On the second day of the 2017 NAED National Meeting, the morning session included a panel discussion focused on the independent distributor, and it’s future in the electrical distribution channel. Panel moderator Mike Marks (far left in photo), Principal at Indian River Consulting Group, led the expert group. This group included (second from left to right):
- Bill Weisberg, Chair & CEO, AD
- George Vorwick, President & CEO., United Electric Supply
- John Spoor, President & COO, State Electric Supply
- Bob Smith, President & CEO, IMARK
- Dan Gray, President & CEO, Independent Electric Supply
Mike Marks: Why do you believe the independent distributor has a long-term future?
John Spoor: “The independent has a very focused access point in their market. Their intimacy with the customer is very strong.”
Dan Gray: “The independents that I see out in the marketplace are innovative groups. Some of them are family businesses, doing what they love. They have a passion for it – it’s not a hobby, it’s not just a paycheck. They’re building something.”
George Vorwick: “Contractors are entrepreneurial-minded, very fragmented, and they don’t like to be told who they need to do business with. They have strong feelings about the folks who are serving them, and they have a lot of loyalty to them. So as long as you’re taking care of your customers…I think there’s room for a lot of different types of distribution.”
Bill Weisberg: “I’m pretty bullish on the future of independents. The independent has a very successful model. Business with independents grows at about 1.5 times the rate of others in this industry. Why is that? I think it’s because there are challenges related to size. It’s great to be big, but it’s tough to be big too. Independents have challenges associated with being small, but they also have tremendous advantages associated with being that size too. They have an ownership-infused culture…That’s something that you drive with your ESOP to ensure people act and think like owners. You have passion, a high degree of work ethic, focused responsiveness, nimbleness. You add all that up and it’s a winning formula.”
Bob Smith: “According to the SBA, since the 80s, small businesses have had about 49% growth. Since 1990, large companies have reduced net employees by over 4 million, while small businesses have added 8 million. I believe that the independent will continue to thrive, and will continue to grow… and that suppliers have a vested interest in the independent continuing to thrive.
Mike Marks: How do customers look at independents vs. chains?
Dan: “Independents have to stick to their core values – you always have to do what’s right for the customer, what’s right for the business and what’s right for you. If you stick with those three things, you will solve the issue instantly. There are no layers you have to go through. The independents in Boston are growing at 8%/quarter. We’re growing because we have that ability to connect to a customer.”
John: “I think of an intimacy, of leadership, and I think of culture. Customers see a culture that they can sense is going to do everything they can to meet their needs. And there is no question that a closer connection with a credit relationship provides a better connection to that end user. Often there is [a distributor] owner who says ‘I wanna take a chance on this fellow and see if he’s successful.’ And they’re successful still today – that is rewarding.”
Mike Marks: How does an independent take care of a global customer?
Bob: “We’ve had experiences where one of our members, who may have a national or regional contract with a global retailer, may need help in New York or Germany. They will say they need help from an independent, because if an independent is good in a local area (in Germany), they have so much in common with a distributor who is independent and good at what they do (in the U.S.), even in another country. They have similar characteristics, like consistency and making a phone call and getting things done (nimbleness).”
John: “Independents see an issue and try to come up with a solution. That challenge has been around for a long time. I think independents have a good solution in the industrial sector – that gives us a good opportunity to win (business) at the local level.”
Bill: “Certainly in the arena of industrial/MRO customers that are looking for a geographically spread agreement witht e same price, that becomes a challenge [for the independents]. So what we do is try to provide opportunities to help independents collaborate on different fronts to offset some of those competitive disadvantages. And they’re able to maintain their entrepreneurial drive.”
Mike Marks: How do suppliers view an independent differently than a national chain?
Dan: “The relationship develops at an early age. They can lean on it and partner up tighter. I know on the local level, we’ve developed deep, long relationships. There’s give and go. There’s feedback. I think [suppliers] value independents because of our willingness to parent up with them. Relationships are as close on the supplier side as they are on the customer side. And being part of a buying group gives us scale. If you’re a member of NAED and a buying group, you’ve scaled.”
Bill: “There are certain efficiencies to working with national companies. But manufacturers would be well-served to be actively managing their portfolio [diversifying the number of national chains along with the number of independents they are working with]. When they get overly consolidated, they have too many eggs in too few baskets.”
John: “Independents provide more access to the market. They can create a relationship with a local sales team and be successful, as opposed to having to go to a regional headquarters to really engage an opportunity. Independents are a little looser, and give more autonomy to their field team and branch management.”
George: “There is some sense of humility when dealing with independents – they recognize their spend may not be as big as others. If you have a system in place where people are empowered to make decisions on the local level, they will be out there working hard for you.”
Mike Marks: Supplier consolidation will continue – Does that put more risk on the independent than the national chain?
Bob: “There is still a lot of competition – especially in the LED arena – and that opens the door for newcomers.”
John: “The issue of consolidation creates scale, and scale creates leverage. It’s a significant challenge – not a threat, but a challenge. As the large get larger, the opportunities to have alternatives shrink.”
Dan: “There is definitely a challenge. But you have to look within that to see the opportunity for you company. When two manufacturers come together, that may enhance my position. Maybe I had a good relationship with one [manufacturer], but not with the other [manufacturer] – so now I have an inroad.”
George: “As long as we work together, we will be successful. If we keep the conversations respectful, I’m hopeful that consolidation will continue to benefit each company and make us stronger, and we’ll find ways to work together to keep serving our customers, which is the important part.”
Bill: “It’s great to see your partners grow, but there can be things we get sad about. Leadership that’s lost, certain brands that have been around a long time falling off. The biggest challenge, as it relates to distributors and manufacturers right now, is the amazing amount of turnover within the manufacturers’ executive teams. There’s just not a continuity of leadership where we can have a good relationship and community anymore.”
Mike Marks: What’s the right way for an independent to go about succession?
Dan: “Building a really good executive team and supporting that with an advisory board. So that when you have issues, you can drill them down from the top, and then bring them up from the bottom – and you can execute quicker that way. You’ve got to have a team that’s like-minded. You do this because you work with people that you like being around. I love to go into the office and the engagement with the people I work with – every one of them.”
George: “You have to have the mindset that your stewardship in a leadership position is relatively short. This is my eighth year leading the company, but within the first year, we started talking about succession. By the time I retire, we will have been working on this plan for 15 years. We’ve been thinking about the next generation of leaders, and how to support them. You have to think about it long in advance.”
John: “I’ve been though a number of positions and an acquisition. If you are contemplating a succession strategy, allow plenty of time to plan and nurture whatever conclusion you reach. You want to try to move your organization in a good direction. Also, seek help or counsel – don’t go at it yourself.”
The panel closed out with final thoughts from the panelists, all echoing similar sentiments: the future Is bright for the entrepreneurial, spirited independents. As long as they keep planning ahead and working together with peers in the channel, the opportunities are boundless.
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