By Bridget McCrea
Industrial distributors take a “cautious but optimistic” approach to the market in 2017, but feel better now than they did at the beginning of the year.
As industrial distributors moved into the second half of 2017, some took the time to reflect on their progress so far this year for the new Baird Electrical Distribution Survey. Working with tED magazine, Baird's research team uncovered some good nuggets of information and pulled out its crystal ball to come up with an outlook for the rest of the year.
For the most part, distributors appear to be “cautiously optimistic” about the rest of the year, noting that commercial construction activity remains generally solid, light industrial construction is picking up steam, and non-residential construction is experiencing consistent growth. It's been a “strong year due to commercial construction and contractor activity,” according to one respondent. Datacomm is doing particularly well, several distributors noted, as “the data center market as a whole keeps going and going.”
There's also an air of cautiousness among distributors that aren't taking the current uptick for granted. “Nobody is terribly excited,” one distributor pointed out. “The mid-tier contractors are just fighting for everything they can get.”
Falling Prices
Maxwell Gabin, branch manager at Rexel in San Diego, said the lighting sector is particularly challenging right now, namely due to the pricing issues associated with both LED and solar. “Solar is big for us here on the West Coast, and the prices of the materials fell rapidly in 2016,” says Gabin.
“Now, even if we're selling more solar job units—roughly 20 percent more than the LED-related jobs that we're working on,” Gabin continues, “there's less revenue because of how far the prices have fallen on solar.”
For example, a fixture that may have sold for $120 in early-2016 is now going for $70 to $80.
“That's been our biggest challenge so far in 2017, and it's cutting into revenues,” says Gabin, who is hoping that the prices on both LED and solar lighting will begin to “slow down and bottom out” later this year. “We'll have to wait and see if that happens.”
Waiting for the “Boom”
Mac Doyle, account manager for Border States/Shealy's construction division, says he noticed an “air of excitement” after the November 2016 election—due mainly to the promised national infrastructure investment package—but says that enthusiasm died down in 2017. “A lot of our contractor customers were very excited about the potential outcome, and optimistic about the future of the economy,” Doyle explains. “So far, however, we haven't seen that impact yet; nothing is really 'booming.'”
As contractors and other electrical customers wait for that “boom” to happen, Doyle says some are holding back on projects and purchases. “If anything, business actually seems a little slower right now,” says Doyle, who notes that Baird's current trends and revenue trajectories align with what he's witnessing in the market for 2017.
According to the Baird Electrical Distribution Survey, companies experienced a 2.9 percent year-over-year growth in electrical sales during that period, and a 1.8 percent increase in datacomm. This was slightly below the 4.2 percent growth seen across the broader distribution industry, according to the report.
“From the ground level, business is slower than it has been in prior years,” Doyle says. “And while we are seeing a bit of an uptick right now, things are still pretty slow as compared to years past.”
Things are Looking Up
For the survey, distributors shared their revenue forecasts for 2017, suggesting slightly higher growth than most recently forecasted for both electrical (a 3.5 percent increase, quarter-over-quarter) and datacomm (3.7 percent growth, versus a previous 2.1 percent). Baird forecasts 4.5 percent growth for the broader distribution market for 2017, compared to last quarter's 3.7 percent prediction.
“Feedback was most encouraging around non-residential construction trends going forward,” the company reports, “and we believe there are still some questions around the sustainability of improved industrial trends at present (primarily sentiment-related).”
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McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.
Tagged with Baird, feature, industrial, research, tED