Q4 Pulse of Lighting Report & 2019 Outlook

Just before the holidays we launched our Q4 Pulse of Lighting survey to gain industry insights about market performance during Q4.  We had over 200 distributor, manufacturer and sales agents respond. And as most know, the market was “eventful” in Q4.

The quarter started with talk of tariffs impacting the industry, which came to fruition in October and culminated in many, but not all, manufacturers instituting some type of price increase in late October. The impact of the tariffs appears to have increased average selling prices for many, pulled some business forward to early in the quarter and perhaps motivated some distributors to purchase “pre-tariff” and increase their inventories.

However, as we learned from interviews, the market appears to have slowed throughout the remainder of the quarter. Whether it is uncertainty about the originally proposed end-of-year tariff increase (now pushed to March) or a market slowdown or that the business was pulled forward, no one seems to know.

Additionally, respondents shared feedback from conglomerate efforts to support their “contractor grade” brands.  One area that was commented on is that a number of these companies have reduced lighting agent commissions on these lines.  Since the factory needs to be “more competitive”, they feel everyone needs to “share” (as they also have margin objectives).  The challenge is that these lines require lighting agents to be more focused / engaged with electrical distributors and takes them somewhat out of their normal sales cadre.  Earning less provides less motivation.  The commission reduction issue seems somewhat backwards … especially as supply reps report no change in commission from their lines and, in fact, some are benefiting from overage when their lines are “too” low on a quote (and the rep is protecting price integrity in the marketplace.) More work to sell a lower dollar item at a lower commission rate because the company has a premium name? Perhaps this is why we’ve heard of agents having multiple line cards and / or expanding the number of lines that they represent?

Some insights from our Pulse of Lighting survey conducted with William Blair

(as an FYI, respondents received the complete report for free, if you’d like to purchase for $19, click here and we’ll email you the complete report within 24 hours.)

• Sales increase ranged from 7.25-8.4%, depending upon the surveyed audience
• ASP (average sales price) increased 4.87%, however, also heard of declines in some areas based upon competitive challenges and product mix. Some “tier 2 and 3” lighting suppliers, who frequently are conglomerates strongest competitors for “white goods” business delayed, or didn’t implement in Q4, price increases that were tariff induced.
• Growth continued strong in small and medium projects, the target audience for conglomerate’s new “contractor grade” offerings.  If these companies can gain traction, these companies’ sales could grow at a faster rate.
• Inventories grew a little for many and backlogs flattened for an increased number of distributors.
• 2018 lighting growth, overall, exceeded industry growth projections of 5.8% by DISC.
• 2019 outlook is mid to high single digit increase.
• Many commented on quality issues … overall marketplace improvement, and when there are issues, they cut across all types of manufacturers.
• Continued controls confusion in the marketplace is hindering widespread adoption, although there does appear to be more interest in controls.
• And more through anecdotal input from respondents.

Some other lighting tidbits:

• In talking to some lighting agents, it appears that about 60-80% of their business is focused on new projects / larger opportunities.  With the research showing distributors are seeing strength in the small to mid-sized projects (new and renovation), perhaps this is an indicator of why conglomerates have had less than market growth within the industry?
• Legrand acquired Kenall Manufacturing.  It appears that Kenall had 2017 revenues of $100 million. Given this, it appears that through its acquisitions of Finelite, Pinnacle Lighting, OCL (Original Cast Lighting) and now Kenall that Legrand’s US lighting business is $200-250M combined, with a focus on architectural / spec grade commercial lighting. It would be fair to speculate that this is also a strategy to expand Legrand’s commercial lighting control business as well as benefit wiring devices and, perhaps longer-term, elements of Wiremold, Ortronics and OnQ. These lighting companies go to market via lighting agents, giving Legrand visibility through an additional sales channel that is experienced in pulling product through the channel. Longer-term, wonder what will happen if competitors to these lines (i.e. Acuity, Eaton, etc) decide that lighting agents should be more “selective” or offer fewer competitors? Or will the marketing groups initiate discussion to include these lines in their rebate deals since they are part of “the parent” company?

It’s probably fair to say that Legrand is not done making lighting acquisitions. Question becomes, will they pursue any broader offerings or prefer to stay in the spec environment? Another deal or two and Legrand will become a “silent significant player” in the lighting market. Since Leviton has also made some minor lighting acquisitions, will they actively pursue a larger lighting acquisition (or another one at all) or perhaps go in a different direction?

• Maxlite has hired a new President / COO.  Spencer Bolgard, formerly of Phoenix Contact, Cooper Industries, Seagull Lighting and AD has joined Maxlite and Rick Schuett, formerly of Cimcon Lighting, Echelon and others including spending 14 years with Lutron is now VP Business Development.

As we enter 2019, what are your lighting predictions?

• More consolidation?
• Controls adoption?
• Lighting slowdown if there is a tariff increase?
• Accelerated lighting growth if no tariff increase? If a tariff rollback? (and will prices roll-back)?
• Will conglomerates be successful with their contractor grade lighting offerings and take back share … win stock position and be recipients of small to mid-sized lighting projects?
• Will there be lighting agents acquiring supply reps and vice versa or will supply reps continue to add lighting lines? Will large lighting manufacturers begin to consider supply reps to service distributors and redesign compensation models?
• Will PoE, connected / smart lighting, solar-powered lighting or ????  become the next new product category?
• Whom will add their name to a list of large lighting companies.  We know Acuity, Eaton, Philips, Hubbell.  Would you add Cree? Rab? GE? Legrand? LedVance? Someone else?

Share your thoughts.  And if you want the complete Q4 Pulse of Lighting Report report for only $19, click here.