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Sales May Be Flat, but Distributors are Optimistic About the Future

Sales May Be Flat, but Distributors are Optimistic About the Future

By Bridget McCrea

Three NAED members discuss their companies’ results for the first three quarters of the year, their pre-election anxieties, and the business outlook for 2017.

By all measures, 2016 should have gone like gangbusters for Warshauer Electric Supply of Tinton Falls, N.J. Coming off a decent year in 2015, the company saw that momentum continue right into the first quarter of this year. “We were very encouraged by how the year started,” says Jim Dunn, executive vice president.

Then something happened as the year progressed. Company sales leveled off during the second quarter, followed by a more defined slowdown during the third quarter. “Last quarter we basically gave back most of the gains that we made during the first half of the year,” Dunn explains. “That’s pretty disappointing, based on the fact that we came out of the gate fairly quickly at the start of the year.”

Looking out over the next few months, Dunn isn’t enthused by the forecasts or momentum at this point, and says Warshauer’s fourth quarter will be just as challenging as the previous two. In assessing the culprits, he says some of it can be attributed to “pre-election stagnation” (read tED’s coverage of this phenomenon in this article) as customers wait to see what happens on (and after) November 8th.

More likely, Dunn says the slowdown in his region of the country can be traced back four years to Hurricane Sandy. “We got hammered by that storm and just never gotten our feet back under us,” he says. “And while 2013 was a solid year due to the recovery efforts, any long-term uptick we were hoping for just hasn’t happened. People are still cautious, banks are hesitant, and overall business is flat.”

On a positive note, Dunn says there are a few bright spots on that otherwise dismal picture. He says the firm’s switchgear division is having a “phenomenal year,” and that the distributor is involved in numerous, large projects on that front. Also, sales for Warshauer’s generator group are going strong. “Emergency generators are in high demand, and that’s part of the Hurricane Sandy effect,” Dunn explains. “Basically every building that goes up now includes an emergency generator.”

Lagging the most are sales made to small- to midsized commercial customers. Calling this Warshauer’s “everyday business,” Dunn says slow sales in this area negatively impact the distributor’s counter trade and stock sales (i.e., those sales made to customers from existing inventory). “This aspect of our business hasn’t been healthy for about six months now,” says Dunn. “Our budget coming into the year was to grow in the low double digits, but based on performance so far it doesn’t look like we’re going to get there.”

Strengthening Your Company’s Backbone
Warshauer isn’t alone. In fact, many NAED members are feeling the impacts of a slowdown during a time when it looked as if 2016 might be a year characterized by single- or double-digit sales growth. According to the most recent Baird Electrical Distribution Survey, for example, survey respondents indicated that average year-over-year revenue growth in the second quarter was +0.3% in electrical and +3.6% in datacomm.

Both of these sectors compared favorably to the -0.2% growth seen across the broader distribution industry. Within electrical, specifically, the second quarter of the year brought little in the way of change, as the solid construction/weak industrial dichotomy seen over the past 18 months remains in place, again resulting in “flattish” growth overall, according to the survey.

“Electrical distributors around the country are definitely dealing with some struggles right now,” says Rock Kuchenmeister, general manager at K/E Electric Supply Co. in Mt. Clemens, Mich. “Inside the Midwest, however, I think we’re having more fun than the rest of the nation is; we’re doing very well.”

There’s a reason for that optimistic attitude, but the underpinnings aren’t exactly rosy or bullish. “We went into a recession here in 2001, barely came out of it in 2007, and then went right back into another downturn,” Kuchenmeister explains. “So basically Detroit has been in a recession for 15 years and even went through bankruptcy. As a result, we only have one way to go, and that’s up.”

In assessing the upcoming election’s impact on business, Kuchenmeister says he’s sensing “a bit of a slowdown” right now, and that some projects are being delayed until later in the year. “There are some cases where we have purchase orders, but we’re not necessarily releasing any orders on those POs right now,” he notes. “We do believe that may have something to do with the presidential election.”

Kuchenmeister expects the “money to start flowing” shortly after the election wraps up, and says that until then, investors may continue to hold onto their money for longer than usual—just to see what the outcome (and subsequent economic outlook) are. He also says that K/E Electric’s sales continue to be strong and that the firm is already making some strategic decisions for the upcoming year.

“Right now, we’re making significant investments—both internally and externally—to help grow our business even more,” says Kuchenmeister. “In past recessions, our stance is to not participate in the recession. So instead of just buckling down and trying to weather out the storm, we’ve taken advantage of things like low interest rates and invested in our company.”

To NAED members who are wary of what the election and the New Year may bring, Kuchenmeister says, “Keep investing in your company, especially your employees.” With unemployment rates dropping and skilled labor becoming more and more difficult to find, he says there’s no time like the present to start shoring up your workforce for the future. “They’ll be the backbone of your company for the future,” says Kuchenmeister, “regardless of economic conditions.”

Flat for Now, but Optimistic About the Future
Talk to Brad Van De Sompele, president at Frontier Electric Supply in Bensenville, Ill., about his company’s performance this year and the words flow pretty easily:  “It’s been as flat as flat can be.” After wrapping up a “solid” 2015 for sales, Van De Sompele says he’s not comfortable with the now-flat performance, but he says he will live with it. “Everyone wants to keep growing,” he says, “but given the circumstances, flat is doable.”

Focused about 90% on OEM product sales—roughly 50% of which are installed on equipment that’s shipped out of the country—Frontier Electric faces some unusual challenges that many NAED members aren’t contending with. Currency issues, for example, can greatly impact the firm’s business. On the other hand, the national election has a lesser impact on the distributor’s sales.

“Because many of our customers are doing business outside of the U.S., they aren’t as concerned about who our next president is,” says Van De Sompele, adding that Frontier Electric’s sales were healthy through the end of July until hitting a stagnation point in August and September. And while the leveling off hasn’t let up yet, Van De Sompele says the distributor is strategizing for the future and even opening up new locations.

“We’re trying to grow; we plan to open up a new location outside of Illinois soon,” says Van De Sompele, who points to his state’s financial distress and less-than-favorable business climate as the key drivers of that decision. “At this point, there are probably 48 states where someone would rather start a business other than in Illinois, due to issues like pension shortfalls and tax issues.”

Despite these struggles and his company’s relatively stagnant year for sales, Von De Sompele says he’s “cautiously optimistic” about the remainder of 2016 and what lies ahead in 2017. “There actually seems to be a good backlog of work right now, and a high need for good, employable, technical workers,” says Von De Sompele. “I’m not feeling nervous about the next six months at this point. I’m cautiously optimistic about the future.”

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.



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