzwords that have arisen over the 95 years we and our counterparts of the past have covered the wholesale electrical products market have in fact left a substantial lasting impression on the electrical business.

In many cases, they morphed and continued to grow under new names or new models. Some were successful enough that they were absorbed into the standard operating procedure of the industry.  We may not use the original jargon anymore, but the lessons they taught have persisted.

With that in mind, and in no particular order, here’s a look back at some of the more interesting trends that captured everyone’s attention for a time and the way they changed or didn’t change the industry according to predictions when they emerged. The good news is that electrical distributors seem to have learned something from every single one.

TVs and Toasters as Major Lines. Most of us have no personal recollection of the days when electrical appliances and televisions were commonly sold by electrical wholesalers. Those markets were taken away by other channels. In our 1970 celebration of the magazine’s 50th year, general descriptions of electrical distributors’ primary markets focused on electrical contractors, industrials and dealers. Dealers sold appliances and other electrical goods to the general public at retail. The dealers and the appliance business were a nice chunk of volume and diversification for electrical distributors then, and various articles back through our history offered distributors good advice on things like lighting their showrooms to make the appliances more attractive.

This history of distributors losing their hold on the appliance categories does still come up now and then as a cautionary tale about how the market can shift away from traditional distribution. It came up when home theater and security systems emerged as a distinct market and again lately in regard to solid-state lighting, distributed solar and wind generation and energy storage. It’s a lingering lesson of seeing a market shift to a different pattern that takes away a sizable segment of a distributor’s sales, a shift we are all but certain to see again.

Web-Driven Disintermediation. It seemed likely in the early days of the web that the increased information flow and advanced logistics made possible by new information technologies would take a chunk out of most forms of distribution or eliminate them entirely. Web retail portals and reverse auctions would make the whole buying and selling process fundamentally different than what had gone before. The dot-com boom looked like a proliferation of threats and tech advocates’ predictions of a sea change of colossal proportions seemed very credible.

It didn’t happen, and the lesson reinforced the value of local brick-and-mortar suppliers with staffs of experts and helpful flesh-and-blood people you can punch in the nose if things go wrong. (You don’t actually throw the punch, but it’s reassuring to know you could – I mean, where do you even look for the nose on an algorithm?)

All the same, the concern that whole markets with business models based on using technology to circumvent traditional distribution altogether arises again and again. It has made a recent comeback with Amazon showing renewed interest in the business-to-business market.

The Integrated Supply Revolution. Electrical distributors serving the industrial market sweated through some dark times in the late 1990s and early 2000s when many of their largest customers moved aggressively to consolidate their purchasing with as few suppliers as they could. The responses varied from strings of acquisitions combining distributors from different MRO verticals under one name, to alliances of various kinds.

The alliances turned out to be very difficult to manage, but some who stuck with integrated supply gained a loyal following. Some of the acquisitions driven by this urge to diversify have also seen solid success. For these distributors, integrated supply remains a valuable market. But on the whole, purchasing at large factories appears to have shifted back toward a concentration on best-in-class suppliers in more traditional vertical markets. No doubt that pendulum will swing again.

Residential Datacom and the Smart House. There was a time in the early 1990s when new residential developments sported prominent signs that the homes were wired with CAT5 ethernet cable and network ports in every room. We would all need them to network our personal computers and our new flat-screen televisions.

Residential datacom installations, of course, were mooted by WiFi routers and broad bandwidth connections. And yet the idea of the Smart House is now being revived and embellished with the bigger and incomprehensibly more ambitious idea of the Internet of Things. The widespread conviction that wearable computing and ubiquitous sensor networks will provide enough convenience and entertainment to allay concerns about constant surveillance is inspiring companies from diverse corners of the lighting and networking and other technology markets to devote research and development dollars to the fight for their slice of the IoT’s backbone.

Most of the IoT products seen thus far use wireless methods to transmit data. Interestingly, it may be the Internet of Things that revives interest in hard-wired residential data networks. Once your toaster claims a slice of wireless so it can talk to your Stairmaster, and you can’t turn on the lights because your son is downloading a video, the value of low-voltage wiring may again prevail. Bob Karlicek, who leads the Smart Lighting Engineering Research Center at Rennselaer Polytechnic in Troy, N.Y., sees lighting-over-ethernet and new bids to revive power-line carrier data transmission as promising technologies for avoiding problems of wireless bandwidth bottlenecks.

Total Quality Management. In late 20th century when Total Quality Management was the biggest buzzword in management circles, inspired by W. Edwards Demming, Philip Crosby and a handful of other management consultants who had put the concepts to work helping Japan build the most envied and feared manufacturing juggernaut of the time, a number of electrical distributors such as Coughlin Electric and United Electric Supply embraced the principles of TQM.

TQM as a buzzword faded after a few years, but the idea morphed and branched into various modes of addressing consistency and performance and continuous improvement such as Six Sigma and Kaizen and Lean Manufacturing. Many of these approaches, well implemented, have proven useful in making manufacturers and service providers more productive, efficient and profitable, and the lessons were fairly quickly integrated into baseline assumptions about doing business well. The principles of empowering line employees and commitment to constant iterative improvements in products and processes are part of the basic fabric of production these days.

Some customers continue to look for third-party verification of quality improvement processes through ISO 9000 or other forms. Many of the best distributors have and maintain their certifications but it makes fewer waves than it did.

Crashing Waves of Distributor Consolidation. Again and again through the history of the electrical industry, people have made predictions that the electrical distributor market will consolidate to the point that three or so major national players would dominate.

It has yet to happen, and there’s no sign that it will soon. The electrical distribution market remains highly fragmented despite brief waves of consolidation over the years. The entire Top 200 list of the largest electrical distributors in the land still accounts for just 65% of the overall electrical sales through distribution. The combination of greater leverage for negotiating pricing and access to capital at lower rates on top of all the economies of scale to be gained from nationwide companies still are offset by the values offered by smaller, local and more agile suppliers.

Before distributor buying groups consolidated and boosted their emphasis on marketing, the choice to join or not was riskier.

Distributors who joined buying groups to consolidate purchases and buy on better terms to compete with the national chains were often cautiously scolded in these pages in the early days for giving away autonomy, creating a new layer of bureaucracy, exposing themselves to legal challenges and putting their focus on purchase price when it should be on selling.

Instead what has faded is most of the concerns around buying groups’ legality and justification for their addition of another layer in the channel. The shift by the major buying groups – primarily Affiliated Distributors and IMARK Group and their predecessors – from pricing toward helping manufacturers provide distributors with better marketing support to make more sales was a key innovation in the industry’s history. The move to marketing made the groups more widely relevant and in some cases a significant competitive advantage for their distributor members. Indeed, the case could be made that the buying/marketing groups are the reason the consolidation mentioned above hasn’t yet come to pass.

Home Centers of Doom. This one arose with the juggernauts of Home Depot and Lowe’s and other low-cost retail chains spawning locations in every city and town in the nation. Their finely tuned supply chains and lower-than-wholesale price points ignited fears that they would take a huge hunk out of the electrical distributor business model, starting with the small contractor market. The cries of doom reached a crescendo when Home Depot announced its intention to dominate the professional installer market and set up a subsidiary company focused on that objective.

As it turned out, home centers’ business models couldn’t match the product expertise and organizational structure of traditional distribution enough to attract more than a fairly small marginal segment of the trade, and even distributors focused on the small contractor market continued to prosper. Indeed, Home Depot’s bid to set up an offering for pros was spun off a few years later and morphed into something bearing uncanny resemblance to a traditional wholesaler, HD Supply.

Merchandising Mania. The threat from home centers actually turned out to be a healthy source of inspiration for traditional distribution. It led the industry to consider ideas like loss-leader pricing and inspired a round of merchandising madness that brought a lot of benefits for distributors. It helped raise awareness among manufacturers about the importance of creating attractive displays for their goods and offering these displays to the trade, not just big box retail. It also led to fresh paint jobs and more thought given to aisle spacing and display rotation in formerly dingy brown-pegboard counters. That’s been a very good thing.

Y2K. The turn of the calendar from 1999 to 2000 was a weird source of anxiety for societies the world over, but its most daunting manifestation came in the information technology world. The choice of computer programmers decades before to standardize dates with a two-digit year instead of four to save memory space led to the prospect of machines all over the world jumping backward a century in time, causing the global networks on which we were then just learning to depend for communications and finance and process control to seize up and die. Forecasts called for financial collapse and rioting in the streets, and large numbers of people hoarded hard currency and critical supplies to weather the disruption. To head off the threat, companies all over the world bid up programming talent in a race against time to reprogram or replace their systems before the calendar turned.

When January 1, 2000, dawned looking very much like the day before and ATMs still dispensed cash as usual and the phones and power grids still provided their services without a hitch, it all looked a little silly, but there were substantial repercussions. It’s hard to guess how many of the mergers and acquisitions in the electrical industry during the last couple of years of the 1990s were driven by owners recognizing that they didn’t have the financial strength to replace their ERP systems and choosing to sell while the business still worked. On the upside, companies throughout the economy started the new millennium with new computer systems with better functionality and resilience to disruption than the ones they had before.

Fads or the Future?

With stories of dumb smart houses and toasters on the warehouse shelf fresh in mind, now take a look at the list below and see if there’s any more clarity about which of the following 10 topics will flourish and which ones will fizzle. When you’re done, check out our Future View feature and Jim Lucy’s expectations for the years ahead.

  • The Internet of Things
  • 3D Printing
  • Lighting as a Service
  • Solar and Storage
  • Social Media Marketing
  • Net Zero Buildings / LEED
  • Electric Vehicle Charging Systems
  • AmazonSupply (or Amazon Business)
  • Digital Natives Reinventing the Industry
  • Drone Delivery