To say there is a lot of “horse tradin’” going on between U.S. and Chinese lighting manufacturers would be an understatement. Case in point, the May 15 announcement that Philips Lighting will acquire the Chinese company, Shenzhen LiteMagic Technologies. This illustrates one direction of American-Sino trade. The ongoing bids by Chinese companies to purchase GE Lighting shows the other direction of these massive international deals.
In the midst of trying to keep track of who’s acquired who, the proliferation of lower-priced Chinese lighting products flooding the U.S. market continues, as do the challenges that come with it. It was never so obvious as the recent LIGHTFAIR in Chicago, where Chinese manufacturers had booths right next to major American manufacturers.
Brad Newbold, Director of Procurement for Regency Lighting says, “With the influx of ‘me too’ manufacturers from China, it has caused quite a bit of confusion in the lighting space. Our outside salespeople, and sometimes even our customers, may come across a Chinese import manufacturer with low prices, and we have to work diligently to determine if it is a viable product offering, or if it is a low-quality product that we would not want to stand behind.”
Brittany Camera, National Purchasing Manager, Lighting for Rexel Holdings, USA, echoes the critical importance for distributors to align with trusted U.S. manufacturers if they want to preserve their own reputations. At the same time, she acknowledges the competition is real.
“I think it’s the price and availability. Not only are [Chinese manufacturers] undercutting the big three of the industry, but they’re also aligning with rep agencies who are knocking on your door ten times more than the reps from those same companies. The people who are showing up every day are the ones getting the inside sales reps to buy into their product.”
Camera adds, “I get LinkedIn messages, Facebook messages on my personal Facebook page, and emails every single day from Chinese companies trying to connect and I just don’t even reply.”
But many distributors do. Price sells. The problem is service after the sale, according to Camera. “The guy who has the cheapest fixture doesn’t have the same warranty and probably isn’t going to be around by the time that the warranty needs to be used,” she says.
“When we come across pricing that is so low that it is hard to ignore, we always look to our existing suppliers to see if they offer reasonable alternatives,” offers Newbold. “We are okay paying a small premium for reputable brands, but we also don’t want to be priced out of the market if our competition and the customer base are demanding the lower costed goods. We have been successful so far in working with our existing suppliers to come up with creative solutions.”
For example, Regency leverages regional promotions, utility rebates, total cost of ownership and ROI analysis, lighting design consultation, and warranty analysis—all helpful in not only ensuring that they can sell a quality product at a competitive price but continually demonstrating their unique value add.
“Lighting is an increasingly complicated product, and we have made a significant investment in areas such as lighting design, training, marketing, and BOH systems to ensure we are able to consistently provide the right product at a high level of expertise and service to our diverse customer base,” adds Newbold.
Camera says despite the competitive necessity of a robust digital presence, the lighting industry is still largely relationship-driven. Maintaining and shoring up those relationships at both ends of the sales channel, suppliers and customers, is especially important now.
“Our national category management team is having to spend more time in the field than we previously were to make sure we can communicate the value of our strategic supplier partnerships and to make sure our customers understand that same value proposition.”
Rexel is also inviting manufacturing reps to “go with.”
“We need your team in the field,” says Camera, who has been reiterating this to her top suppliers and Rexel gives supplier partners the opportunity to try to meet certain costs. “But really it’s the training on the value proposition that we’re getting from these supplier partners that we’re not getting from these Chinese companies.”
“It requires vigilance and an enormous amount of work to sort out the suppliers and ensure we stay aligned with strategic, quality, long-term lighting vendors,” echoes Newbold at Regency.
As for what’s next, with Acuity announcing a six percent price hike on May 14, and Eaton following suit just three days later, many medium-size manufacturers might do the same. (Officially, the commodities market and tariffs are being blamed for the increase.) Industry observers assert this is a long-overdue correction to continuously falling prices, and see the market adjustment as a way for leading manufacturers to maintain their profitability in a turbulent market.
But with higher supplier costs will distributors defect to the Chinese low-cost alternatives? Camera sees significant risk.
“Well you bought it, now you’re stuck with it,” she suggests that’s what distributors will face.
“That’s what happens with the no-names. That could sink a company really fast. If you’re a smaller distributor and you’ve got a lot of cash tied up, that could be damaging. When 90 percent of what you sold failed, and then the company is gone, there’s nothing you can do.”
If there is an upside to the influx of the Chinese products, Newbold suggests it might be this:
“Competition in a healthy market usually leads to innovation. When LED lamps were first introduced, they had expensive, material-heavy heat sinks that were a significant part of the cost basis. It was only after increased competition and price pressure that the leading manufacturers were able to determine that the lamps were over-engineered, and lighter, simpler, much more cost efficient products were soon hitting the market. As China and other import markets continue to seek foothold within the U.S. market, the leading brands will have to continue to invest in R&D to stay competitive and ahead of the curve. This will, in turn, give the customers more affordable options while hopefully not sacrificing quality or warranty. However, the confusion in the marketplace means distribution will still be the most effective way of sorting through the chaos and ensuring that only reputable brands are offered to our customers.”
Tagged with Chinese manufacturing, lightED