Sales Continue to Slide for some Electrical Distributors

glad i’m not in the resi market … no sales and less profit

In resi,
(1) Total Housing starts have leveled off in some areas, except that multi family starts – which are less dollars per dwelling unit than single family – make up a larger portion of new permits.

Hence, it’s understandable that resi distributors’ sales continue to go down even though permits/starts have leveled off somewhat: there are less dollars per permit.

(2) The household formation rate in the US is about 1.2 million per year.

Thus, the sustainable housing market is 1.2 M, plus a factor for replacement of aging housing stock.

This means the new “new” is way back when starts were about 1.2 M or so per year.

This does not support all the players in this business going back quite a few years prior because the business was supporting an unsustainable rate 2 M+.

3) Local markets with a net in-migration depended on newcomers being able to sell elsewhere and relocate using sale proceeds to finance their new residences.

This growth will not rebound until those wishing to migrate can sell their homes at a level to make this financial model work.

4) Why are even non-resi sales down? New commercial infrastructure usually automatic for growing communities is not needed now.

Manufacturers, reps, distributors, contractors who want to be in this business long term have to do what it takes to stop the bleeding now and position themselves for the new “new” – both in terms of market size and what products and services will be there when the recovery actually takes place.

Anonymous makes a good point – there is a sense in the market among contractors, distributors, and reps to hold on somehow now, and wait for good times when the economic cycle turns around.

The trouble is that in resi the market anyway the cycle will not reset to anything like the recent peak, but to something far less.

It cannot support those who are still players in the channel.

Similarly, to those like the other anonymous who are smug about not being in the resi market: what about the present reliance on government for commercial construction whether they be schools, hospitals, airports, waterworks, prisons, or whatever? How long will that last given the systemic fiscal problems of states and municipalities?

And then there are federal stimulus driven projects. The credit markets will not finance indefinitely the defit spending that these require.

There seems to be a sense in the channel that this economic cycle is just like those before. But there are underlying debt, tax revenue, and housing demographic factors that will prevent recoveries like we have seen before.