Parting Ways After 40+ Years – AD and Genlyte Solutions

After a forty-plus year relationship, AD and Genlyte Solutions Group, a Signify company announced that they are ending their relationship and parting ways.

Genlyte, which emanates from Philips Lighting, Advance Transformer, and Genlyte Group, which was founded in 1984, was an early member of Affiliated Distributors (now AD) when AD was formed in in 1981, but times change.

According to sources, the sides could not come to an agreement which, having been with IMARK years ago, comes down to, in my words, “not beneficial to the membership.”

While most will infer that this means solely a financial relationship, which it could be, it can also mean that, holistically, it was going to benefit much of the membership, which is viable given the challenges that Genlyte has undergone over the years.

While the two sides negotiated, the impetus for the negotiation is the AD / IMARK merger and the resulting need to negotiate a new agreement for IESD. Potentially information gets revealed and the two agreements could have been different. It could mean that overall revenue is reviewed and the number of members purchasing from Genlyte is identified with trends revealed. It could be that Genlyte sought changes to the agreement due to its financial position or how it sees the industry evolving or the dynamics of today’s LED world.

And remember that Signify and Genlyte, have undergone personnel and financial change over the past year.

When AD and IMARK combined it created what we used to call a need to “rationalize” suppliers. There is a negotiation opportunity recognizing the group has more members that need to be satisfied as well as more volume that can be “leveraged.” At the same time, there is recognition by the group that it is an opportunity to prune / enhance the line card to support the membership.

Further, when I was at IMARK we had the opportunity to add major name brands, one of which was GE Lamp. While the deal could financially benefit GE Lamp members, part of our calculus was the number of members that bought from Philips Lighting and Sylvania (now LedVance) as either their #1 or #2 supplier. The end result was rejecting the GE Lamp offer to support the broader membership … and our GE Lamp members understood.

Which is important. Member involvement.

The important aspect is I am confident that AD made the decision in conjunction with its Supplier Relations Committee, so AD has the support of its members AND its key distributors who purchased Genlyte Solutions. And from experience, within the guidelines of confidentiality, members will have access to “guidance.”

From a Genlyte Solutions viewpoint, while this could be a decision driven by rebate investment dollars, it could also signal:

• A change in business strategy as it may go to a selected distributor model, focusing its efforts. Inevitably it will go to selected distributors with a rebate program that, in all likelihood will be richer than what was offered to AD since it will not be offered to all independent distributors. Further, it will be weighted to stock material as a way to retain shelf space. There may be incremental marketing funds available as Genlyte will no longer be funding AD marketing initiatives.
• A desire to focus more of its efforts on national chains. Given consolidation (116 distributors in 4 years), perhaps Genlyte is evaluating the market the way Cooper Industries did years ago and wants to focus on national chains and selected independents. It is a viable option, and a number of manufacturers have considered this. The nationals observing the Genlyte / AD divorce may sense an opportunity … to support Genlyte and/or to negotiate more.
• Genlyte’s belief that the Genlyte brand will be strongly desired by end-users, driven by specifiers and its lighting agents, to control projects and that distributors will need to accept the order if they want to win the business. The counter is, in the words of one distributor, “85% of lighting is a commodity nowadays.” With many options and distributors value-engineering small and mid-sized projects, this puts much on the shoulders of Genlyte’s lighting agents to “hold the line”, generate hard specs, and manage distributor field relations. Perhaps Genlyte will enhance agent commissions given the increased importance of its sales force and that the sales force has “lost” a sales tool? Perhaps enterprising agents will develop their own rebate programs for distributors with multiple manufacturers funding those initiatives?

There will be a number of other manufacturers watching what occurs over the next year. Will AD members support the AD decision and migrate business to other lighting lines? What percentage of Genlyte’s business is at risk? Probably somewhere between 25-40%?  Manufacturers have commented about the declining number of independent distributors and a lack of selectivity in some product categories. Some wonder of the marketing group model is as effective. If Genlyte’s business improves, perhaps manufacturers are right. If it declines, perhaps AD members are supporting the group.

And it is not just a financial issue. Genlyte will not have access to AD’s two meetings a year, hence NAED meetings become more important for Genlyte as does the need for regional / corporate personnel to visit. Genlyte will have reduced involvement in distributor Field Marketing Summits. They will no longer be involved in group marketing initiatives and incentive programs. There will be increased rebate administration costs.

As with any disagreement, the two parties will go their separate ways but, due to industry dynamics, everyone will be cordial as it “is business” and everyone sees each other at industry events. Further, the distributor members will make the local decisions that are best for them. The strength of lighting agent relationships will be key. People may say that relationships don’t matter as much anymore … that will be tested.

Life will go on. Adjustments will be made. Other decisions will be made. There will be winners (some distributors negotiate better deals with Genlyte; some manufacturers capture Genlyte business) and there will be losers (some distributors will lose Genlyte rebate income; Genlyte will lose sales at some distributors.)

Philips Lighting, the predecessor to Signify, acquired Genlyte Group for $2.7 billion. Its revenues at the time were $1.6 billion. There were other segments of the business that would increase this number (other acquisitions, lamps, ballast (Advance Transformer), etal) but, if we use the $1.6 billion, sources shared that today’s Genlyte is about 25% of this. What will it be in a year or two?

With senior management changes coming to Signify in Eindhoven, could it be possible that an eventual “reset” of Signify US could occur in time?

Cooper Lighting is still a member of AD and, aside from some rep change “drama”, has not experienced the same management and channel dynamics.

Looking forward, you know that other lighting companies are “smiling and dialing” to distributors to see how they can earn more of their business. Distributors are determining their path and negotiating.

Congratulations to Steve Guidry and Jerry Knight for managing through the process and the competing priorities and making a recommendation to their Supplier Committee and the AD / IESD board and congratulations to the board for making, or supporting, a high-profile decision that affects many members and also can send an industry message.

Opportunities can be abundant for Signify. I know of other manufacturers who departed from AD (and IMARK years ago) that developed a new strategy and thrived. Much comes down to the desired business model. In some cases, the companies were successful, and AD asked them back (yes, you can get remarried to your ex!)

What’s next? Lots of discussion at management levels. In the field, not much as salespeople on both sides fight for orders. Distributor personnel may find that their companies update “preferred supplier guidance” but, at the end of the day, salespeople sell what customers want. Lighting quotation people will value-engineer as appropriate. Purchasing will make decisions that benefit their companies.

If I was a betting person … Genlyte will have work to do. Opportunities will abound. It will be interesting to see if national chains are a winner. And if Cooper Lighting becomes a beneficiary.