With lighting manufacturers announcing a new round of tariff-driven price increases on LED products, distributors share how they “soften the blow” for their customers.
With President Trump recently following up a round of spring 2018 tariffs on Chinese goods by announcing new tariffs of 10 percent on another $200 billion in goods – thousands of items, including many electrical products among them – LED manufacturers across the industry have followed suit by announcing price increases to their distributors. In Part 1 of a two-part series, several distributors nationwide — including Jim Warshauer, president of New Jersey-based Warshauer Electric Supply (www.warshauerelectric.com), Stephen Shepps, LC, Lighting & Power Distribution Manager at Pennsylvania-based Schaedler Yesco Distribution Inc. (www.sydist.com), and a team from Illinois-based Springfield Electric Supply (Phil Beeler, Senior Director, Procurement & Supplier Relations; Drew McMinn, Regional Vice President; and Jarit Meade, Regional Vice President) (www.springfieldelectric.com) – discuss their experiences with LED price increases and weigh in on whether price increases tend to help or hurt them in the long run.
lightED: How often do you see price increases handed down by LED manufacturers and what factors do manufacturers typically attribute the price increases to? How far ahead of time (before the increases take effect) are you usually informed of them?
Warshauer: Over the last 4-5 years, as LED manufacturers have experienced economies of scale and more LED competitors have entered the industry, we’ve generally only experienced price degradation of LED lights and fixtures. We usually see a price increase once a year, but we saw one about five months ago and now again, both due to tariffs on Chinese products. We’re typically informed of them two to three months in advance, but with these latest tariff-related increases, it can be as little as 30 days.
Shepps: Prior to last month, we weren’t dealing with price increases from LED manufacturers — in fact, we were dealing more with annual price decreases while having to figure out how to sell off our inventory that’s depreciated since we purchased it. Manufacturers have typically attributed price increases to the cost of raw materials, and now they’re driven by tariffs. We’re usually informed 30-45 days ahead of time at the most.
Beeler: We’ve stocked LED products in meaningful quantities for about 5 years and haven’t received price increase on LED products from our main lighting lines until just recently. The initial costs of these products were high compared to traditional lighting, but as technology improved and production increased, the pricing has come down. Therefore, we really haven’t experienced general price increases on LED products. In terms of the increase that’s just occurred, our suppliers are citing commodity cost increases, electronic component cost increases, transportation, inflation, and the recent tariffs. The announcements typically precede the effective date of the increase by about 30 days.
lightED: As a distributor, do you find that price increases on lighting products help or hurt you in the long run?
Warshauer: Lighting manufacturers are typically excited about price increases because it’s healthy for them, and at the end of the day we also like price increases and believe that they generally help us in the long run – as long as the increases don’t get too high and raise the cost of construction beyond reason. Price degradation devalues our inventory, so price increases are good for us and we generally welcome them. That being said, it can be a challenge for distributors to process all of the stock price changes associated with an increase; due to the recent tariffs, for example, we’re doing two to three times the amount of work we normally do to implement these price increases, and manufacturers are too.
Shepps: I personally feel that price increases will help us in the long run. The ongoing price degradation of the LED market has continued to push profit margins lower and lower as we try to remain competitive. The price increases will give everyone a chance to reset the bar high enough that we can all make a fair profit again.
McMinn and Meade: Impending price increases might motivate an end user to “pull the trigger” on a job in an effort to save money. Conversely, price increases might cause an end user to delay a job or to move away from “premium” lighting in an effort to save money. Price increases can hurt short-term by stalling the flow of into-stock and project business.
Tune in next Monday, October 1 for Part 2 of our interview with representatives of Warshauer Electric Supply, Schaedler Yesco Distribution Inc., and Springfield Electric Supply as they share tips for communicating price increases to their customers and ways to help their customers stay ahead of them.Tagged with best practices, pricing