Here’s how one company is growing its profits and maintaining solid market share in the competitive electrical distribution segment, and advice on how other distributors can do the same.
Based on how things played out for his electrical distributorship in 2018, Rock Kuchenmeister came into this year pretty bullish on its potential for the year ahead. As general manager at Mt. Clemens, Mich.-based K/E Electric Supply Co., Kuchenmeister discussed his predictions in this January tED article, stating that despite the trade wars, tariff issues, and wild stock market fluctuations, “K/E Electric expects to have another great year in 2019—at least for the first and second quarters.”
Kuchenmeister’s predictions were spot-on, and not just for K/E Electric either. Business across most electrical categories remains brisk and even though there are hints beginning to surface about a potential downturn, that hasn’t happened yet. To help distributors keep up the positive momentum, Kuchenmeister drilled down into a few key steps that companies can be taking now to improve profitability and market footing for the rest of the year. Here’s what he had to say:
Q: What advice would you give the distributor that’s struggling to maintain profitability and market share right now?
A: There are a few different angles it can take. First and foremost, it can add more services to its lineup, be it delivery, staging products, changing credit policies, adding kitting services, you name it. In general, this is always a great way to get out there and grow your market share. Another one is to go after new market segments. So, if you primarily work with commercial contractors, now could be a good time to add the industrial or residential segment to that list.
Q: Distributors often struggle with charging for services in a way that actually boosts their bottom lines. What would you say to them?
A: I’ve had some discussions with other industry executives about this and it’s clear that a lot of distributors do struggle with this issue. But there are two theories out there on this, and how you handle it really depends on the marketplace and your business structure. The first is to charge a line item on your invoice for the service that’s being offered (i.e., kitting, vendor-managed inventory, etc.). Second, you can just bury the cost by having your salespeople add it into the cost of the product behind the scenes. These seem to be the most popular ways that distributors are dealing with this issue.
Q: How else can an electrical distributor improve profitability in a world where the nearest competitor is literally just one screen tap away?
A: Another way to go after a new segment, on a smaller scale, is to simply add a new product line that you’re not already carrying. So, instead of adding yet another lighting manufacturer to your supplier list, consider a complementary product segment like power tools to your line card. Or, you can expand your controls line by offering new SKUs in controls. Finally, you can add a new salesperson and have him or her go after new accounts, segments, and opportunities.
Q: Is working more closely with current customers also a good strategy?
A: Absolutely. Personally, I’ve found the best approach is to spend more time retaining the accounts you have. We regularly analyze our existing customer base to find out what they’re not buying from us, for example, and then we go in and try to sell them those products. For instance, if you have a contractor or industrial account that’s buying all of its lighting from you, but not buying any of your wire, then there’s an opportunity right in front of you to increase revenues without adding new accounts.
Q: What’s the best piece of advice you’d give an electrical distributor right now?
A: Stock is still king, but it also presents unique struggles due to the squeeze on square footage. If a downturn does happen, the first thing a lot of distributors will do is reduce their inventory levels. That’s the exact opposite of what you want to do. You want to actually increase your inventory because stock is super critical during an economic downturn.
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