The Eroding Lighting Market

As many  know, lighting represents 25-30% of a distributor’s sales.  Lighting is typically defined as lamps, ballast, and fixtures (and some people add in lighting controls).  It is an important part of a distributor’s business albeit lighting projects are frequently low margin (due to the bidding process and value-engineering) unless there are change orders, the distributor breaks the package or they add value (design support).  More recently, progressive distributors who have been on the forefront of the energy efficiency market have been able to improve their margins by generating more “strategic” opportunities.  These opportunities relate to showing the customer how they can save energy or earn rebates.  Frequently the distributor is working directly with an end-user or in conjunction with a contractor. Most energy efficiency initiatives are retrofit / renovation opportunities.

While many distributors would like to think that they know “all” of the business in their marketplace, we’re seeing significant channel erosion within the lighting product category.

Consider:

• In 2009, ESCO’s reported that they had combined sales of $5.6 billion.  Presuming 33% is material, that is $1.85B in lighting material.
• Arrow Electronics is heavily involved in the LED lighting business (here’s their lighting linecard) as is Digi-Key, which is sending direct mailers to businesses promoting their lighting expertise.

• PPL, a Pennsylvania electric utility, promotes its lighting design, installation and leasing services
• Servidyne, a building maintenance company, talks about its demand response management capabilities on its blog … and they own a lighting distributor
• According to a distributor in Connecticut, it is extremely difficult to work with the local utility(ies) as their preferred resources are all ESCOs.  So leads are funneled to the ESCOs, leaving the distributor to focus on smaller opportunities that are not the focus of the ESCOs.

So, what does this mean?  It appears that distributors need to decide which elements of the lighting business they want to participate in …

• The bidding of projects / material, which they already participate in and which is historically low margin.
• Become knowledgeable about LEDs, which are emerging as a major light source and continue to improve in quality, efficiency and reliability.
• Provide value-added services that include design capabilities as well as rebate administration and possibly financing options.

The market is changing and lighting happens to be one segment that is seeing growth. ANd contractors will not be the only ones “selling” lighting.  The successful distributors of tomorrow are investing the resources, people as well as installation equipment, to position themselves to make lighting a profitable, growing part of their business.

Where do you see the lighting business going? What segments are you pursuing, and how?