In the wake of a recent antitrust complaint filed in the lighting industry, distributors discuss competitive pressures and how they combat unethical behavior.
Read Part 1 of this series here.
In a recent legal complaint filed in federal district court in Illinois in late 2019, Chicagoland lighting rep agency Force Partners, LLC (“Agency A”) alleged that competing rep agency KSA Lighting & Controls, Inc. (“Agency B”), colluded with major North American lighting and controls manufacturer Acuity Brands, Inc. to coerce distributors into buying from them and forcing the plaintiff rep agency out of the market.
In light of what the complaint alleges as non-competitive behavior that violates antitrust laws (federal statutes enacted by the U.S. government over a century ago to protect consumers from monopolies, price fixing, boycotts, and other predatory business practices to ensure that fair and pro-consumer competition exists in an open-market economy), lightED invited two distributors to discuss their experience with unethical industry behavior and how they deal with it.
Pressure Abounds
According to Cory Schneider, CEO of Phoenix, AZ-based lighting distributor Lighting Unlimited, “there’s always pressure from lighting manufacturers to sell their products, and it’s gotten worse in recent years because there’s so much consolidation in China and these guys are all buying from the same three places and private labeling the products,” he said. “All of the traditional light bulb manufacturers are now in the commodity fixture business, all of the spec-grade fixture firms want to be in the commodity fixture business, and all of the commodity fixture firms want to stay in the commodity fixture business – in other words, everyone’s in the commodity fixture business, so there’s definitely pressure!” Schneider noted that some commodity fixture companies are even going back down into the light bulb business while some are going up into the spec-grade business, “which makes relationships and reputation extremely important.”
Ryan Kuchenmeister, sales representative at K/E Electric Supply in Mount Clemens, MI, agreed that current market factors have put lighting manufacturers under exceptional competitive pressure. Based on his experience, “LED price deflation has caused many manufacturers to begin measuring unit sales as much as dollar sales,” Kuchenmeister shared. “I was at a conference last year and expected to walk into a meeting and be met with disappointment because our numbers with that particular brand weren’t quite what they’d been the previous year,” he recalled. “It turned out that we’d actually sold more units, even in the face of flat/down dollar sales, and the brand was very satisfied with our efforts (units sold) because we’d done quite well compared to our national peers.” While he isn’t sure how this price deflation will play out, Kuchenmeister confirmed that the pressure manufacturers are under gets reflected onto distributors. His takeaway? “Be smart about your metrics,” he said. “Numbers are numbers, but there’s always a story that needs to accompany them.”
Responding Strategically
“As a distributor, we often play second fiddle with rep agencies when it comes to the new construction market,” contended Schneider, who said that rep agencies call on engineers/architects/specifiers and use their expertise to help design jobs and get on plans. According to Schneider, “distributors are typically calling on end users/contractors and only see the jobs once they’re on plans and on the street. Rep agencies apply pressure when someone goes to value engineer (VE) a project they spent countless hours designing.” As for whether this behavior could be considered unethical, “I see it more as protecting the work they created – ‘he who controls the spec controls the job,’” he said. “We’ve responded by supporting and working closely with local agencies and not VEing/crossing their work. In turn, they’re supporting us as we try to specify our own work with end users from the beginning of the design process.”
At K/E Electric, Kuchenmeister said that response to industry pressure is a mixed bag. For example, “a manufacturer recently pressured us to put in a large order near the end of the year (and this same manufacturer/rep also pressured us into taking quite a few long-term stage/store projects, which soaked up much of our available warehouse space). Fortunately, in our case, one of the projects shipped a bit ahead of schedule, which made room for a stunt like that,” he said. “But when you have to walk your rep back to your warehouse and ask them where they’d suggest putting all of the material they want you to buy, maybe it finally hits home.”
“Ethics-wise, the folks we’re most successful with understand our challenges and how we all do business together,” Kuchenmeister continued. “Another rep was actually working with us under the same circumstances and part of the discussion was, ‘Hey guys, for this order, let’s pool together the most expensive items to make your goals, keeping in mind that they should stack well and/or be physically small boxes” – a much more strategic and mutually beneficial approach. Ethically, there’s a big difference between a manufacturer/rep who just wants an order and someone who’s problem-solving with you,” he said. “We’re all under pressure, but are you going to just ask for orders or actually capitalize on opportunities?”
As Schneider sees it, manufacturers will level the playing field with consolidation. “We’re in a competitive business environment and the market will dictate who survives,” he said. His advice? “Control the spec yourself and, if you’re a distributor with ‘discretionary’ spend, provide value. Don’t let the agents dictate your value. Rather, be in front of the end user and sell that.”
Kuchenmeister agreed, sharing the analogy of running your own race in a marathon. “When running the long haul, don’t be too upset if people are passing you, as they may burn out, and don’t get too cocky when you’re the one passing other folks, as you may be out-doing yourself – pick your pace, and run your race,” he said. “In business, some pressure is good, but sometimes pressure drives people to make decisions they wouldn’t otherwise have made.”
“When you get into a lawsuit about forcing a distributor to stock ‘only’ your product, you’re doing it wrong,” Kuchenmeister concluded. “Try instead to convince a customer to make the choice to choose you. A free-market society functions best when people make mutually beneficial transactions.”
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Conspiracy Theory? (Part 1)Distinguished law professor sheds light on the legality/ethics of practices alleged in a recent antitrust complaint filed against a major lighting manufacturer and their rep agency. |
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