Lighting Market Slows – Q3 2021 Pulse Report Finds

The Q2 Pulse of Lighting results highlighted that electrical distribution channel lighting sales were lagging overall industry performance. The recent Q3 results further emphasis that this product category continues to lag performance, essentially flat with Q2.

The question then becomes, why?

Is it:

• The impact of “work from home” and companies not having a need, or desire, to reinvest in their lighting infrastructure?
• Demand, especially renovation demand, has decreased due to supply chain disruption? Perhaps inventory availability, and timeliness of projects getting completed, gets some to delay projects?
• Is the inevitable project delays pushing the need for lighting out longer, especially for new construction? Since lighting is towards the end of a project, perhaps the timing isn’t “yet” for the need for lighting on the jobsite?

Are pricing increases making companies, and individuals, decide to delay doing projects and perhaps saying “let me wait and see if pricing declines”?

Many manufacturers have implemented multiple price increases throughout the year and, in the Q3 survey we asked about the potential for Q4 price increases. 75-90%, depending upon the audience, expect price increases, and some have already been announced. And some are disguised as surcharges or companies are increasing their freight minimums (which means, distributors need to be cautious when placing orders and quoting … make sure minimums are met and freight charges are included in the customer quote / rebilled.)

Q3 Pulse of Lighting Survey Results

Some other insights from our 200+ survey respondents in this quarter’s survey:

• Distributors are gravitating to brand lines and away from tier “3 / 4 / 5/ 6” lines due to inventory concerns, ease of doing business, rep / agent support and the fact these companies can be cost-competitive. The pendulum has swung from 3-5 years ago. Price will occasionally rule, but inventory / availability dominates.
• Overall sales increase in Q3 was mid-single digits across the three channel stakeholders, down from high single digits in Q2.
• Industrial market, mostly renovation / MRO, and large projects are rebounding, renovation overall is slowing and there is some new construction activity (but more small-mid-sized projects.)
• Distributor backlog is up … due to supply chain issues and projects being delayed.
• Q4 is projected as more of the same, if not a little slower.
• Price increases averaged mid-single digits, leaving organic growth relatively flat (which begs the question of “are you selling more lighting units or less units at an overall higher average cost (due to price increases)?” Distributors, as the go into Q4 and year end should consider the value of any inventory that they have? Has the value of it increased due to price increases? There could be tax affect depending upon your situation / location. Is the material saleable or prior generation?
• From a distributor viewpoint, the overall lighting business is more discretionary rather than specification / project-oriented. By discretionary, we mean the contractor or the distributor sales organization is picking the “brand” rather than the brand being specified by a designer or end-user. This is reversed according to manufacturers, but there are more spec-oriented lighting manufacturers in the market.

Some comments from survey respondents included:

• Challenges for reps/agents as well as distributors in interfacing, face-to-face, with lighting designers and contractors in many parts of the country. Contractors a little easier.
• Office tenant and school business has “dried up” –impact of WFH?
• Field adjustable fixtures are impacting the need for distributor inventory.
• Customer labor issues slow opportunities
• Concern about slowing due to COVID. Impacted some regions in Q3. Expected to impact Q4.
• New bidding activity is strong, but lack of “closing” slows sales. Delays in decisions due to price increases and supply chain issues.
• Manufacturers struggling to ship, can’t get components.
• Not optimistic on 4Q, warehouse is good, but city work is dead
• Price increases have been mostly on Asian imports
• Cooper and Acuity being very aggressive on quoting for opportunities they want to target. Their announced price increases are guidelines to discount from.
• AYI increased price for freight
• Big guys doing better, importers have no inventory

The report was shared, complimentary with survey respondents. The report is available for $29 to read the detail and other comments from industry participants.

Overall, the market is “eh” but everyone is extremely busy with quotation activity and post-sale support as “it isn’t a sale until the material ships” so the cost of a sale, in man-hours, has increased.

But, on the bright side, Acuity appears to have outperformed the overall market with their Q4 results showing an overall 11.4% but their independent sales network (agents / distributors) for their lighting group being up 9.6%, so perhaps Acuity is taking some market share. (More details from the Acuity call will be shared next week on ElectricalTrends.)