This morning I was listening to the Eaton quarterly analyst call and I was reminded of conversations from the recent AD meeting as well as discussions with some IMARK distributors after the recent IMARK meeting.
And there appears to be some “concern” in the air from competitors.
First the earnings call, which didn’t have much depth from an electrical viewpoint and since Eaton is diversified, I won’t focus on the overall, but, some points of note:
- Eaton’s lighting business (Cooper Lighting) is up 19%! So much for there not being much lighting retrofit business available … or is Cooper taking that much share? 45% of Cooper Lighting’s sales are LEDs, which is a significant increase from last year.
- Overall Electrical Products Group business was up 3% (and no, they didn’t share which divisions are down to counter-weight the lighting growth) and Electrical Systems and Services was up 1% (after Forex and also includes much non-US business).
- An interesting tidbit in the Hydraulic section … the ag market is down and specifically with in the Americas OEM segment. The reason I mention this is that if you are a distributor who sells electrical material to OEMs in the ag sector, this could be affecting you … and Eaton sees this being an issue for possibly “3 growing seasons” which could be 18-20 months.
- Eaton is realizing $210 million in Cooper synergies. Presumably a combination of costs savings but they are also seeing sales synergies. In fact, when Sandy Cutler was asked specifically about this from one analyst he responded, “definitely are” and “we know we are gaining.”
Which gets me to the “concern” in the marketplace, or at least the marketing groups and from Eaton competitors.
The feedback from the group meetings is that they are seeing a number of their distributors supporting multiple Eaton brands and converting from a “standalone” brand to one in the Eaton platform. While Eaton does have a program called Advantage that is a cross platform rebate program, it’s presumed that there is some leveraging going on and that distributors may think that they are getting a “better” rebate by being part of the platform.
The “standalone” companies that are part of the groups are quality companies and have been in business for many years. And while there may be some subtle leveraging occurring, from our perspective distributors are converting business based upon whom they feel
- is either a better strategic fit
- who has better sales coverage (reps) in the marketplace
- who can provide better support / systems
- and who can help them grow their business the most.
The unfortunate reality, and I used to work for one of the marketing groups, is that a rebate isn’t beneficial to a distributor unless they can generate the sale. If a distributor feels they can align with someone to get more sales, they will do that knowing that they can remain competitive on the rebate side (presuming they have enough volume to earn a rebate with the manufacturer) and through margin generation.
A challenge we see is that many manufacturers have difficulty
- expressing a vision of where their company is going and investing
- differentiating itself other than its sales organization / rep agency
- defining how they can help a distributor gain share within their marketplace for that product category. While every manufacturer seems to want to increase their market share, it seems like market share simply revolves year to year with distributors either making changes or losing focus in that product category.
Years ago there was much talk about some manufacturers becoming “platform plays” – Cooper, Thomas and Betts, Emerson / EGS, Hubbell. Nowadays we have Eaton (and Cooper), ABB (Thomas and Betts), Hubbell (currently), maybe Schneider (Juno Lighting)?
As a distributor
- how do you look at this strategically?
- If you converted some business to an Eaton brand did you feel that you were at all “leveraged”? If not, why did you convert.
- As a distributor giving advice to a manufacturer, what recommendations do you have for Eaton competitors on how they can either convert business from an Eaton brand or keep the business from converting?
And what, if anything, can the marketing groups do to help retain the revenue coming through the group?
7 Comments
As a rep who recently took on the EATON “platform” I do believe they do offer better synergies for the distributor and end user customer. They also are ahead of the SAP curve division by division which will help serve the distributor better. As far as the advantages to an overall rebate, the sales and share have to be on the upswing for all parties to realize benefit. They seem to be strategically further down the road compared to their competition .
Excellent commentary in this article. I compete with Eaton and they’re a very good competitor; however, your article brings two important things to the surface with regard to distributor conversion from one manufacturer to another: 1) Conversion doesn’t happen until the distributor’s customer is willing to buy a different brand, and 2) Distributor rebates feel good initially, but they’re never a long term answer to sustained top line and bottom line growth.
I wonder what my friends at WESCO thought when Eaton added Rexel on the East Coast? We didn’t appreciate the added competition, but I’d rather them add Rexel than any other distributor.
If these companies are to become “platforms” of the future, who do you think they’ll acquire in the future? Do I need to start thinking about that for my longer-term approach?
Thank you for writing another thought provoking article David. I can think of at least three other company platforms when I look at the world view. Dave, in your opinion, how important is a world platform becoming to local, USA distributors serving OEM’s? Also, within a 10 years, how do you see 3D printing affecting logistics?
Doug – thanks for your questions relating to the importance of global platforms to local distributors serving OEMs and opportunities / impact from 3D printing.
Regarding the global platforms, yes, there can be others that are not as “developed” in the US. The impact for a local distributor comes to their outlook for their business, the % of their business that is OEM and what segments those OEMs play in. For example, on the Eaton call when OEMs in the ag business were mentioned it was also said that most of these companies are in North America, Europe and Brazil whereas when there was discussion about IEC v NEMA products it was NEMA is US and Middle East due to the petrochem involvement. There’s no “simple” answer as it depends upon the distributor, their business focus and, quite frankly, their longevity outlook. And remember, all business is essentially local. The change you would be referencing would require the manufacturer to get a global specification / contract.
As it relates to 3D printing, I think it could be interesting for prototyping and could become a distributor service to assist engineers. Don’t know the product application (unfortunately don’t have a EE degree or a crystal ball) to know where there could be applications and if it is even technically feasible to replace some products with on-demand product generation (certification / UL issues which would have Code implications, quality control issues, cost-advantages vs mass produced plastic products, etc).
Hope that helps. Feel free to give a call at 919-488-8635 or email me at dgordon@channelmkt.com to discuss other potential implications and opportunities.
“As a distributor giving advice to a manufacturer, what recommendations do you have for Eaton competitors on how they can either convert business from an Eaton brand or keep the business from converting?”
My guess this is global play for Eaton. But there are local market conditions.
WESCO probably doesn’t appreciate the switch to Rexel on the East Coast. Or maybe Eaton knows more about WESCO than most.
Certainly WESCO is large and seems to pull some things out of thin air.
But my guess is that while leverage will come into play, it will be the end user in my market that actually make the decision to buy or not.
Thank you for your follow-up post David. Monday, I had the good fortune to attend a event where Jack Uldrich shared his industry insight. I found this video on YouTube that gives general insight, not as specific to our industry. I fund the video to be work an hour of my time. http://youtu.be/Jk9W_QKCSns
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