In just a few short years, solid-state technology has erupted in the commercial lighting market, threatening to change the balance of power on lighting’s bucolic hillsides and reshaping the terrain for generations to come. It’s not so much the technology itself, though that is impressive enough. The real change will ultimately be seen in the altered business models of the various players who bring lighting to market.
The opportunities created by LED technologies have already been disruptive, says Chris Brown, CEO of Wiedenbach Brown, Hawthorne, N.Y. (now owned by Consolidated Electrical Distributors (CED), Irving, Texas). Growing up as the third generation of his family running the exclusively lighting-focused distributor that serves a host of national retail chains, his primary role was in the maintenance, repair and operations (MRO) end of lighting — mostly providing customers with a steady stream of replacement lamps.
He jokes that the rise of LED lighting has caused him to join two words that never made sense together when he was growing up in the stable, commodity-dominated business: “lighting” and “exciting.” And the excitement has an existential side — making him ask whether a lighting distributor’s role in the world has the lasting value that once seemed certain.
“The better we do our job selling the right LED product to our client, the sooner we are out of the MRO business with that client in that location,” Brown recently told a conference of lighting people. “With our success in converting to LED, we are destroying a significant part of our revenue — our daily light bulb replenishment business.”
This destruction, along with a host of other challenges arising in the lighting market and in distribution generally, makes it urgent for distributors to ask themselves some hard questions about their role, Brown tells Electrical Wholesaling. “Our business model has got to evolve to answer the question, ‘How do we stay relevant with a client once we’ve done our job if he’s not going to need us again for five or seven or 10 years?’”
Amid the disruption, the lighting market today still includes many of the features — the channel players, the divisions of responsibility and compensation — that emerged when it was a more volume-oriented, commodity business.
When GE, Sylvania and Philips were the unquestioned heavyweights on the lamp end and “super reps” for the major fixture manufacturers — clustered under Lithonia (now Acuity Brands), Cooper Lighting, Hubbell Lighting, Genlyte (now Philips) — could all but dictate the packages of lighting that went into any major commercial construction project, there was widespread concern and consternation over the outsized leverage these companies and their reps could wield in setting and breaking specifications and jiggering packages to optimize their commission and overage proceeds. A feature story looking at the vagaries of that market in Electrical Wholesaling’s May 2003 issue, “Lighting’s Dark Side” stirred considerable discussion.
In October that same year, in Saratoga, N.Y., a conference organized by the Lighting Research Center at Rensselaer Polytechnic Institute, called Bridges in Light, brought together a broad swath of the lighting industry for a “First Continental Congress of Lighting” to chart a socially responsible course for the future of lighting. Bill Warren, principal of lighting consultant firm Willard L. Warren Associates, New York, recalls that one of the speakers castigated the assembled luminaries for their complacency, saying the lighting industry was stagnant and ripe for disruption.
“The think tank people said this was a boring business — it was staid, moribund, had seen nothing new since the electronic ballast in 1980,” Warren recalls. “They said this industry is ripe for a disruptive element to turn it on its head. We just didn’t know what it was.”
At that same meeting, there was also a section on how to set testing criteria for exotic electroluminescent technologies such as light-emitting diodes that could be used for lighting.
The story of the subsequent rise of LEDs has been fascinating to see unfold. The features of the market seen then are still roughly in place, but the forces that will challenge and possibly change them as the revolution continues are already visible.
The super reps still hold a powerful position in the market as their lines have continued to expand through ongoing consolidation of the lighting industry. The large lighting manufacturers have spent billions acquiring business lines with an eye toward being able to spec a whole building, from LED modules and drivers (together called light engines), to a wider range of indoor, outdoor, commodity, emergency and specification-grade fixtures and further into sensors, lighting controls and building automation systems.
Overages and opportunities to make money have, if anything, gotten more extreme. Where before one way to maximize compensation may have been to adjust the mix of products within a project, now prices for LED lighting equipment are falling rapidly and performance is rising at the same time, meaning it’s not unusual for the price to drop and the performance to improve during the time between specification and installation. And even with the aid of LightingFacts labels that list performance parameters in a standardized format and CALiPER studies the DOE conducts to verify manufacturers’ claims about the performance of LED lighting, the difficulties of comparing alternative LED lighting systems adds to confusion over what a reasonable price should be. The flip-side of the turmoil is that these reps also must work even harder to stay abreast of the technology and the opportunities than before.
The up-front leg work in design and system specifications required of reps before they even have a chance to make any money is part of the justification for their compensation. Mike Schaeffer, owner of Schaeffer Marketing Group, St. Louis, has just over the past few years expanded his agency from a shelf-goods distribution rep into the lighting market, first representing Crescent/Stonco for Philips Lighting, then after that company changed its rep policies, Schaeffer picked up Cree. He’s already seen some hair-raising and heartbreaking situations where projects on which his team had worked for years were undercut at the last minute by someone from outside.
Michael Katz, president of the Lighting Rep Network, started his career as a rep in Philadelphia, and his subsequent path through the lighting market has led him via manufacturing to his current position helping reps evaluate new lighting manufacturers as potential lines. He has seen a change over the years in the skills of the lighting reps.
“All the major package reps I’ve worked with lately are very professional, they have talent, they’re very knowledgeable,” Katz says. “They need to make a buck, and they would rather make 10% than 5% — but they feel they deserve it. If not for the lighting rep, who’s going to educate the architect to make sure he’s bringing in a properly lit, properly controlled system? You don’t want to be guessing. I find them to be more professional, more talented than 10 years ago.”
The reps have to keep architects, engineers, developers and contractors up to date, as the pace of technological change today is unlike anything the lighting market has ever seen. LED modules and drivers advance so quickly that it’s become a familiar frustration among lighting fixture designers to have components declared obsolete by their suppliers before a fixture is even out of the prototype stage.
The challenge is that LEDs, drivers and controls in a lighting system all have to be carefully matched. A specifier has to know more about these nuances, and must somehow protect himself against the risk of a component failure making a lighting system’s UL/CUL/ETL listing, thermal performance and lumen maintenance ratings invalid and can cause unexpected problems with the controls as well. That means a rep with a package that includes everything from the light source to the dimmer under a single brand has a compelling, comforting proposition for the building owner.
So, in a way, the big package players that constitute the power base of the legacy lighting market seem to be even more influential than they were a decade ago. But they no longer have the field to themselves.
The explosion of activity in high-efficiency lighting didn’t go unnoticed by even bigger players. Toshiba, Samsung, LG, and just about every other gigantic consumer electronics, engineering or semiconductor manufacturing firm on the planet is showing interest in the lighting business now. These new competitors come to the business with no preconceived notions and in many cases they are bypassing the traditional channel and taking their case directly to the buyer.
Some LED-specific startups are taking the same path. In 2011, LED module manufacturer Cree Inc. acquired Ruud Lighting, one of the most successful direct-sales fixture lines in the business, with a compelling subsidiary brand, BetaLED. As one example of the combination’s success, they’re now busy changing out every streetlight in Los Angeles with their LED roadway equipment. Cree also sells through distributors.
With this in mind, distributors must ask questions and look for ways to stay relevant, ways to add value, and get compensated for it. There may be an opportunity in failure. When it comes to LED lighting systems, there are essentially three kinds of failure — outright failure, unacceptable lumen depreciation and unacceptable color shift. Any one of these will be complicated by the minute but noticeable variability in color among (and within) production batches of LED modules, as well as the changing technology of drivers and their tendency not to be directly swappable. Meanwhile, the customer is looking for a throat to choke. A distributor who puts his reputation on the line to be that throat can provide considerable value no one else in the chain seems to want.
Right now the rapid advance of high-efficiency lighting technologies, with a boost from government and utility incentives and a simple, compelling economic payback story, is driving a torrent of activity. There are millions of sockets in buildings throughout the United States and billions around the world that are ripe to be converted from older incandescent, halogen, HID and fluorescent to high-efficiency light sources. Competition is fierce and continuing to escalate, but while the numbers may be huge, they are finite. Once the lights in those sockets are replaced, the picture will change again.
“We will never again have the ROI opportunity that a user achieves in his first conversion to LED,” says Brown of Wiedenbach Brown.
That’s why Brown spends his time thinking about how a distributor’s business model must change for his company to stay relevant. While reluctant to share details about his conclusions for competitive reasons, he says he’s identified 25 “touch points” where his company interacts with customers’ locations and is looking for ways to provide unique value at those points. His basic idea is to concentrate on supplying the lighting, not just the lights.
Brown’s approach will play out in the context of a single company’s strategy, but he is adamant that all distributors need to be thinking about the ways new technology, shifts in customer loyalties to the traditional channel and competition from bigger, better funded online companies will change their world, and looking for ways they can change their models to thrive in a more exciting lighting world.