NAED SouthCentral Observations

In the words of Electrical Marketing, “Not surprisingly, attendance is (was) down at the conference.” Overall, there were an estimated / registered 420 manufacturer and distributor attendees. About 60 distributors were represented. Observations from attendees was that cost-cutting probably was the reason for the low attendance. A number of smaller manufacturers also questioned their ability to interact with the larger distributors.

The economy was the topic for many, with comments such as:

• The business hit the wall in December.
• The definition of ‘soft’ is down 40% and ‘flat’ it 0-20% down
• We’re doing lots of quoting, but projects are stalled. There is no funding.
• Many question the outlook, not knowing when credit will become available to fund pending projects.

A number of manufacturers commented that they sense a feeling of “acceptance” of the current market from many of their distributors. Almost a sense of “nothing we can do” and a focus on cutting expenses and inventory. Manufacturers did comment that there are a few progressive distributors who are seeing niche opportunities that they can take advantage of.

Input that we received includes:

• National account clients are looking for 10% cost reductions based upon their belief that since commodity prices have dropped, they should share in the savings (or that the savings should go down to end-users). According to one national account organization, the reality is that they cannot reduce anymore than 3.5%, with manufacturer support.
  Distributors commented about lots of quoting activity but little project selling right now. If credit thaws, the business would be realized in Q3 and Q4. Counters are also quiet, reaffirming expectations that small to mid-sized contractors are not too busy.
• A few commented regarding their inventories, inventory valuations and SPAs:

• “I am trying to return product but it looks like freight may eat up the
  current drop in value. My greatest fear is that further erosion on my into stock price (and inventory) will have long term effects on the value of my
  company”

  “My inventory is only worth what I can sell it for today. While I have
  written down my inventory value, it appears that I jumped the gun….now I may have to write it down again.”

  “In order to be competitive now I have to go back to selected manufacturers
  to get larger SPA’s …..which in some cases becomes very confusing. Some
  manufacturers are asking for greater POS hooked to the date I purchased the
  product.” (Note, we’re surveying distributors regarding SPA usage).

• Resi-oriented distributors feel that there could be some service / remodeling business as mortgage rates decline, people refinance and commit to staying in their homes longer, with mortgage savings possibly going into home improvements or to fund home equity loans (and remodeling).
• Manufacturers are sensing that distributors are struggling from reduced business, high inventory and reduced cash flow. One manufacturer commented that he is “seeing one small distributor closing per week.” While the actual number may not be this high, industry consolidation will occur due to closings and expected acquisitions.
• Bob Gaylord provided an insightful conceptual presentation of IDEA’s direction on Wednesday to a small audience. Unfortunately, the presentation was short of details, success stories and “buying imperatives” (why use IDW/IDX).
• Vista Information Services is gaining momentum and providing manufacturers with the information needed to capture market share for specific product categories, and SKUs. In the last 90 days, about 10 manufacturers have signed up. To date over 900 distributor locations are providing SKU-level information.
• According to some manufacturers, some of the national chains are encouraging manufacturers to maintain their 2008 rebate incomes to the chains, almost regardless of 2009 performance. Independents are trying to negotiate their stretch goals to not exceed 2008 performance (if not less). Which begs the question, what is the value of rebate stretch goals and incremental rebate opportunities if they are renegotiated to base levels? Perhaps the base rebates need to be increased or manufacturer funding could be channeled to specific growth product categories/SKUs.
• Word from a couple of tool manufacturers is that Klein is moving out of Lowes and into Home Depot, replacing Greenlee. To complete their line, Klein will be sourcing products (lock-out / tag-out, benders, etc…) from overseas. Klein is also selling its tools online at their own website, http://www.kleinconnection.com/.
• Growth oriented distributors are considering their approach to the “green” market but there are a number of distributors who feel the economy will slow this area, don’t have interest in investing or feel that their sales organization can support, and are waiting for this to be a commodity and will earn the business based upon bidding. Those pursuing are also interested in the LED market (we are surveying distributors about this LEDs). There is some interest in solar.

Unfortunately the only evening reception was NAED’s reception on the first night (and since the hotel was far away from restaurants, attendance dwindled quickly). No event on Thursday night. Many lamented the fact that this reduced networking ability (smaller companies as well as larger ones that were booked all day in meetings). Hopefully this will be rectified for the annual and for next year’s regionals. Hubbell, you are missed!! Many wondered why NAED didn’t move their Friday night function to Thursday night and questioned what networking opportunities there will be at the NAED Leadership Conference (Annual) as the current agenda shows no evening manufacturer events (or NAED events).

While attendance was light and networking activities somewhat missing, many commented that if you prepare a plan for the meeting and “work” your agenda, much can be accomplished.

With the economy impacting attendance and attitudes, the group of 60 distributors shows that there are companies in the industry that are seeking opportunities to control their destiny.