Over the past couple of weeks Eaton has made a couple of moves that should be of interest to electrical distributors. One was M&A oriented, the other was a marketing strategy to support one of their customers / channels. Both make one ask “what is the strategy?”
The first is a marketing initiative that Eaton did with Home Depot. In a recent issue of Contracting Business magazine, Home Depot ran an ad promoting AC disconnects. They focused on pricing and mentioned that they have “an incredible price” on Eaton and GE AC disconnects. While we presume that the listed the companies alphabetically, the GE reference was at the tail end of the paragraph and not overly prominent. But it begs the question, “Is Eaton and GE providing significantly better pricing to Home Depot to pursue the remodeling contractor?” (and yes, we can understand if they provided some “better” pricing due to volume and operational efficiency.) If you’ve visited your local Home Depot recently and Home Depot’s sales is significantly lower than what you would sell it at, let us know.
The second initiative is Eaton’s recent acquisition of EMC Engineers. EMC “is an energy engineering and energy services company that delivers energy efficiency solutions for a wide range of governmental, educational, commercial and industrial facilities. The firm is a leader in retrofitting and modernizing mechanical, electrical, and control systems, as well as energy modeling and analysis, facility commissioning, and energy savings performance contracting” according to a press release from FMI, which facilitated the deal. This is an interesting growth strategy and could be a very effective way of generating incremental specification opportunities, hopefully driven to its distributors and adding value to its end-users (and distributors). And possibly a precursor to other acquisitions of value-added engineering resources. This also further highlights the growth opporunities in the energy efficiency area that distributors and manufacturers are seeing, and is driving sales for companies that are engaged in this area (vs. solely quoting projects).
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We are wondering if this Eaton action is because of pricing or is it because companies like Automation Direct can out perform a regular brick and mortar distribution company.
Buying on line has it’s risk as noted in the earlier Electrical Trends posting this week.The deal with Home Depot could signal that distribution in general is not serving the remodel market.
ED in the Mid Atlantic market
The EMC comments are of interest, Schneider has a similar initiative, in fact it may be their main initiative in the short term. ED’s should certainly be concerned.
A National Distributor
As competition heated up between distributors and started pounding manufacturers for better pricing, some manufacturers looked for other ways to market that could support value.
There will be certain ED’s who can and will find a way to sell value with services and not just price.
Price oriented distributors may seek protection on the court house steps.
Whether we like it or not; whether we admit it or not; manufacturers see places like Home Depot as serving a sector of the market. Pricing deals like this take us back to the bread, milk and Bush Beer theory from the convenience store. The price reflected at Home Depot is not indicitive of the whole purchase. The big box stores discount the headliners and make it up on the rest of the order.
I believe a critical skill for distributors in the post recessionary times is the pricing process. If distributors don’t have a solid pricing process, they’re going to suffer.
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