Q3 Pulse of Lighting Results are in … slow. Tariff impact

The 2019 Q3 Pulse of Lighting results are in and it appears that Q3, on average, for lighting was slow for distributors and manufacturers, with results in the low single digits.

The major reasons reported in the Q3 Lighting Report were tariffs and a slowing construction market in many parts of the country. These two combined for a continued competitive environment that minimizes the success of price increases (and yes, we asked what percent of price increases are holding) as also evidenced by a number of manufacturers not implementing the full tariff increases (some through negotiation with their OEM partners, others consciously.)

Comments included:

• People holding back on spending $ due to tariffs/macro.
• “Large projects not moving.”
• Price increases getting pulled back as Chinese subsidizing tariffs and guys like AYI not seeing cost increases they thought. Also many OEMs eating the tariffs.
• “Future pipeline is stalling for next year”
• Think market could be flat in 2020, only way to grow is take share
• Some utility rebates have been lowered thus lowering these types of projects.
• Tariffs represent an opportunity to raise pricing as long as everybody does it.
• ‘Stage and store’ jobs are now expected with little consideration for physical storage space or profit adder
• Tariff yo-yo ride, uncertainty in the marketplace
• Larger manufacturers trying to get some of their market share back
• Tariffs have slowed project business drastically
• Low-cost low-quality import products seen as “good enough” by contractors

Survey Observations

From the survey:

• More distributors reported significant contraction in their lighting business that significant growth with 43% reporting growth between 5-15%.
• The segment that is the busiest is the small project market … new construction and renovations. This segment is also the least tariff / price sensitive.
• 44% report that the large new construction market is down / quiet.
  • 30% of respondents state that tariffs have resulted in a decline in large project quotations.
  • The industrial market has slowed, perhaps as a “second derivative” impact from tariffs and the global economic slowdown impacting OEMs (or could be due to summertime shutdowns.)
• More distributors reported a flat backlog, which is a concern for Q4 and early 2020 although respondent projections for Q4 are stronger, most typically due to seasonality and/or benefits from energy-driven / utility-driven initiatives (i.e. subsidizes … “use it or lose it” funding)
• Lighting controls continue to gain interest with 86% of respondents stating customers are receiving customer inquiries for this product category.
• Although horticultural lighting generates much marketing from suppliers, only about 40% of respondents have had requests for this specialized lighting. Circadian lighting is even less, at 22%

Overall, we had 218 respondents.  Channel Marketing Group clients and survey respondents received an advance copy of the results after William Blair distributed it to its clients last week.  The complete report is available for $19 by clicking here.

Other Lighting News

The market continued to go through changes with some acquisitions making news, personnel changes and “general ongoings.  Consider:

• Emerson / Appleton talking about the industrial lighting market and the usage of controls.  Safety is the primary decision driver with energy efficiency / cost savings an expectation.
• Cooper Lighting Solutions (formerly Eaton Lighting) talks about what it sees in the outdoor lighting space.
• Satco’s Alan Karen reveals a new corn cob lamp with a unique, versatile configuration on “Get a Grip on Lighting” and there is a discussion about the “soul” of the lighting industry.
• Philips sold its remaining 10.7% stake in Signify
• Acuity purchasing 5 companies through Luminaires Group, which had sales approaching $100 million
• Luminii acquired Optical Arts
• OSRAM sold Siteco
• Private equity firm Core Industrial Partners acquired Texas Fluorescents / Saylite / Moburn
• UL has published a new standard for horticultural lighting

State of Stock Business

Conglomerates continue to seek a greater share of the “stock” business.  While some consider this “counter” business, in reality it is to support the small project market where inside staff has discretion in the brands that they support.  Being “in the warehouse” drives this business and is a segment that most lighting agents are challenged with, which is why the conglomerates have fielded regional managers focused on this business and more lighting agents are hiring “distribution specialists.”  Manufacturer reps still have an advantage here as they call on the distributor regularly … multiple times a day … and have relationships / familiarity that drives sales.

And our survey said “stock business is flat” with manufacturers anecdotally sharing they can’t tell if it is down / flat for them due to the amount of business pre-purchased by distributors in June given the pending tariffs that were planned on Mexico and the implemented ones with China.

Being “in the warehouse” is critical to earning the discretionary business and companies such as Acuity, Appleton, Crouse-Hinds, Dialight, Eaton Lighting, Light Efficient Design (LED), RAB Lighting and TCP have recognized this and have proactively endorsed the NEMRA Minimum POS Standards.

As companies start to turn the planning page to 2020, the outlook for growth in the lighting market, in total, and in the current economic environment, appears that it will be “challenging”. Keys will be taking share through aggressiveness, being easy to do business and creative marketing.

If you’d like the details of the Q3 Pulse of Lighting Report, click here to purchase for only $19.

What are you seeing for lighting in your market? How has “the market” (tariffs / economy) affected your lighting business? What is your early 2020 outlook?