Tidbits from the NAED Western

We attended the NAED Western in Phoenix last week, where unfortuantely the weather barely reached 60 either day and evenings were in the mid to upper 30’s. Approximately 75 distributor companies (66 had booths) and 125 manufacturer companies attended.

The economic temperature, and forecast, for many can best be described as “confused”. While the residential market is down (although the custom resi market is not down as much as the production market), some are seeing a slowdown in the light residential market, the large project market continues building and many are identifying niches to target. Most look to 2008 as “flat” to slight increase, although many manufacturers are projecting high single digit to low double digit growth. The incongruity … manufacturers expect 2-4% price increases, are unveiling new products which they expect will help them grow share and are also identifying niches to grow.

A number of topics were “conversation-starters” at the conference. They included:

• Thomas & Betts announcement that they will be spinning off the pipe/HDPE business they acquired when they purchased Carlon. A number of distributors reportedly expressed surprise and displeasure as they desire to purchase their PVC fittings and pipe from the same supplier (whether this is historical preference that can be broken or not, only time will tell). Supposedly this business is a “money-loser”. Conversely, Heritage Plastics (which was started by Mark Buck, a former VP of Carlon) and Cantex are in expansion modes. A number of manufacturers wondered why T&B purchased something to only sell it less than six months later (and presumably didn’t understand the pipe business). We understand reps are not going to lose the line (for now!) but wouldn’t be surprised to see them lose the fittings as soon as the pipe is sold. We’d consider this a “rent a rep” strategy. Will be interesting to see if the marketing groups will drop “Pipeco” (T&B), grandfather new owners of the company into the group, or consider bringing in another manufacturer (Heritage?).
• T&B must have access to much cash, or a good banker, as it was announced that they purchased Homac. This makes three acquisitions in about 6 months (Joslyn and Lamson & Sessions being the other two).
• Michael Marks’ Residential CAP presentation (Thurs. morning) was well attended (50-60 people), although half appeared to be manufacturers. Of surprise to many is the recommendation that small and large distributors should consider private labeling. While the research showed growth in this “brand”, and Michael provided a disclaimer that NAED’s role is to share research and let distributors make their own decisions, a number of manufacturers were not pleased that the presentation formally recommended that distributors “consider” / “develop” a private label product strategy (especially since there hasn’t been much guidance of the intricacies and pitfalls of a PL strategy).
• We met with a few smaller manufacturers who see opportunity in the marketplace.
• We also met with some smaller distributors who see opportunities in selected market segments but need resources to exploit them. Which made us wonder, what do they see that others may not? Size and nimbleness could represent strategic benefits.
• Opportunities are in selected product niches and in offering to private label for distributors.
• One manufacturer we spoke with is considering longer rep contracts, possibly up to a year or more, with performance expectations. Additionally, some mentioned that they may consider alternative compensation strategies that integrate commissions for sales as well as activity based compensation. The reason – given industry consolidation, this could be a way to retain loyal reps and encourage them to commit more time to the line.

Hope this helps…let us know your thoughts re: T&B’s strategy and NAED’s tacit recognition and encouragement of private labeling for residentially-oriented distributors.