ElectroForecast 2001, Part II

Companies from all corners of the electrical industry are in agreement on the electrical construction industry's business fortunes, the state of electronic commerce in the electrical industry and the industry's biggest challenges.

Electrical manufacturers, electrical distributors, independent manufacturers reps, electrical contractors and industry association executives who participated in a CEE News survey were concerned that 2001 could be a soft business year, but overall, respondents were not overly pessimistic.

Barry Landman, owner, Landman Electric Co., Huntsville, Ala., sees a “possible light recession in February and March,” but he expects things to turn around by May. Landman predicts that his company will have a good year, with sales growth in the 6% to 9% range. Landman forecasts business opportunities in three emerging markets — wind energy, photovoltaics and solar energy systems and fuel cells.

A Tennessee commercially oriented electrical contractor, who is forecasting double-digit growth this year, is also optimistic. “I do not foresee anything that will greatly change or impact our business in the near future, said Mike Pogreba, president, ABEC Electric Co. Inc., Nashville, Tenn. “The economy will remain strong and new construction will continue to grow.”

One Iowa rep said he thinks rural markets will see a dramatic increase in business in 2001, but believes metropolitan areas could be in for a rough road ahead. “I think the larger cities and the coasts will see a significant slowdown in commercial business, and even more in the industrial markets,” said Scott Vande Vegte, president, Russell's Electric, Sioux City, Iowa. He said housing will hold its own.

Curtis Fritz, owner CL Fritz Electrical Contractor, a residentially oriented electrical contractor based in Denver, Pa., expects his company's growth this year to be in the 6% to 9% range. While he doesn't see any real danger signals down the road, he said he believes new construction will have to slow down eventually.

A major concern for the electrical industry is the turn of events with the stock market and the resulting “wealth effect,” said Jay Thomas, director of marketing, AFC Cable Systems, New Bedford, Mass.

“This has a huge impact on human psychology and filters into personal and well as professional decisionmaking. It's, ‘Will I invest money in a new project now, or wait to see how things turn out?’”

John Alton, president, Minerallac, Chicago, agreed that if people don't feel prosperous, it psychologically influences their purchasing decisions.

“It affects selling tendencies, and when it (the economy) starts to go south, it goes south as a fulfillment of predictions.”

Survey respondents were also in general agreement that electronic commerce has yet not produced many of the real-world results that even its most devout converts expected.

Maxine Moneada business manager, Frontier Electric, Alamogorda, N.M., said her company's suppliers have Web sites and ordering, but that she prefers the personal sales rep, “a person we can talk to and hold responsible for their service and products.”

Jim Harrod, president, Electrical Controls Inc., Holbrook, Mass., said e-business is “way overblown.”

“The hysteria would have you believe that a company is history if it has no current operating transactional site. Most of our customers — industrial OEMs and end users — believe it's the future, not the present. Few have expanded beyond e-mail. Transferring technical or product documentation is the most-used aspect today.”

Harrod urged manufacturers to continue to invest in traditional “bricks and mortar” distributors. “Even in a cyber world, it still comes down to relationships, reputation, competence, price and delivery,” he said.

One California electrical distributor was concerned about the cost of implementation of electronic commerce versus the volume of business that it produces. Mike Christenberry, vice president and general manager, B&K Electric Wholesale, City of Industry, Calif., is excited about the potential of e-business and the way it forces electrical companies to improve their information systems. But he said his customers were skeptical about electronic commerce. “There are too many variables to purchasing online, especially in a construction market.”

Several of the survey respondents were frustrated with what they saw as uneven adoption rates of business practices related to electronic commerce. Daryl Cook, owner of G-T Sales, a Salt Lake City-based rep agency, said “It becomes cumbersome if everyone you do business with is at a different level. As a rep, you would like to see distributors and end users access manufacturer Web sites for information. We still get 100% of the calls. One problem is that most of our factory Web sites take too long to navigate through. It's no wonder they call us first.”

Mike Pogreba, president, ABEC Electric Co., Inc., an electrical contractor based in Nashville, Tenn., is more concerned with the service that he gets from electrical distributors than with the tools that they need use to provide this service.

“No matter what happens with technology, we still rely on service and competitive prices. We delegate a responsibility to suppliers and trust they will get the right material on site at the right time for the right price. How they accomplish this is up to them.”

Steve DeBoer, I-Pro, commercial sales manager, a rep in Denver, Colo., said his company had a significant in-house high-tech investment, but that his company is still cautious in its investments. “We are still waiting to see a success and determine who will be left after this initial phase as regard to dot.coms.

“Customers are skeptical but interested. They are focused on waiting on the acquisition and order-entry phase instead of taking immediate advantage of segments that work well and offer advantage now, such as e-mail, catalog, cut sheet access on the Web.”

However, few respondents doubted that electronic commerce has already started reshaping the electrical market. AFC Cable Systems' Jay Thomas said people have “overestimated the speed with which e-business will bring to change to the electrical construction market but underestimated the impact that it will have.”

“Because of all the initial hype, many are skeptical. Time will change that as technology and e-commerce continue to change our business.”

Other manufacturers said e-business would fundamentally change the supply chain and bring them much closer to end users. “It will enhance our relationships with our ultimate user/customer,” said a senior executive with one large manufacturer. “Our customers are both excited and disappointed. There is so much that could be done with e-commerce and it has not yet materialized.”

“The Internet will shrink our industry supply chain,” said another vendor. “It will bring manufacturers closer to the ultimate customer. Those manufacturers who use reps will see them lose importance.”

While much of the excitement over the promise of the Web appears to have died down for the time being, some respondents were excited about new business opportunities in several market segments, including home networking, cellular tower construction and telecom hotels.

Tim Plumb, owner, Peak to Peak Electric, a small electrical contractor based in Rollinsville, Colo., is expecting double-digit sales growth and is sold on home networking.

“Every house I have done in the last six months has had a network system installed and more homebuilders are asking instead of me telling them about it.”

One Sioux City, Iowa electrical contractor, Scott Vande Vegte, president, Russell's Electric, said datacom has provided “a fair amount of growth.” Vande Vegte recently got into the home automation business through the start-up of a new company, Hills Home Systems.

Respondents said the growing problem of finding and keeping good employees was a major concern. Frontier Electric's Maxine Moneada said, “We have a need for licensed professionals and not enough to man all of the expected growth. We can't keep good help at regular wages. Everyone moves from job to job looking for Davis-Bacon wage rates.”

Many of contractors' concerns regarding their business relationships with electrical distributors centered on the distributors' need to improve customer service. Another problem was declining service at the counter area, said several respondents. Electrical contractors urged electrical distributors to do a better job of training their counter salespeople, but lamented that they were having trouble keeping quality employees, too.

Curtis Fritz, of Denver, Pa.-based CL Fritz Electrical Contractor, said electrical distributors could improve their relations with electrical distributors by opening earlier or closing later, making online purchasing available, maintaining a good inventory, having a good staff and providing reliable shipments.

An Alabama electrical contractor was also looking for electrical distributors to improve some of their basic services. “We need products available and we need competitive pricing. We need good service, maybe more deliveries to job sites. On counters, we need people to know their products,” said Landman Electric Co.'s Barry Landman.

Ralph Rundell, owner, Rundell Electric, Grygla, Minn., doesn't like to shop around at several different distributors to get a competitive price. He also didn't want to be “penalized” for being a small contractor. “Having three, four or five wholesale prices stinks,” he said.

A Wyoming contractor also was looking for distributors to focus more on the basics. “Stay with the personal contact, add personnel in sales and the warehouse and respect the timelines of your customers.”

While this year's survey results are not statistically verifiable and are not intended to reflect the opinions of a nationwide sampling, they do offer insight into the key issue facing this industry. The following topics came up most often in the survey results:

• The economy is slowing down, but is not headed for a recession.

• Voice/data cabling, and in particular, the home networking market, offers some of the highest growth opportunities.

• The Web works great for finding technical information such as online catalogs, cut sheets and other technical information, but most users don't yet trust it for online purchasing.

• The pace of acquisitions and mergers of contractors, distributors, reps and manufacturers now consolidating this industry shows no signs of slowing down.

• To better serve their contractor customers, distributors should focus on the basics — providing quality products when and where customers need them, and at a reasonable price.

• Finding and keeping good help and providing the necessary training to make their employees productive is a key concern for contractors, distributors, reps and manufacturers.