Publisher’s Note: We have received a couple of comments on the story we posted on Thursday, September 24 about the future of lighting distribution. Both comments make strong points about the opportunities to create revenue and the potential impact distributors can have on the future of lighting. But will some of the possibilities mentioned below happen? We would still like to hear your thoughts. You can comment below, email our writer Chris Brown directly at firstname.lastname@example.org, or email me at email@example.com.
Scott Costa, publisher, tED magazine
From David Gordon:
Chris – as we’ve discussed, the likelihood of the lighting product category (lamps, fixtures, controls, ballasts, etc.) being totally disintermediated from the industry is remote or non-existent. The issue is what percentage of the industry’s lighting volume will leak to other channels. These channels can be multi-line distributors (MSC, Grainger, Fastenal, McKesson, etc.) or through e-commerce sites (Amazon but also many niche companies) or through other channels (telcos and IT VARs selling lighting) to companies purchasing direct. Theoretically, if the electrical distributors (and I’m including lighting distributors) represented 85% of lighting sales, in 5-10 years what will it represent? 50-75%? Given that lighting can be 20-30% of a full-line distributor’s business, this can be significant.
There are growth opportunities in lighting. The question that a distributor needs to address is “are they comfortable quoting projects or are they willing to invest monies to market (marketing dollars, training dollars, sales person investments) lighting in their local marketplaces?” Ted Konnerth recently pointed out that 2/3rds of all commercial buildings are 25+ years old. How much lighting business do salespeople drive by? Do many distributors need to reconsider their model from a contractor-only model to something else to capture these opportunities?
Manufacturers will support end-customers as they want to be serviced and will be hesitant to not pursue un-served markets (and customers). Distributors need to not give them reasons to support other venues.
And by the way, Acuity just earned a major streetlight project here in Raleigh (the home of Cree). Question to both … were distributors involved in the bidding process to support Duke Energy (the installing organization / GC)?
From Thomas Paterson:
David, As lighting designers, I can tell you now – a substantial percentage of our small jobs are getting directed to Amazon’s retail site. Fixtures and lamps. We just completely refitted a store on Amazon, highly successfully, fulfilled with a 20% saving to the client and three days delivery time (not to mention, the client loved the miles on their credit card!). we have a medium size commercial job going that way too.
Considering this leakage is like considering taxi users moving to Uber as leakage. In the big cities, my Uber app map shows more Ubers on my street than I can see taxis. These things go slowly, then suddenly fast. Then the corporate failures begin. How long until the big cab-call companies start going down? Probably a year or two until they’re cash flow negative, and then it depends on the scales of their buffers (cash on hand or lines of credit). But slowly, then suddenly…
The question is, who are the niche providers that fill the bits that the new movers don’t? Uber’s great, better than taxis many times, but they don’t cater for wheelchairs like taxis are obliged to. Who will fill that gap? Or will society be the poorer for the loss of big taxi companies with an ADA capable fleet? Who will do the services you list above? Who will support spec definition of the clips and connectors for an LED tape? Dunno. Not sure I can ask my clients to pay a distributor 22% for the privilege.
Oh, and if the low labor content distribution leaks to direct or near-direct sales like Amazon, doesn’t that mean that while you’re getting squeezed on price, you’re also having to handle more expensive, error-prone specialized distributor support? Now your margin has to go up, not down, to cover costs. I’m sure my Econ 101 professor said something about businesses with decreasing margins and increased costs.
From Craig Ledbetter (Lighting Manager, Parrish Hare Electrical Supply):
Electrical Distribution, in my mind, is here to stay. For a very long time. The electrical distributor takes on that financial burden that I don’t see a manufacturer wanting to touch. If you take the Dallas/Ft. Worth area alone, which is where we are located, you are talking about a manufacturer taking on the credit risk of hundreds of ECs in the metroplex area. There would be a LOT of implementation of credit managers, etc. for a company to even venture into that. Much less just taking on the credit risks and even prepayment that a lot of contractors just can’t do. They need the electrical distributor.
We, as a distributor for a lighting project, do lots of things. Quote and project manage the order. That includes reviewing the order, entering the PO, expediting, tracking, billing, freight claims, shortages, overages, returns, wrong product, wrong color, wrong voltages, staging. The list just goes on and on and it takes qualified, experienced people to have a great handle on this.
I think those manufacturers that want to sell projects directly to end users will find it very difficult to implement this type of care and response that an electrical distributor holds responsible. It’s a big chore and not an easy one. Good luck to those who try.
Tagged with disintermediation, lighting, tED