2018 NAED Eastern Recap & Observations

Just before Thanksgiving we attended the NAED Eastern Region conference which was held at the Marriott Tampa Waterside (which is a good hotel for this meeting).  The Eastern kicked-off the 2018 NAED Regional Conference schedule.  The meeting had a reported registration of 579 attendees.  The following are some observations as well as topics we heard:

• What we heard

• Attendance appeared “light” although the reported attendance was 16 people more than the prior year. Part of the challenge for the East is that it has recently abutted the Rockwell AutomationFair, hence there are distributors who do not attend NAED or send fewer people to NAED and there are manufacturers who send less staff to NAED.  Additionally, some of both leave NAED early to get to AutomationFair.  This is further compounded by AD and IMARK distributors previously (and recently) meeting with their manufacturers (and this gets worse in the next two years as AD, IMARK, NAED and AutomationFair are back-to-back-to-back-to-back (but it’s the job!)  And the other part of the attendance challenge … consolidation as well as the association needs to attract more members (about 400 whereas IMARK and AD represent about 1000) and needs to deliver value to smaller and niche distributors.
• Many distributors reported good years, benefiting from the increase in price in wire / cable as well as lighting sales.  Geographic location also makes a huge difference. The business mix for many has also skewed more to projects rather than stock business.  While this may impact gross margin percent, gross margin dollars may be higher (larger orders, lower margin).
• Manufacturers, on the other hand, commented about increased raw material costs and were frequently in the <5% increase range.  These companies were “infrastructure” companies … products that go into the walls.
• Speaking of lighting, in talking with distributors, they are buying more from unfamiliar brands. In speaking with these brands, all were up double digits in sales.
• Heard more about manufacturers offering pre-fab services to contractors.  Distributors are also offering these services.  And as we know, there are a number of contractors who do this themselves.  Questions become
  • How do manufacturers sell pre-fab through distribution, allow for a margin, and be cost-effective for the contractor?
  • Are reps comfortable selling the cost-effectiveness / labor savings message?
  • Are distributor salespeople knowledgeable enough to sell this message and document it for the contractor?
  • Why should a contractor who currently does this outsource it?
  • Can manufacturers guarantee deadlines when they are more remote (physically) from the contractor / project?
  • Will / should non-competing manufacturers join in an alliance to offer these solutions to contractors to offer “more comprehensive solutions” and a separate sales organization (or can distributors aggregate their manufacturers’ offerings?)
• Spoke to many manufacturers about Amazon.  Probably 90% of the manufacturers we spoke with are doing something with Amazon Business.  All are struggling with the issue. Few, if any, are seeing any significant revenue but are concerned if they are not there, what might they miss. They doubt that the business they are receiving is cannibalizing channel sales (and in fact think it is coming from moonlighters and “random buys”. They also feel they need to be there as senior management is inquiring “should they be there” or “it may / will be the future so we should be.”  It’s a big test.
  • According to a couple of people who recently spoke to Amazon, who has people calling manufacturers and distributors as well as a salesforce actively calling on end-customers, the $1 billion that has been touted for the past couple of years and seriously low by many factors. But Amazon will not share what % of the business is into different product categories / verticals so it is difficult to say even if 10% of their business is in electrical … many think it is less.
    • As an aside, we recently conducted distributor research that infers that the Amazon “threat” may be abating as distributors invest in technology.
    • We are currently conducting electrical end-user eCommerce research to see what your customers are doing and if they are buying from Amazon Business / third parties.  If you’d like to participate, and receive a free copy, email or call us.
• 3M’s recent “change” with IMARK was a topic of conversation among many distributors as well as with competitive manufacturers.
• Eaton’s recent letter to their distribution equipment distributors that essentially emphasized the “need” for preference was also a topic of conversation.
• Some conversation about the pending General Cable sale.  While Nexans and Prysmian Group have been reported to be interested, private equity could also be involved.
• During the meeting GE had its “reset” call to outline its new direction.
  • Many asked about the GE Industrial sale to ABB, however, since it is in due diligence, not much is known. Essentially everyone saw it as a good move for ABB although it will take time and investments to challenge for significant share. Some wondered what this could mean for Siemens down the line. It’s felt it will take 6-9 months for the deal to close, then a few years to see significant change (product, sales organization, marketing).
  • GE Lighting (the legacy business) is still on the block to be sold. No one had a sense of who could be interested in this business as perhaps the only strength is the name and “distribution / channel” access.
  • As part of GE’s new direction, Current powered by GE, is now up for sale.  Given that the company is an amalgamation of LED lighting, solar / renewables, technology and perhaps other products / services, no one had a sense of whom could acquire it. Possibilities could include private equity to build it into a “green” / technology play, perhaps Verizon or ATT to position for Smart Cities and an alternative infrastructure play, CISCO, Honeywell or Johnson Controls?
• Much talk about eCommerce, tools that distributors have / are deploying, the rate of adoption by end-users, manufacturers considering tools to offer distributors, product content and how to ensure it isn’t a commodity (a company mentioned, Distributor Data Solutions, may have some answers to this for manufacturers and distributors)
• The consensus outlook appears to be 4-6% for next year.  Given that copper assisted the sales growth for many distributors, in talking to distributors we
  • Asked about wire / cable as a % of sales
  • What they were projecting for this segment for 2018
  • And if they didn’t know, suggested they ask their manufacturers for projected average cost / pound or talk to their bank / investment advisor…and if the bank/advisor didn’t know, solicit their input regarding China since China purchases 45% or so of copper and is the largest market influencer (strength of dollar also has an impact)
  • We also spoke with some wire / cable manufacturers and their answer was essentially for copper to be essentially stable … +/- 5%, as an average, from where it is today.
• Smart lighting / lighting connectivity is the rage. Many manufacturers now offering it but seeing minimal adoption. Distributors wondering how to play in it, with whom, how to market / sell it and how to train contractors (who need to contend / train / install with multiple technologies).
• ElectricSmarts shared its vision for a role in eCommerce, especially in conjunction with recently being acquired by JPM. It gives them deeper access into some estimating systems. A direct connection with contractor estimating systems can be a productivity savings for contractors, and distributors, if the distributor has a strong relationship with a contractor (and a trustworthy relationship.)
• Spoke to some reps that are investing in marketing resources to market themselves in their marketplaces as well as differentiate to manufacturers, distributors and communicate their value-added. More are diversifying into lighting and filling in the gap between lighting agents and “lighting replenishment.”

NAED Sessions

Unfortunately we were only able to get to the General Session and NAED’s Market Data session.  Didn’t hear much about the others other than that there was a panel on eCommerce but participants didn’t comment much about it.

General Session

The best speaker at the General Session, and most effective in all of the years of attending multiple NAED’s per year, was Andrew Esce’s presentation of his 2018 message as the Eastern Region VP.  Andrew is the president of City Electric. His presentation was engaging, informational and fun.

His topic was generational management and the need to transfer knowledge in a learning / collaborative environment.  He talked about the upcoming generation (and the next one as represented by his son’s involvement in the presentation … and he captured the audience!)  For succeeding generations it will be important to recognize and embrace differences, have patience, provide tools “you” may be uncomfortable with, and help them release their talent and creativity.

If you weren’t there, check out the video of his presentation.  It’s 10 minutes that may be worth sharing with your management team.

Keynote Speaker

If you attended last year’s NAED SouthCentral you know Diana Kandar as she spoke again this year on “Increasing the Speed of Innovation” and that companies can achieve their peak and then falter from their expert mindset by blinding themselves to alternatives which can lead to ignorance, decline and, at times, irrelevance.  It’s important not to kill curiosity and ask yourself (and answer) tough questions.

Essentially … don’t drink too much of your own juice! (and sometimes an outsider can help you question yourself, challenge your organization (and individuals) as well as share alternative ideas (just saying!)

Chair Presentation

Dan Dungan, this year’s chair who is from Springfield Electric, shared his message of using technology to improve processes, enabling “you” to do more with less.

He mentioned that distributors are using / can use technology to do:

• Demand forecasting
• eCommerce Platforms
• Inventory Optimization
• Develop and Utilize Content Rich Data
• Improve Warehouse Management (Lean)
• CRM and Marketing Automation
• Utilize Market Data to make more informed / better decisions

Market Data Presentation

D+R, the project contractor, shared NAED’s vision for an NAED-owned market data warehouse that would contain POS information submitted by NAED distributor members that would project the market size, geographically, by product segment and potentially by customer type for submitting distributors. At this time it was mentioned that there were not plans to provide non-submitting members, manufacturers or other entities with access to information (even at differing levels).

The information is to be captured at the UPC level and initially aggregated into broad categories. As more data is captured through increased participation, reports will become more granular geographically and by product category.

According to D+R a reporting layout will be shared at the NAED Western.  They will be using the IDEA taxonomy.

There are 8-12 distributors participating in a task force / committee to provide guidance

It was also touted that D+R has experience in these types of projects as it is implementing something comparable for HARDI (HVAC industry) albeit on a much smaller scale (industry size, product category offering, # of distributors).

Reportedly late spring / early summer is launch.

Takeaways

While it was a busy meeting, the tone appeared very “business like” / focused / determined.  Many of the manufacturers, as well as distributors, have been on the road in industry and/or planning meetings for the past couple of months. All recognizing that there are many challenges and opportunities but slow growth.  The “exciting” areas (lighting, IoT, eCommerce) have many options and hence are confusing, are requiring investment to differentiate but the adoption rate and ROI is nebulous and is “in the distance” while requiring different skill sets for their organization. The investment to generate differentiation and generate significant incremental sales (other than through acquisition) isn’t generating the return (which is also why we heard much about acquisitions from distributors and manufacturers).

And all while margins either remain steady (best case) or, in many cases, decline as products become commoditized through sourcing.

The business may be entering a different phase, however, the key is focusing on what will drive your company to the next level of success. Defining the vision, developing the plan, communicating it internally to get buy-in and having achievable, step-level objectives.  While there are many levers that need to be pulled simultaneously, delegation will be key to success.

And from a CMG viewpoint, areas we had interest from manufacturers and distributors included:

• eCommerce … its impact, adoption and differentiation
• Selling to / competing against Amazon
• Understanding market size / market share
• Customer satisfaction (for distributors as well as manufacturers wanting better insight of how they are servicing their distributors’ needs)
• Incentive programs (travel as well as community networks) for distributors to their customers as well as for “account-based (chains and marketing groups) promotional initiatives” for manufacturers
• Participation in our Focus on Energy initiative for the State of Wisconsin (to support lighting manufacturers)

If you attended, what did you hear at the conference? What were your takeaways to communicate to your team? Where was the value in the meeting for you (we tell distributors, somewhat facetiously, that they need to generate $5000 in GP$ per meeting attendee, for the meeting to be valuable (and this only offsets hard costs … doesn’t include time)?