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Illustration_60886103 / Kheng Ho To / Dreamstime
Illustration 60886103 / Kheng Ho To / Dreamstime
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Partners in New Light

April 9, 2015
This discussion needs to find some alignment between the distributor’s vision of his future role in the lighting market’s evolution and the supplier’s niche specialties.

Heard from any new LED lighting companies lately? Judging from the communications we receive at Electrical Wholesaling Headquarters, where every morning’s e-mail inbox dump includes an assortment of oddly worded offers from companies with unfamiliar names touting lighting products with performance claims that seem rather ambitious, we suspect distributors are seeing many times the inquiries we field.

It’s an exciting time in lighting. Lots of companies want in on the action. The newcomers make a lot of claims. How do you determine which suppliers might be valuable long-term partners who can help grow your share of the lighting market and which ones will leave you stranded, or worse, leave your customers with a lasting bad impression? We talked with people from various parts of the lighting market to get some insights on what kinds of questions will lead electrical distributors to an informed decision.

Bill Attardi of Attardi Marketing and Chris Brown of Weidenbach-Brown have been doing a point-counterpoint on the future of the lighting distributor, which we’ve highlighted in the pages of Electrical Wholesaling. There’s no real doubt that distributors who want a role in lighting five years down the road need to have a plan in place now for how they’ll adapt.

Gather your brain trust and think through what you’re doing in lighting now and how your company may need to change to adapt to a very dynamic market. In a market where selling skids of lamps for maintenance, repair and operations (MRO) is no longer providing a stream of revenue, what will your company do to be relevant to those customers? In an environment where lighting and controls are combined with wireless data and sensor networks, how will your sales strategy change, and who will become your experts? Do a SWOT (strengths, weaknesses, opportunities and threats) analysis to identify your strengths now and the ones you want to develop. What niches are most promising in your market?

Once you have a clear view of where you’re going, sit down with your prospective new supplier and put the following questions at the top of your list.

How long have you been in lighting? A deceptively simple question, but a company with installed base that’s been working well for several thousand hours – even if they’re new to the U.S. market – will have much more to contribute to your lighting plans.

What segment of the market is strongest for you? Breadth of coverage is important, and the best way to cover most of the relevant bases is to partner with one of the major suppliers. But smaller niche lines can give a distributor additional options. Many of the new entrants are niche players. A tight focus on a niche in horticultural lighting, human factors lighting, high-brightness stadium lights, decorative architectural lighting, retrofit packages or some other slice of the lighting pie can make a smaller supplier valuable to a distributor pursuing the same niche.

Ask in detail about what kinds of applications have been most successful for them so far, and what applications they are  targeting for future development.

Also get into detail about the technological innovations they’ve developed that puts them ahead of the offerings of the majors. This discussion needs to find some alignment between the distributor’s vision of his future role in the lighting market’s evolution and the supplier’s niche specialties.

Whose chips and drivers are you using? As the market for LED lighting matures, dominant OEM suppliers of LED chips and drivers are coming to the fore. You’ll want to know the big ones, and find out why your prospective supplier is sourcing elsewhere if they’re not using a known brand.

The top ten LED chip suppliers for general lighting as of 2014, according to market research firm Strategies Unlimited, are Nichia, Samsung, Osram Opto Semiconductors, Philips Lumileds, Seoul Semiconductor, Cree, LG Innotek, Sharp, Everlight and Toyoda Gosei.

According to a Department of Energy study titled Manufacturing Roadmap: Solid-state lighting research and development, the driver market is much more fragmented:

"Manufacturers of complete driver sub-assemblies include the vertically integrated luminaire manufacturers and specialist driver manufacturers such as iWatt in North America, and Meanwell in Taiwan. Luminaire manufacturers have recently been acquiring these specialist driver manufacturers. For example, GE Lighting acquired Lightech in July 2011 and Acuity Brands acquired eldoLED in March 2013. LED driver IC manufacturers include (listed alphabetically) Allegro Microsystems, AnalogicTech, Analog Devices, Austriamicrosystems (AMS), Cirrus Logic, Diodes, Inc., Exar, Fairchild Semiconductor, Freescale Semiconductor, Infineon Technologies, Intersil, iWatt, Leadis Technology, Linear Technology Corp., Macroblock, Marvell, Maxim Integrated Products, Monolithic Power Systems, National Semiconductor (now part of Texas Instruments), NXP Semiconductors, ON Semiconductor, O2 Micro, Power Analog Microelectronics, Power Integrations, Richtek, Rohm Electronics, Semtech, Silicon Touch Technology, Skyworks, STMicroelectronics, Supertex, Texas Instruments, and Toshiba."

Can I look through your specs? An LED lighting product without an Underwriters Laboratories (UL) or equivalent listing is going to be a hard sell, especially in the commercial, institutional and industrial markets. Additional clout comes with an Energy Star label from the U.S. Department of Energy (DOE) and a listing in the Design Lights Consortium (DLC) Qualified Products List, a database of over 60,000 luminaires and their test results. If a fixture is not Energy Star compliant or not on DLC’s list, it’s worth asking where it fell short.

Customers are increasingly sophisticated about scrutinizing LM79 and LM80 test results for data on product life and lumen depreciation (respectively). Any reputable lighting supplier will have this data at the ready. For customers still catching up on LEDs, a smart distributor can help them make sense of the data.

“It is possible to project life based on lumen depreciation modeling with zero life testing,” said Mary Beth Gotti, who manages the GE Lighting Institute in Nela Park, Ohio. “All that is required is the LM80 report from the LED maker and one initial temperature measurement. Conscientious manufacturers will do additional testing e.g. stress testing, thermal cycling, etc. to look at failure modes other than lumen depreciation.”

What’s your control and networking strategy? California’s Title 24 mandates lighting control in new buildings, suggesting that similar requirements may be written into building codes elsewhere over the next few years. With wireless networking playing a growing role in the evolution of lighting systems, compatibility and open standards will be a critical issue.

In a recent article in LEDs Magazine, Tanuj Mohan, founder and chief technology officer of Enlighted, Sunnyvale, Calif., a manufacturer of smart sensors and controls, took a look at the existing options for wireless protocols and found all of them lacking. The need for an open standard that supports advanced applications that would really make use of the Internet of Things hasn’t yet been satisfied by making changes to legacy protocols developed for simpler network functions, he said. The prevailing option, ZigBee, a low-power mesh network standard, as well as most of the alternatives, were developed for small home-scale applications and face scalability problems when applied to larger commercial IoT networks, Mohan said.

As networked lighting becomes a larger concern, stay abreast of standards development and keep an open channel with your suppliers about how they plan to make their products play nice with the Internet of Things, whatever that turns out to be in the real world.

Warranty, please? LED luminaires are increasingly backed by substantial warranties, from three years to as much as 10 years, and specifiers and end-users are coming to expect it. This is seen predominantly as a sales and marketing tactic to help customers get over concerns about a new technology, but for a distributor the warranty raises questions. What does it cover? How solid is the company behind it? If a company offers a seven-year warranty but they’ve only been in business for three years, how comfortable will you be? As the distributor who sold the product, a supplier who’s gone out of business would leave you exposed to warranty claims.

“If this fixture has a 10-year warranty, and if there’s a problem eight years later, they’re going to call you back and use your time to fix the problem. That’s part of the service a distributor provides,” says Ted Konnerth of Egret Consulting. “The LED, just on the diode side, will last 20 years. It’s the control gear, depending on where it’s installed and how it’s configured, that could fail after one year or two years. How that will go really hasn’t fallen out.”

Many fixture manufacturers rely on pass-through warranties from the component manufacturers to backstop them on future claims. Jay Goodman, founder of LumenOptix, a manufacturer of direct LED replacements for a host of luminaires, says having the pass-through warranty coverage of his major chip and driver suppliers makes it easier for him to back any future claims.

Regardless of the source of failure, make sure you know how warranty claims will be handled. For instance, will you have to remove the fixture and ship it to the manufacturer for inspection and repair, or will they send someone out?

What are your stocking, freight and returns policies? This is the bread-and-butter functional distribution agreement stuff, but in the case of new LED lighting suppliers these concerns take on fresh importance. LEDs behave like electronics and computers in that their performance is going up with each new introduction while prices go down, compressing margins available for supporting distributor services.

Steve Espinosa, president of The Lighting Company, Irvine, Calif., sees a shift going on due to the parallel rise of LED lighting and Internet commerce. “I think there are two big trends that are impacting distributors and to some degree they intersect, particularly in the area of inventory. One of course is LED lighting the second is internet competition,” he said. “In the past a new product like LED items would be priced up as a “B” or “C” item to cover the cost of stocking and creating a demand for the new product.  But once the customer is informed about the new product, they can then price-shop it on the Internet.

“The bottom line is the distributor needs to reduce their cost on LED products and “B” and “C” items. The best way for the distributor to reduce the cost is to not stock the item (ordering only when a customer places an order); or keep minimal stock on hand,” he said.

That’s why you’ll want to ask about where and how much product the manufacturer stocks in its own or rep facilities, how quickly and reliably they can fill orders, and whether they provide services like drop-shipping.

For products you do stock, the rapid obsolescence of the technology makes it critical for you to understand how your new supplier will handle returns, says Bill Hurd, vice president of lighting and controls for Shealy Electric. “The technology changes so fast, and it’s always getting cheaper and giving better performance in lumens per watt. I want to know from my manufacturers when they’re releasing generation 6 of their technology,  are they going to help me move the generation 1 or 2 product I have on my shelf?”

What’s your channel strategy? Manufacturers entering the U.S. lighting market are learning how it works. The wave of electronics giants who hit the LED lighting market around five years ago has rolled back, largely on the realization that the legacy channel is not as easy to displace as they imagined.

Asking your prospective supplier about how they view their role in the channel will reveal a lot about how whether they see lighting reps and distributors as a temporary route to market until they have enough customer data to realize their dreams of channel disruption or see the existing channel as an essential network of partnerships for thriving in lighting over the long term.

Forest Lighting, Atlanta, the U.S. subsidiary of LED manufacturer MLS, Zhongshan, China, saw from the beginning that the traditional lighting channel would be key to their success in this market with an offering oriented toward affordable, commodity LED luminaires, says Jian Ni, Forest Lighting’s COO. The company hired consultants with deep knowledge and connections in the lighting market and have been a constant presence at distributor conferences over the past year.

“We want distributors to know we’re here to stay,” Ni said. “We invest heavily in our establishment of channels. We invest heavily with the trade associations – we have been sponsoring lots of conferences and meetings – and we’re donating our products to the community. We recognize the rules and operations of the business culture here and we want to play by the rules.”

How much sales and marketing support can I expect? To distributors that belong to buying/marketing groups, support of their marketing programs goes a long way, say Hurd of Shealy, who mentions Affiliated Distributors support at the top of his list when evaluating new suppliers. Outside those groups, well-conceived marketing programs with sample products, mockups, displays and literature goes a long way to helping a distributor bring a new line to market. Manufacturers offering even more, such as design services and training facilities where distributors can send their salespeople to stay abreast of the latest developments in LED lighting technology, garner even more appreciation from distributors.

Pick your partners

Armed with the answers to these questions, an electrical distributor should have a good sense whether a particular lighting supplier makes sense as a partner. Customers may be growing savvier about evaluating lighting options, but the technology is continuing to change and they will need support from a distributor or rep with an established reputation for lighting expertise to help them choose among superficially similar products. The payoff for providing that expertise is the opportunity to play a pivotal role in the LED lighting transformation.

“There is no question that the LED is a superior light source, and there is a great deal of excitement about switching or converting to LED lighting,” said Gotti of GE. “There will be many products that are similar in initial performance but the key question is: How will these products be performing three years from now, five years from now and (maybe) 10 years from now? Depending on the drive current and the heat sink, the same LED can last a long time or depreciate in lumens rapidly. The end-user cannot tell the difference, they must depend on the engineering and testing of the manufacturer to provide some assurance of long-term performance.”

A distributor with the expertise to help end-users make sense of the manufacturers’ engineering and testing data and a willingness to help them through the learning curves of new lighting technology will be in a much stronger position to help them lower their energy and operating costs with new technologies as they come on the market.