Are Electrical Distributors Losing Ground to the Internet? Part I

What’s a brick-and-mortar distributor to do when the nearest online competitor is one click away, Amazon Business is delving into electrical, and everyone thinks that they can sell lighting? They sharpen their pencils, dig in deep, and start proving their value in the virtual world.

 Most days, Patricia Adams gets at least one email announcing a new “LEDs? Call 1-800-WE-GOT-EM” or “LEDs are Us” outfit that’s promising cut-rate prices and fast delivery on lighting products. Those announcements are augmented by at least a few calls from customers telling her that they’re getting cheaper lighting prices online. And while this lighting specialist at Grand Island, Neb.-based Kriz-Davis, a division of Border States Electric, impresses the value of buying reputable brands like SATCO, Philips, and GE, she also acknowledges the commoditized nature of the business.

“We try very hard to promote the reputations of the brands that we know, but when someone walks in the door and says, ‘Hey, I saw this product on the Internet and it’s $19.99 and it’s 50,000 lumens,’ there’s not too much we can do about it,” says Adams, who takes these interactions seriously at a time when established distributors are facing increasing competition in the virtual world. “It’s sad and scary, but distributors are beginning to have less and less value because of the Internet. I worry about that.”

When Distribution is Weak, Suppliers Go Direct

Adams isn’t alone in her angst over the impact that the Internet and virtual sellers are having on electrical distributors. Like most sectors, electrical and lighting has seen more than its fair share of new market entrants attempting to take a piece of a pie that just 10-15 years ago was primarily the domain of independent distribution firms.

In at least some cases, the trend toward buying from online sellers has been driven by a manufacturing base that is testing out new ways to go to market—including bypassing the middleman and selling direct. Where historically a wholesale distributor served a critical role in getting products to market—and then installing, supporting, and replacing those products—it is now having to prove its worth in the online selling arena.

A past NAED chairman and former Mayer Electric Supply, Inc., executive, Glenn Goedecke has seen some major industry shifts over the last 32 years. One of them is the way in which manufacturers view distribution as it relates to the end user, and the distributor’s struggle to sell itself as the channel that brings the product to that end user. “Where suppliers feel that distribution is weak, they go direct,” Goedecke says. “This ultimately impacts the distributor’s [profits].”

The good news is that the Internet can’t provide panel expertise to a contractor who is working out in the field, nor can it provide design control and advice to a large manufacturer. It’s not very adept at providing feedback to suppliers that may, for example, need to know whether its high-technical products are operating well out in the field. “Amazon, for as much as it wants to get into the electrical business, can’t do any of this,” says Goedecke. “Unless it starts hiring people and taking over as an [actual] distributor, electrical distributors will continue to have the opportunity to make a difference.”

“We’re Still Here”

Rumor has it that at one point in time, Rexel was selling washing machines and dryers. A product group that over time shifted to companies like Sears, Home Depot, and Best Buy, those household appliances are just one example of how adaptable and flexible distributors can be when they need to be. “The industry is constantly changing and evolving,” says Maxwell Gabin, branch manager for Rexel’s San Diego location.

In assessing his firm’s position in the online space, Gabin says that while companies like Amazon Business and other virtual sellers may be carving out their own niches in the electrical industry, the Internet is also presenting new opportunities for enterprising distributors. “There may be a business that we have today (like washing machines) that we won’t necessarily have tomorrow,” says Gabin, who points out the past fears over how big box stores (i.e., Home Depot and Lowe’s) would put independent electrical distributors out of business.

“Everyone was predicting that doom-and-gloom 10-15 years ago, but it didn’t happen,” says Gabin. “We’re still around.” Whether electrical distributors are “around” 10-15 years from now will depend on how they address the current threat—namely, the proliferation of websites that promise quick delivery and rock-bottom prices on products typically sold and supported by electrical distribution.

Without a doubt, Gabin says the Internet is “coming into play more and more,” with Amazon and other online sources putting cost comparison data right at the customers’ fingertips. “We know that some customers pretty much just have Amazon as one of their screens, and that they use it to see what the site offers them in terms of price, delivery, and availability,” says Gabin. “Others are just looking at the Internet as a whole for that information. We’re going up against that every day now.”

Not the Cheapest Guy in Town

In some respects, smaller distributors have it a bit easier than their larger counterparts in terms of going head-to-head with online, wholesale lighting and electrical sellers. At K/E Electric Supply Co., in Mt. Clemens, Mich., for example, General Manager Rock Kuchenmeister says being able to focus on the Detroit metropolitan market allows his company to set itself apart from its online competitors. “As opposed to a company that covers an entire state—or multiple states,” he points out, “we don’t have to be the cheapest guy in town to be able to get the business.”

This mindset also applies online, where companies that sell solely on price find it nearly impossible to differentiate themselves in the marketplace. “Although they may win initially,” says Kuchenmeister, “they slowly start to lose because they devalue themselves.”

In Part II of this article series we’ll look at what electrical distributors are doing now to ensure their success in a marketplace where a proliferation of online sellers are offering customers low prices and fast delivery on lighting and other products.