NAED members and preferred suppliers discuss the electrical distribution sector’s prospects for 2019, talk about their key challenges, and reveal what opportunities they’ll be investing the most time and money in during the coming year.
Rock Kuchenmeister is the first to admit that he doesn’t have a crystal ball, but based on his company’s performance in 2018—and barring any unforeseen circumstances—K/E Electric Supply Co., in Mt. Clemens, Mich., is probably going to have another good year in 2019.
“We’re obviously at a pivotal time,” says Kuchenmeister, who at the close of 2018 was keeping a close eye on the wild stock market fluctuations and the China-U.S. trade deal. “We’re all operating in a world economy here, so there’s a lot of chaos ensuing around these and other big issues,” he points out. “Despite all of that, K/E Electric expects to have another great year in 2019—at least for the first and second quarters.”
Don’t ask Kuchenmeister to think much beyond that because he knows market volatility and the geopolitical environment could impact the U.S. economy—and customers’ buying habits—at any point. “Looking much beyond that,” Kuchenmeister adds, “it’s hard to predict what’s going to happen, but going into this new year we’re definitely bullish on the prospects for our distributorship, and for electrical distribution as a whole.”
Upbeat Business Outlook
Kuchenmeister’s upbeat business outlook for 2019 is shared across many other NAED members and their preferred suppliers. At Border States, Jason Stein, executive VP of sales and marketing, says the company—whose fiscal year ends March 31—is hearing positive feedback from its business partners and customers. “We think business will be strong through 2019,” says Stein, who adds that economists expect a minor blip in that positive outlook near the end of the year.
“The same people are projecting a slight decline in business in the latter part of 2019 going into 2020, and turn back around during the latter part of 2020 and into 2021,” says Stein. “That’s what we’re hearing.”
Seizing New Opportunities
At Rexel’s San Diego location Maxwell Gabin, branch manager, is also optimistic about 2019 but says the company is keeping an eye on potential increases in the cost of doing business (and how those increases will impact the distributorship and its customers). If costs rise by even just 5-10% due to inflation and/or tariffs in 2019, for example, then the company will have to pass those higher prices along to customers.
When that happens, the odds that the project pipeline starts to dry up will rise accordingly. This could push project owners to mothball new developments instead of bringing them out of the ground in 2019. “The question at this point is how long the market can handle these price increases before people say, ‘Alright, with all of these tariffs and other issues going on, I’m going to hold off on doing this new renovation,’” Gabin explains. “Or, maybe a customer will hold off and wait for a time when prices level back off.”
Gabin says he hasn’t seen any sign of this happening yet, but he’s wary of it going into 2019. “We’re feeling good, but we’re not as excited as we were going into 2018 from 2017,” says Gabin, whose team plans to explore more opportunities in data communications (Datacom)—an area that the distributor once had a presence in when it operated as Rexel Sales and Electrical Datacom.
“At some point, we moved away from datacom,” says Gabin, who is in the early stages of training a team of employees and sales reps to work with that sector, “but during the coming year I want to get back into it because I think it’s going to be a growing area as we move forward.”
Gabin also plans to leverage Rexel’s new, company-wide lighting catalog, which features available inventory and allows sales reps and customers to find the best solutions for specific applications. This successful initiative launched in 2018, and Gabin expects that momentum to continue well into 2019. “Rexel pushed the catalog out nationwide, and we’ve already done a couple of million dollars in sales just through that mechanism,” says Gabin, who likes the catalog because it’s “not your typical project lighting products that are already out there.”
Instead, the catalog includes both retrofit and over-the-counter products that feature good product margins. To augment that selling tool, Rexel also introduced a maintenance catalog with the same premise: create a place where customers and sales reps can go to find solutions to their most pressing maintenance-related problems.
“They can see all of the different maintenance products that we carry, that a typical maintenance professional would need on a day-to-day basis,” says Gabin, who adds that both customers and sales reps have embraced these new tools. “They both really like the platform.”
It’s All About the Data
In 2018, Milbank Manufacturing Co., of Kansas City, Mo., put a lot of time, resources, and effort into improving its factories and production facilities. Like many manufacturers across all industries, it’s investing in automation and robotics that help it work smarter, better, and faster in a world where its distributor partners and end users expect their orders faster than ever.
“Our ultimate goal is to service our customers by getting our product out there quicker,” says VP of Sales and Marketing Chris Buelow. “We’ll continue to do that in 2019.” Also this year, the manufacturer plans to extend its core metering product, with an emphasis on enclosed controls. The latter has seen double-digit growth over the last few years, according to Buelow, whose company is partnering with more distributors to help extend that success. “Growing our enclosed control line one of our biggest, long-term initiatives at this point.”
Milbank, which revamped its website a few years ago, is making continual investments in its digital side while also figuring out how to best generate data and share it with its distributor partners. “We were one of the first manufacturers to get on board with IDW and IDEA, and we spent a lot of time maintaining that database,” says Buelow.
“We’re also looking at other platforms that will help us support our distributors—and make them more successful with their contractor customers—in the future,” says Buelow. “We all know that with contractors, it’s all about the data and how quickly they can get information. That’s why we’ll be investing even more in this area over the next couple years.”
Service Revenues are the Future
To make sure it stays on the growth curve that it’s been on for several years, Stein says Border States is “doubling down” on a new approach to value-added services that the company offers its customers. “We saw good momentum this year – service revenues are a key contributor to our future growth,” says Stein, “and we expect the growth to continue.”
Like many other electrical distributors, Border States is striving to find a way to provide high levels of service to its customers while also getting paid for those services (and in an environment where customers are product- and bottom-line-focused).
“We are quantifying the value of each service and providing greater transparency to our customers,” says Stein, who adds that separating the price of the product from the price of the service is a different approach and something customers consider a game-changer in the industry. “We are making the case and showing the customer just how we can save them time and money,” says Stein. “They’d rather have us doing what we do best, so their teams can focus on what they do best.”
With the national unemployment rate hovering at historic lows, distributors like Border States are also working on their employee recruitment and retention strategies. Stein sees this as a strategic imperative for companies that have to think about their own labor needs at the same time that their contractor-customers are grappling with a critical skilled labor gap.
“We all need to focus on attracting and developing people, and then doing what we can to keep them onboard,” says Stein. “We gather feedback each year to better understand the needs of employee-owners – that is important, and for recruitment, being employee-owned is big,” said Stein. “Just as we make the business case with customers to charge for our valuable services, we make the case with potential employee-owners about ownership, sharing in the rewards of success and building wealth in an ESOP (employee stock ownership plan) account.”Tagged with 2019, economy, industry, outlook