2011 Market Planning Guide Forecast & Methodology

2011 Market Planning Guide Forecast & Methodology

As individual geographic areas and key market segments slowly gain ground lost in the recession, this industry resource will help you and your management team blaze a trail out of the thicket.

Putting together the annual Market Planning Guide requires deciphering the sometimes cryptic messages contained in thousands of data points that we gather to produce the sales forecasts that electrical distributors, electrical manufacturers and independent manufacturers' reps have been using for the past 31 years to help guide their strategic planning. Industry veterans don't need Electrical Wholesaling to tell them that they have just been through the worst economic conditions in their business lives, but they can use some help in plotting their course from here. So grab a cup of coffee and immerse yourself in the next 20-plus pages. The data contained here for local market areas, different customers types and specific product areas will help you customize a plan of attack for your company.

The 2011 forecast and two asterisks to consider

We expect sales of electrical products through full-line electrical distributors to increase 5 percent in 2011 to $84.1 billion, after an increase of just 0.9 percent in 2010 and a decline of no less than (and probably markedly more than) 14 percent in 2009. EW's editors believe the five-percent increase that survey respondents anticipate for 2011 sounds pretty realistic. It's also right in line with the +4.9% national forecast that Herm Isenstein, president, DISC Corp., Orange, Conn., has developed in his data (see his 2011 forecast on page 15).

However, the 14% decline in 2009 sales our survey data produced struck us a bit low, especially when you consider the sales data we received from 140 Top 200 respondents who provided us with actual sales numbers for 2008 and 2009 showed an 21% average decline and that DISC data for 2009 shows a -23.9 overall decline in 2009 sales. This all being said, it's interesting that the 14% decline in industry sales basically matches the 14.4% decline that EW survey respondents forecast last year for 2009.

There's another important asterisk to consider with this year's sales forecast. Every five years, we rebench our base number for sales through electrical distributors with the sales data in the U.S. Economic Census of Wholesalers. The Census data for 2007 was published this year, so we “start fresh” with a new five-year cycle benchmarked back to 2007. If you are interested in total U.S. sales through electrical distributors and think the $84.1 billion we are forecasting for 2011 seems too high, there's a good chance the answer lies in the exceptionally broad definition the U.S. Census Bureau uses to categorize a distributor of electrical supplies. The government data of interest is in its North American Industry Classification System (NAICS), specifically “423610 Electrical Apparatus and Equipment, Wiring Supplies, and Related Equipment Merchant Wholesalers,” where it says there are 13,277 “merchant wholesalers,” (not counting manufacturers' sales branches and offices) that in 2007 sold $94,237,241 worth of electrical equipment. EW's editors are currently counting distributor locations in our databases in an attempt to get up to that number, but it's pretty safe to say the conventional definition of an electrical distributor used in the electrical market appears to be much different than what's used by the government. Our early research indicates that in some states the U.S. Census Bureau count differs substantially from what we would consider a distributor of electrical supplies. If this turns out to be true on a widespread basis, it could dramatically affect the 2007 base sales figures.

This all being said, the year-to-year sales increases that EW research produced for this issue are well-grounded in the same survey techniques over the years and offer a realistic look at the flow of sales in the electrical wholesaling industry, and you can use them with confidence in your market planning.

2009 Sales-Per-Employee By Region

Region Mean Median
Total $574,756 $410,000
New England $650,000 $520,000
Middle Atlantic $384,500 $260,000
East North Central $525,785 $400,000
West North Central $284,000 $287,500
South Atlantic $815,183 $450,000
East South Central $125,750 $116,500
West South Central $571,300 $280,000
Mountain $691,814 $400,000
Pacific $329,533 $348,500
Multi-Region Companies $684,662 $540,000


Our forecasts are based upon responses to Electrical Wholesaling's annual Market Planning Guide (MPG) survey. Each year, the magazine asks electrical distributors for their previous year's final sales results, sales predictions for the current year, and predictions for the following year. It also asks respondents how sales for the first six months of the current year compared with the first six months of the previous year. This year, Electrical Wholesaling mailed 5,125 surveys (both by mail and via e-mail) and received 223 usable surveys for a 4.7 percent response rate (a respectable rate by any survey standards). Respondents reported an average sales-per-employee number of $ 574,756 for 2009, close to the $554,269 respondents reported last year for 2008 but quite a bit lower than the $633,596 average sales per employee for the 140 respondents to this year's Top 200 survey who provided both sales and employee figures for 2009. Regional sales-per-employee numbers are provided on this page. Be sure to check how your company's productivity compares with the national and regional averages when it comes to sales-per-employee.

National Sales-Per-Employee

Year Market Planning Guide Top 200
2009 $574,756 $633,596
2008 $554,269 $644,684
2007 $541,872 $519,215
2006 $400,000 $640,910
2005 $478,413 $593,506
2004 $394,892 $540,638
2003 $319,704 $469,536
2002 $326,400 $472,167

The 2007 sales data previously presented in the Market Planning Guide was updated with the 2007 Census of Wholesale Trade data released this year. The 2007 Census reported “Merchant wholesalers, except manufacturers' sales branches and offices” data for 29 individual states, as well as the District of Columbia. Census data for these states and D.C. were directly incorporated into the EW file. For the remaining 21 states, 2007 sales estimates were calculated based on the percent contribution of each of those 21 states to the 2010 projected sales from those same 21 states last year ($15,682,858).

Okay, enough about statistics and our bookkeeping. Along with providing an annual snapshot of the electrical wholesaling industry, one of the great things about putting together the Market Planning Guide each year is that Electrical Wholesaling's editors learn a ton about developing market trends and hot geographic markets that we report on in future articles. This year was no different. Here are some of the most interesting things we learned by going through the process.

Some of the numbers that measure the commercial market are the worst we have seen in decades

Massive job losses during the recession pushed the national office vacancy rate to more than 20 percent in many major market areas, according to Grubb & Ellis. That's a vacancy rate that only the worst office markets see in “normal” years. Grubb & Ellis reported earlier this year that 16 major cities had downtown vacancy rates worse than 20 percent; 22 cities had suburban vacancy rates that topped 20 percent.

One reason to be cheerful: Stock prices of many publicly held electrical manufacturers are at or near the 2007 bull-market highs that occurred before the start of the recession

A leading indicator for the overall U.S. economy has always been the direction of the stock market, and industry observers can learn from patterns in the stock price activity of electrical manufacturers, too. It's been a long, hard slog, but when you look at stock prices for companies including but not limited to Cooper Industries (CBE), Houston; Eaton Corp. (ETN), Cleveland; Hubbell Inc. (HUB-B), Orange, Conn.; Littelfuse (LFUS), Des Plaines, Ill.; and Rockwell Automation (ROK), Milwaukee, from Oct. 9, 2007 and compare them to prices three years later, you will find that most of them are at, over or within 10 percent of the per-share price on Oct. 9, 2007.

Distributors' Forecasts for Major Business Sectors

(Forecast for 2010. Average percent change from 2009.)
Residential Industrial Commercial Institutional Government Utilities
New England -20% 6% -5% -8% 0% 0%
Middle Atlantic -4% -2% -10% 1% 1% -3%
East North Central 0% 5% 2% 5% 2% 4%
West North Central -4% 10% 6% 1% 2% 4%
South Atlantic -11% 3% -3% 3% 1% 1%
East South Central 2% 0% 1% 7% 2% 0%
West South Central 0% 6% -3% 2% -3% 1%
Mountain 1% 2% -2% -2% 1% -1%
Pacific -6% 2% 1% 1% 1% 2%
Multi-Region Companies 2% 5% -3% 6% 4% 2%

The “electrical universe” may be smaller than previously thought, at least as measured by government data

To develop a realistic number for the number of electrical distributors in the United States, as mentioned earlier, EW's editors are counting the distributor locations in the major metropolitan markets because the numbers shown in the 2007 Census of Wholesale Trade for NAICS seem awfully high. We are counting all “full-line electrical distributors” — loosely defined as the pipe-and-wire electrical distributors that are often members of the National Association of Electrical Distributors (NAED), St. Louis, Mo., as well as specialists in lamps, wire and cable, utility products, industrial automation products and other niche product areas. In addition to these distributors we are counting the branch locations in individual metropolitan areas for hybrid distributors that sell electrical products as part of their overall basket of products for the industrial MRO or construction markets. In this “Electrical Wholesaling census of distributors of electrical supplies,” these companies include but will not be limited to hybrid distributors such as W.W. Grainger Inc., Lake Forest, Ill.; Fastenal Inc., Winona, Wis.; and Johnstone Supply, Portland, Ore.

Job losses at electrical contractors translate directly into lost sales for electrical distributors

According to data from the Bureau of Labor Statistics in May 2009 (the most recent employment data available by individual job category) there were at least 70,000 fewer electricians employed nationally in August than in May, 2008. These job losses translate into real dollars lost for electrical distributors, according to EW forecast data. Each electrician a company employs accounts for an estimated $49,787 in potential electrical sales. That means in just over two years the electrical wholesaling industry has lost more than $3 billion in electrical sales to its single largest customer group — electrical contractors. Electrical Wholesaling estimates that electrical contractors account for approximately 36 percent of total industry sales. The job situation isn't any better in the overall construction market. According to the Associated General Contractors (AGC), Washington, D.C., the market lost 21,000 additional jobs in September and almost hit a 14-year low for the month. Ken Simonson, the association's chief economist said construction unemployment tumbled to 17.2 percent and that, “It has taken less than four years to erase a decade's worth of job gains as the industry suffers from declining private, state and local construction demand. No other sector of the economy has suffered as much for as long as construction.”

But the numbers don't tell everything, and in many cases they obscure what truly are some terrific opportunities for electrical distributors, manufacturers and independent reps to profit in new markets or harness new technologies to improve their customer responsiveness. In last year's Market Planning Guide, we gave you five markets to consider:

  • Government projects funded by The American Recovery and Reinvestment Act (ARRA)

  • Increased opportunities from utility-funded rebates and other financial opportunities

  • Green electrical products

  • The educational market

  • The next wave of residential construction

While the demographic drivers we discussed in that article (available at www.ewweb.com) for the educational market and next wave of residential construction make these market opportunities longer-term plays, federal projects, utility-funded programs and the green market are available for you right now, and Electrical Wholesaling has devoted barrels of ink to them over the past year. Check your back issues, subscribe today or visit www.ewweb.com to review them.

For 2011, EW's editors would like to re-emphasize opportunities that exist in the green market and for added sales from the electrical products needed for low-voltage cabling systems for home offices, big-screen televisions, security systems and the like. The quick return on investment that building owners can get from lighting retrofits of existing facilities make the green market a best bet in 2011. Depending on your geographic location and the utility rebates and local and state financial incentives available, solar may be a real-world opportunity right now. LEDs are the “over-the-next-hill” game changer that you also need to be watching.

On the residential VDV front, any sales you get from 2011 growth in new construction is on a market-by-market basis, but your electrical contractors may already be tapping into potential sales from system upgrades as customers move up to larger big-screen televisions and add security systems.

You may get the chance to cash in on some ARRA-funded projects in your market, but the competition is fierce and you may even get elbowed out of the way by some electrical manufacturers who go after this market with turnkey services. Keep an eye on www.fbo.gov to see what contracts are going up for bid in your local markets.

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