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.
In Part I of this article series, we looked at the various ways that distributors are losing ground to the Internet and why it’s happening in the first place. And while it may be easy enough to point a finger or two at the many different online retailers that are springing up, offering to sell lighting products cheaper and faster, the root of the problem may actually go much deeper than that.
In some cases, for example, distributors neglect to promote the valuable link that they occupy in the supply chain. When that happens, they turn into order-takers, versus valued partners.
“Distributors that sell on total value proposition—and not just on the price of the product—are the ones that customers have really latched onto for the long-term,” says Rock Kuchenmeister, general manager at K/E Electric Supply Co., in Mt. Clemens, Mich. “Those are the customers and contractors that benefit from the support that we provide.”
For now at least, contractors aren’t finding the same levels of support and service in the online world, where price, delivery, and availability trump all else. “The customers who buy online miss out on those value-added services and it winds up costing them more to do business,” says Kuchenmeister. “They’re having a harder time being profitable.” That’s because when the customer, distributor, and manufacturer partner work well together, everyone wins (and makes money).
“Anybody who tries to circumvent the chain—whether it’s the manufacturer going direct to market or a consumer going online and buying products,” says Kuchenmeister, “it seems like those manufacturers and consumers become less profitable.” And while this may be true, the reality is that some electrical products do lend themselves to a quick change of hands online, and at a lower price than a customer might be able to get from a brick-and-mortar seller. Products that are difficult to add value to—devices, for instance—don’t necessarily need middleman support or expertise.
“The residential contractor who used to walk into a Lowe’s or Home Depot to buy a case of duplex receptacles doesn’t need to be told that this duplex has a specific faceplate or that this one is easier to back-wire,” Kuchenmeister. “He’s just looking to grab some receptacles quickly and get back to the jobsite.”
And while LED lighting is a commodity that more online outlets are carrying, Kuchenmeister says such products don’t necessarily fall into the same “grab and go” category that devices and receptacles do. “As distributors, there’s still a lot of value that we can add to lighting,” he says, “particularly in terms of project management on both the lighting and the power distribution side of things.” The same goes for wire, which is often specialized in nature and requires cutting and other services before it can be delivered to a customer’s jobsite.
Assessing these trends, Kuchenmeister says that when it comes right down to it, the Home Depots, Lowe’s, and Menards (a chain of home improvement centers primarily in the Midwestern U.S.), of the world are probably losing the most ground online right now (versus the independent electrical distribution firm).
“The consumer that walked into one of these stores and bought something probably didn’t even need those services in the first place,” says Kuchenmeister. “So [big box] is the segment that’s being most affected by an Amazon Business, where you can order a case of receptacles online using Prime and have them within two days.”
From Order Takers to Innovators
To the unknowing, distributors keep themselves busy as order takers that negotiate pricing and delivery and then fulfill orders for their customers. In reality, distribution’s value proposition extends well beyond these borders. Unfortunately, the industry as a whole hasn’t done a very good job of letting the rest of the world know just how valuable it is within the supply chain.
“Distribution has to do a better job of selling its services and what it does,” says Glenn Goedecke, a past NAED chairman and Mayer Electric Supply, Inc., executive. “It also needs to show why ‘being there’ is an advantage in a marketplace where more and more customers are using the Internet to research and procure goods and services.” Doing this requires an innovative mindset, he says, and a corporate culture that’s not afraid to flex and change along with (or, even ahead of) the rest of the marketplace.
“Distribution has been extremely short-sighted in trying to figure out ways to be innovative,” Goedecke says. “If it lacks a culture whereby people are always thinking about what the next best thing is, distribution will fall by the wayside every time.”
Taking Control of Your Customer
To electrical distributors that have found themselves losing ground online and are unsure what to do about it, Goedecke has some straightforward advice: Take control over your customer. That’s what Mayer Electric has been doing for decades, with the overall goal of “never letting our manufacturers control us,” says Goedecke. For example, he says the distributor learned (on its own) how to do lighting designs, and how to do specifications with engineers and architects. This puts it in the position to be the “go to” resource for a wide range of projects.
“We were always seen as ‘the source,’ but most distributors don’t do this,” says Goedecke. “They’re either order takers, or they try to take control of the customer, but don’t really know how to.” To buck that trend, he tells distributors to let both their suppliers and customers know just how important distribution is to the overall electrical supply chain. Ignore this step and it won’t be long before those online lighting/electrical product sellers begin seriously eroding your profits. “There’s a distinct advantage to working through distributors,” says Goedecke, “but that message still isn’t getting across the way it should be.”Tagged with B2B, best practices, e-commerce