DISC 2023 Q1 Update … “Less Worse” but Buckle Up

Each quarter, DISC, the electrical industry’s economic forecasting service that many manufacturers, distributors and rep firms use to benchmark and inform their business, overviews the market with a report. Chris Sokoll, shared a synopsis of this quarter’s report for ElectricalTrends:

DISC Flash Overview

“Earlier this year I was able to chat with many of the members at NEMRA conference in Las Vegas, which drew approximately 2,000 attendees: manufacturers, distributors, and sales agents. They gave their input on how they felt the electrical economy is doing and will do for the balance of the year. As I expected, many reported a slowing in new orders and that backlog was, for now, carrying the day. Regionally, the stories were as varied as the landscape. Heavy residential areas and the associated suppliers were reporting rapidly decelerating conditions. Those supporting infrastructure and manufacturing construction were, so far, pleased with 2023 and the near-term outlook. America’s economy is very resilient. Economic performance has been unpredictably strong. At DISC, while we still expect a very mild recession in 2023, by 2024 we will see improving conditions as the expectation of FED-driven lower interest rates will be on the horizon. As noted throughout this report, there are opportunities to be had.

Market Performance and Forecast

This month, the overall outlook and forecasts have been revised slightly upward. We see the 2022 total distribution market as closing at 10.1% over the prior year, down 300 basis points from the January 2023 forecast.

• Overall, our expectation for 2023 is -4.6% year over year (YoY) growth, this is an improvement of 2.7% from our prior forecast.
• The construction vertical is improving, now showing down -6.1%, vs. our prior forecast of -10.6% YoY, as persistent inflation and unexpected demand help propel the easing.
• The Industrial segment (defined as OEM and MRO) is estimated to be down -4.6%
• The institutional market is estimated to be down -1.2%, respectively. Improvements in demand for the service industries are bolstering the institutional markets.

While we feel that 2023 is edging back in a positive direction, we are not ready to sound the “all is clear” signal. There is much uncertainty remaining in the markets, and careful consideration must be made to protect our position.

Let us know if you would like a demo of DISC’s solutions for market sizing or, if you are an existing user, a refresher on territories, products, and downloads. One of DISC’s strongest attributes is to help you find opportunity in your geography. There are great prospects in all areas, so take the time to look for them and focus your efforts.

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Takeaways

DISC’s forecast quantifies not only what was heard at NEMRA (a good January) but what I heard at the NAED South Central and, more so, what starting to hear … business has been good but the rate of growth is slowing significantly. Further, manufacturers are seeing a decline in stock orders and, while quotation activity is good, some projects are being cancelled, others delayed (and beyond solely the switchgear / automation production issues.)

Further, it reinforces the feedback we received in last quarter’s Pulse of Lighting survey (which respondents received an advance copy about a week or so ago and I’ll share an overview, and access to the report, tomorrow.)

Some reasons include …

• Economic uncertainty as seen with marketplace layoffs in tech, auto, Disney, Wall Street and others.
• The Fed, interest rates and its avowed desire for increased unemployment to reduce “wage inflation”.
• Improving supply chains which has made supplier deliveries more reliable, hence distributors don’t need to “overstock” and have multiples of suppliers for the same products.
• Increased emergence of RDCs that reduce the need for companies to have the same amount of inventory (less C and D items but maybe increased order frequency … its all about turns)
• Q4 slowed from Q3 and ERP min/max are catching up.
• Areas where resi is significant but down (significantly) have a spillover impact on small commercial construction activity.I’m also receiving calls from some manufacturers asking about the 2^nd half of the year. The market is changing, but it’s not imploding.

However, while this may be cliché, the market is very geographic. There are some areas that continue to be very strong due to individual market dynamics … large projects in an area have a spillover effect, some areas are benefiting from specific industries, etc so it is difficult to paint a broad brush.

But, there are opportunities in markets if your salespeople are adaptable (know how to penetrate an account, use data for gap analyses and ask questions) and/or are willing to call on prospects (yes, this may require “smiling and dialing!”). There are electrification opportunities, again, if you are adaptable. If you’re organization is more accustomed to “waiting to quote”, the market will only get harder.

From a manufacturer viewpoint, vertical and application marketing will continue to be more important in support of your agents. It’s providing the tools to create demand and reaching the appropriate end-users. Manufacturers also need to consider their channel strategies in light of consolidation and industry fragmentation (remember, Motion Industries, which doesn’t appear on the Electrical Wholesaling 2022 Top 150 and is probably not an NAED member, is a $550 million electrical distributor! – not the right account target for many, but it is for some.)

Succeeding today requires a different playbook than the past few years of “roaring 20’s and pray for material.” It will require two things to drive success … intentionality and work.

Need ideas? Give us a call.  Need information, take Chris up on his offer and either get the full report or, better yet, stay informed and subscribe.