2020 NAED Eastern Observations

The NAED meeting season began in full force last week with the NAED Eastern Regional Conference. While a few national chains, AD and IMARK previously held their meetings, the NAED Eastern was the first broad-based meeting for many manufacturers.  Overall attendance, in raw numbers, approximated last year and there were about 50-60 distribution companies in attendance.

The energy was high with a busy lobby the entire time.  Areas of much conversation centered around “how has this year been?”, “what are you forecasting for 2020?” and then topical areas relating to marketing group news (both recently had their meetings);  changes in the lighting industry, supply chain optimization, eCommerce ROI, reps, rep feedback and regional sales management effectiveness based upon input we solicited for the Rep of the Future research we’re conducting.

The Market

Feedback regarding this year, from an Eastern region viewpoint was surprisingly good.  Heard a number of construction-oriented distributors up 5-10%.  Industrially-oriented distributors were closer to flat to +5% due to their construction business.

When asked about 2020, most manufacturers shared that they are looking at the market as relatively flat / very low single digit percentages.  A few are projecting higher.  The commonality of the companies projecting higher were non-conglomerate lighting lines, companies with significant new product launches and a few companies who see themselves taking share due to operational challenges of their competitors.

Additionally

• Heard of a couple of acquisitions that are in process and are expected to close by the end of the year.
• Some manufacturers are having major delivery issues with many distributors mentioning the same companies.
• Industrial slowed significantly.
• Continued questions about the lighting space … controls, LED growth potential, tariffs, growth of mid-tier companies vs conglomerates
• Customers focused on productivity, “modular construction / pre-fab”, business constrained due to labor shortage (really, it’s the new labor market)
• Some distributors seeking warehouse productivity improvement
• A couple of distributors who are developing non-merchandise rewards driven customer incentive / loyalty / frequent buyer programs and moving to value-based, business-oriented strategies

Marketing Groups

The marketing group input we received typically came from manufacturers who shared observations and input from the recent marketing group meetings.

• From a performance viewpoint, while AD touted a 13% increase in performance, this was generated from mergers.  AD’s electrical sales, across the three countries, was up only 4% … better than some national chains but less than others. (click here for how Graybar, Anixter, Rexel and WESCO performed.)
• IMARK’s US electrical sales were up 9.9%, which highlights the group’s strength in the construction markets and perhaps alignment in growing geographical areas.
• Many manufacturers commented on an announcement by AD that they will begin sharing to senior management at its members the base rebate that is negotiated with their manufacturers.  Many manufacturers were upset with this given that since the 1960’s one of the founding principles of the buying / marketing groups was to maintain secrecy of the rebates to help preserve independent distributor profitability and to support manufacturers. According to AD, this change is because the group is now “member-owned”, it makes for easier reporting given more members are in multiple industries and it is “how the other industries are.”

Prior to sharing this on ElectricalTrends, we reached out to Ed Crawford, President of AD, to confirm.  Ed commented:

“Thanks for the heads up.  As you mention, you are correct that program transparency is standard practice in the Plumbing Industry.  In fact, this is also the case in virtually every industry where AD competes, including our Electrical Division in Canada.  So, this is certainly not an entirely new direction for AD.  With that said, it is new for Electrical in the U.S.”

This change could bring fundamental changes to rebate structures as manufacturers expressed that they did not have confidence that rebates would remain confidential, that eventually national chains would know AD base rebates through acquisitions and some commented that this could give them the opportunity to reduce rebates throughout a group and redirect funds to selected members (known as “double dipping”).  It will be interesting to see where this go.  IMARK was contacted and confirmed that their US base rebates remain confidential.

Lighting Industry

• A number of non-conglomerates reported growth this year, contrary to the performance of publicly held companies.  In every case it seems like the differential is “easy of doing business” and focusing on either discretionary business or the design/build market.
• Much theorizing about the Signify’s acquisition of Cooper Lighting Solutions and none are willing to bet money that there will not be changes in the future.  Acuity, reportedly, is targeting Cooper agents in some markets where it could represent an “upgrade” for them.
• Many wondered what will Hubbell Lighting do.  Acquire? Sell? Do nothing and wait to take advantage of changes that occur from the Signify / Cooper deal?
• A number of distributors commented about their increased focus on lighting controls, which reportedly generated a very good year for Lutron.

Supply Chain Optimization

• NEMRA shared its POS initiative with a few other manufacturers and some additional distributors were introduced to the POS initiative. More endorsements are expected with all agreeing that compensating reps for sales activity within their territory was appropriate.
• The second phase of the NEMRA POS initiative, essentially a data highway to transfer POS information from distributor to manufacturer more efficiently was launched. The POSConnection is managed by SPARXiQ. Manufacturers who signed Letters of Intent earlier in the year will be onboarded in the next few months with the system going live “ASAP.”
• Spoke with TrueCommerce, the parent of Datalliance, who shared:
  • Their installed base has grown 13.27% over last year.  This indicates NEW supplier and distributor implementations are happening. 
  • More than 30 electrical suppliers are doing VMI globally. 
  • Approximately 140 distributors participate in supplier VMI initiatives.
  • Canadian distributors are interested in VMI.  Electro-Federation is hosting a supply chain conference which TrueCommerce is participating in.
  • New VMI video helps a team of folks learn VMI quick: DatallianceDistributorVMI
  • While VMI has been viewed as for “larger” manufacturers, TrueCommerce is seeking to bring it to smaller manufacturers and distributors at a “more flexible entry level price point.”  In an age of companies seeking to improve productivity and profitability while automating repetitive features and using analytics to drive the business, conceptually makes sense for manufacturers who focus on “stock” to investigate.

eCommerce / eBusiness

• A number of distributors inquired about what we’re seeing / hearing regarding eCommerce and commented that they are frustrated because they “drank the juice” over the past 3-5 years that they needed to be in eCommerce or would be “run over”. They invested much in product content and systems but haven’t seen the financial return defined as “increased revenue.”  All reported low single digit percent of sales going through their websites and essentially nothing in “new customers.”

During conversations we shared that eCommerce is really about customer engagement and omni-channel / self-sufficiency and that non-revenue metrics should be the key metrics.  Additionally, shared that 1) quality and quantity of product content is key, 2) driving adoption requires an integrated marketing approach and 3) generating utilization is dependent upon accuracy, consistency, corporate-wide support and re-marketing to customers.  Additionally, that integrating e-strategies into supplier-specific initiatives can also be effective.  Some suppliers are considering strategies to validate that their distributors are having accurate content on their site which is a departure in philosophy of “our website is the center of content” to “get our content as close to the customer as possible.”

Reps and Rep of the Future

• Spoke to a number of distributors and manufacturers in the pursuit of continued research for NEMRA’s Rep of the Future initiative.  Trending feedback included:
  • Focus on demand generation at the “end-user, contractor, engineer” level to influence product usage and brand utilization
  • Awareness of new products
  • The need for regional sales managers to have authority
    • Interestingly, a few privately-owned manufacturers shared that they have gone to a P&L model for their regional managers and are compensating them on region profitability and are giving them more authority. The goal is to be easier to do business with. When asked if support staff know that RM’s have “final say”, all said “yes”.
  • Technology adoption

General Session

The general session had a pretty good turnout and the keynote speaker, Robbie Bach, who wrote Xbox Revisited (as he was Microsoft’s business leader for the Xbox), received good reviews for a clear, concise, actionable leadership message.

NAED shared an overview of its new “Building a Connected Business” study.  This is a “futures” report and reportedly is contractor-oriented.  The authors had a session on the 400 page report.  According to one distributor it was “scary” in sharing what the future may hold but the “scary” was in a good sense … much going on, much opportunity. The executive summary is only 15 pages. To obtain need to contact NAED directly.

In talking about the report Tom Naber shared that one of NAED’s goals is bringing this type of information to its members to help them remain the channel of choice and adapt to the changing customer and competitive environment. He mentioned NAED affiliates / service providers who can help and mentioned Channel Marketing Group … thank you Tom, it was much appreciated, and we received feedback from a number of people that they noticed.

George Vorwick, as chairman of NAED, mentioned the upcoming NAED Leadership Development Program which launches January 1^st as a way to train “next gen” staff.  There was mention of the NAED Market Data strategy as a vehicle for supporting strategy development although the tone, and signage, was toned down this year. Many question how many distributors are contributing / using the data and commented that they use DISC for trending information.

Keynote Speaker

Some highlights from the keynote speaker:

• Talked about “innovation and change” and that change is scary
• To address change need to do three things
  • Have a strategy and be clear about it.  Bach utilizes his 3P framework:
    • Purpose
    • Principles
    • Priorities
• And it must be written on 3 pages or slides as well as there can only be a maximum of 5 metrics to determine success.
• Intrapreneurship, which is defined as “driving innovation inside your company through his BXT philosophy
  • B = Business (disruption or innovation)
  • X = Experience (changing processes to improve customer experience)
  • T = utilization of technology
• Leadership and he described three types of leaders (Explorers, Pioneers and Settlers)

Overall it was a successful meeting. Personally, got much accomplished although many commented that this was their third or fifth conference of the season (AD, IMARK, Graybar, Sonepar, etc) with Automation Fair this week. Rumor is that the NAED Eastern may fade away in the near future when NAED Eastern region hotel commitments are fulfilled. The lobby was busy and the receptions were well attended with much chatter … both signs of a successful conference as the networking is enhanced.

The watchword for business growth in 2020 … nationally cautious with low single digit growth. Within the Eastern region attendees were positive with many bringing strong backlogs into the first half of the year (at least through April / May) and feeling a “decent” second half.

If you attended, additional observations? If you attended any of the educational sessions, please share your thoughts.