What’s up with Schneider, Legrand, Rexel and Sonepar?

That’s one of the questions we’ve had a number of distributors, and some manufacturers, ask this week “What’s the story / what have you heard about this story regarding Schneider, Legrand, Rexel and Sonepar coming out of France?” and the second question is “Why haven’t I seen this in the industry trade publications?”

Unfortunately, the answer to both is “I don’t know.”

Here’s the story from Reuters:

Police raid offices of top French electrical firms in corruption probe

PARIS (Reuters) – The offices of four of France’s largest electrical goods’ companies were raided by police on Thursday on suspicion of cartel pricing and corruption, a judicial source said.

Twelve searches were carried out at Legrand, Rexel, Sonepar and Schneider Electric as part of an investigation opened in June, the source said.

The investigation targeting the four groups was launched by the Paris prosecutor’s office following reports received in April from the Competition Authority and the French Anti-Corruption Agency, the source said.

That companies are suspected of cartel pricing, forgery, breach of trust, misuse of corporate assets, tax fraud and bribery, according to the source.

Investigative website Mediapart reported in April a secret deal between Schneider, Legrand, Sonepar and Rexel to raise prices by limiting competition.

If the companies are found guilty of cartel pricing they could face hundreds of millions of euros in fines.

A spokeswoman for Schneider Electric said the company was cooperating with authorities.

A spokesman for Legrand declined to comment. Rexel and Sonepar could not immediately be reached for comment.

A few things:

• Notice that the investigation is driven by French authorities.  There is no mention of any US government entities being involved so highly questionable if this has anything to do with their US businesses.
  • And some of the letters / issues referenced go back to 2013, so not a “new” issue.”
• Distribution in Europe is different than the US market.  The European electrical markets, inclusive of France, are much more consolidated than in the US. Many manufacturers sell direct. Distribution is very consolidated and Sonepar and Rexel, combined, have very high market share.  Here in the US, while Sonepar and Rexel now represent about $10-13 billion in sales, that is still only 10-12% of the industry (depending upon the segments you include.)
• Legrand and Schneider also sell a broader range of products in France (and Europe) than they do in the US.  In the US many would be challenged to identify competitive products (maybe some overlap, but not a significant percent of sales.) This could be different in France.
• It is known that Sonepar, and presumably Rexel also, have preferred relationships with select companies (everyone does). Some relationships are stronger than others and we’ve heard of “cozy” relationships that are driven from France that give French owned / located companies preference to each other.  Nothing nefarious, perhaps only personal preference or a desire for global linecard standardization wherever possible.

Are they SPAs?

Here’s the original posting from Mediapart (you may need to let Google Translate convert it to English).  When you read the details it sounds like the issue that they are referring to is what we call SPAs (special pricing allowances), which are well used by electrical distributors in the US, are legal (but don’t know about French laws.) SPAs, when well managed by distributors, are important sales tools, pricing strategies and profitability enhancers while helping manage local market prices.  As the saying goes “not all customers are created equally.”

This may easily be a non-issue or a French-only issue. If it becomes much broader, could have significant impact on the viability of SPAs, but given that each countries commercial laws differ, very questionable if the issue would expand anytime in the near future (yes, politicians would then get involved!)

Why no TED or Electrical Wholesaling?

As to why no mention in TED or Electrical Wholesaling? Perhaps not wanting to mention these companies on a legal issue? Perhaps because it was a non-US issue?

To be clear, the people that we know in all of the above companies are honorable individuals and, as many know, are well-respected within the industry. A caution is that French laws may be different than US laws and it is possible that Mediapart is not familiar with electrical industry practices.

While headlines create questions, delving further into this reveals that it doesn’t appear to be an issue.

Have you heard anything different from any of these companies? If you work for one of these companies, are we close to accurate? (and feel free to post anonymously or reach out to share insight / advice.)  And if any of the referenced companies would like us to post their industry response, feel free to email us and we can post for you or post a comment to share with the industry.