Electrical Sales to Decline – 1st time in 7 years!

This week we received copies of TED magazine and Electrical Wholesaling. Given that next week is the NAED South-Central, both provided a “forecast / overview” of the regional market.  As expected there are pockets of growth as well as areas that are, shall we say, “challenged.” We’ve talked before that we’re in a “patchwork economy.”  Industrial has issues, construction is maintaining, metropolitan areas are much stronger than suburbia and rural. And now comes projections of an overall industry sales decline.

This economy has been going on for a bit and was exasperated in 2015 with a strong dollar, decline in copper pricing, collapse of the oil market which has a larger ripple effect than ever before (we talked to a rep in Connecticut who has an OEM customer in Connecticut that sells a product that goes into pipes used for fracking…business is down … Connecticut impacted by the oil fields!), weak export market caused by the dollar, China economic issues and …. you know the macro issues.

Now comes word from Herm Isenstein, the industry’s noted forecaster and president of DISC (Distributor Information Service Corp) in his current FLASH Update, which is shared with his annual forecast subscribers:

“When the right mix of key economic indicators line up in the wrong constellation, the only outcome is bad news for the electrical industry.  The bad news is that for the first time in 7 years are are projecting total electrical industry sales to decline.

The headwinds are a weak overall economy. GDP grew only fractionally last quarter. Combine this with weak business investment drivers, a strong dollar, sharply declining commodity and oil prices and you have the exact prescription for a downturn in the electrical wholesale industry.”

Why is this important? In October Herm projected about a 5% increase nationally (combined contractor and industrial.) Earlier this year he cut it to 2.5%. Now he is going negative (no idea by how much.) Reach out to him for more details and to subscribe to his annual forecast that is revised monthly.

And as you know, the nationally reporting distributors (Grainger, WESCO, Rexel) reported down years and are expecting flat to negative 2016 (and turning Titanic’s can be challenging) and remember that AD reported that its electrical division was up 2% and would have been up much more if copper hadn’t cratered.

But “everyone (economists and manufacturers)” are saying second half will be better … does anyone know what epiphany is going to occur on July 1 to change the market?

If the dollar stays strong, commodities (especially copper) will stay low. China also needs to “recover” for copper to increase. Oil may increase if the Middle East reduces production but will slashed capex budgets be revived (doubtful) and opex budgets are currently being scrutinized. So, don’t know where the magic bullet for the economy is?

But it’s not all doom and gloom

While some distributors may be content to “ride the tide” and manage the business from a cash flow viewpoint, progressive distributors recognize that there are bright spots in the market and that they can control their own destiny or, in the words of a client, “turn lemons into lemonade.”

• There are growth opportunities in the lighting industry.
• There are strategies that can be developed reallocating resources to focus on segments that are under resourced but represent potential.
• There are opportunities to take share.
• There are opportunities to identify customer potential as well as identify potential customers.
• Opportunities to refine your business model or change from the old.  This is the benefit of being entrepreneurial, nimble and being willing to invest.

DISC’s Market Track service provides customer consumption (purchases) at the SIC level within each county and provides an electrical revenue multiplier. Utilizing this information can help estimate account and marketplace potential. Additionally, if you have your account base coded by SIC, the information can tell you the number of establishments (not companies) in that marketplace, providing guidance on where there could be opportunity or an indication if there is enough density for a vertical specific niche marketing initiative.

Remember, the sun will come out tomorrow. Electrical materials will still be bought somewhere. And alot of it. Consider that the market is about $100 billion market. Excluding utility, the market is about $80-85 billion.  A 5% decline still means that $75-80 billion of contractor, industrial and institutional electrical demand still needs to be served.

How is your market? What is your outlook?

And if you search www.electricaltrends.com for “Market Share” you’ll find many postings.  Allen and I have also written articles for Electrical Wholesaling on steps to take share:

• 10 Tips for Taking More Market Share
• Gaining Intelligence to Grow Sales
• Tuning Up Your Operations
• Four R’s of Growing During a Recession
• Creative Offense Creates Strong Defense
• 10 Ways manufacturers Can Build a Better 2011