Why Are Prices Dropping?

By Bridget McCrea

In keeping its watchful eye on trends in both electrical and datacomm pricing, the Baird Electrical Distribution Survey has picked up on a few trends that electrical distributors should be aware of. Conducted in partnership with tED magazine, the survey for the second quarter of 2017 found that average year-over-year pricing for that period was +0.7 percent in both electrical and datacomm—results that are both modestly below the +1.2 percent overall survey average.

After ticking up slightly during the first quarter of 2017, electrical pricing decelerated slightly quarter-over-quarter while still remaining higher year-over-year, Baird reports. Respondents report that they're seeing modest price increases from higher copper/steel pricing, though “end-user acceptance remains mixed while seemingly never-ending competitive pressures persist,” the company reports.

Pricing Trends
Within the electrical segment, all U.S. geographies saw pricing in line with or above the overall survey average during the second quarter. Pricing in Canada was again one of the strongest in the survey, Baird reports, while international pricing was negative and significantly dragged down the overall average. “Datacomm trends within the U.S., on the other hand, were broadly below the overall survey average, with only the Midwest (well) above average. Canada pricing was also slightly below average, and international markets were flat.”

Baird notes that supplier price increases combined with continued competitive pressures are having an impact on pricing. “Business competition is strong. We have had to cut margin to gain job business,” one respondent said. “Margins are down due to increased competition on all work, including small jobs,” another distributor commented.

Brad Van De Sompele, president at Frontier Electric Supply, says his firm has been impacted by price drops this year. “Pricing pressure is constant,” he says, “and the fact is the ‘ever expanding Internet availability' of our major manufacturers' products is not helping us.”

LED Stands Out
Maxwell Gabin, branch manager at Rexel in San Diego, says that for the most part pricing tends to be manufacturer-driven, particularly on “hard” electrical products like wire and connectors. Overall, he says the pricing environment for such products “isn't necessarily any more competitive than it was last year.”

The landscape is different in the LED lighting world, where manufacturers “continue to cut their pricing,” according to Gabin. “That's where [pricing] is really competitive. Even if you wanted to you can't hold your price forever because if you don't cut your price, then your competitors will.”

Gabin says online competitors like Amazon Business are also contributing to the price drops, but mainly on the tool side (e.g., cordless drills and saws) of the business. “Amazon and the Internet as a whole are making that aspect of the market a bit more competitive than it's been in the past. It's tough to gain margin in those [conditions].”

Adding Value
As account manager for Border States/Shealy's construction division, Mac Doyle says the 3-year-old Raleigh location was the fifth distributor in that market when it opened its doors in 2014. Using an intensive training approach that pushes reps to go beyond “price” and show customers the true value that the distributorship offers, Border States/Shealy's has been less impacted by price decreases and less apt to “drop prices” just because a competitor is doing so.

“We're better aligned to handle material than a contractor is, so, we look for any and all possibilities to do that,” says Doyle. “Because we provide extended service—and not just the materials—at little or no added cost to the contractor, we really aren't seeing our profit margins being driven down.”

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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.