2019 Q2 Pulse of Lighting Results … Challenged Market?

July 3, 2019

By: David Gordon

We now have insight into the Q2 health of the lighting market based upon feedback from over 200 electrical distributors, manufacturers and reps through our Pulse of Lighting survey.  And it appears that an apt description may be “an interesting ride.”

It started with some “relief” that tariffs on Chinese made goods would be delayed, as announced in March, only to find out at the NAED National in May that the tariff would be increased to 25%.

This then resulted in a mad scramble to increase prices on many LED lighting products as evidenced by the wide array of pricing decisions on when price would increase based upon tariffs … if at all.

While this was going on and distributors were communicating to their customers, adjusting pricing files and deciding if they wanted to place orders for stock for most frequently purchased items (to help add a few dollars to their bottom line in the next few months), there was the threat of a tariff on Mexican made products.

And all this went on while LightFair was held and new products, especially controls, were launched.

Q2 Pulse of Lighting Report Highlights

• Distributors report sales increases a little lower than 4% whereas manufacturers and reps are in the 6—7% range.
  • 25% of distributors reported a 10%+ sales increase. There appears to be a correlation between sales performance and lighting expertise / staffing / resource levels with companies that continue to invest in resources generating accelerated sales … they are creating business versus being project houses and winning solely on price.
• About 45% of a distributor’s lighting, on average, is impacted by tariffs. Only 20% of manufacturers responded that “essentially 100%” of their sales were impacted by tariffs.  50% stated 11-50% of their sales are impacted.
• The changes appear to have pulled forward orders for projects as well as created some short-term buying opportunities who had 1) the cash and 2) the space to increase inventory.
  • Q3 sales are expected to exceed Q2, but that is also due to the “benefit” of the increase in price due to the tariffs so understanding true demand will be difficult.
• Feedback from distributors and manufacturers also highlight that the market still appears good for small and medium projects however the large project is challenged.
  • Manufacturers and reps reported higher sales growth than distributors, however, this may be a timing of sale recognition issue due to the tariffs (distributors adding stock is a manufacturer sale, not a distributor sale, and booking a project versus billing for the project are different things).  Some mentioned that the “pull forward” of orders could represent 3% of growth.
• There is summertime concern. How much was pulled forward and will consumption hold. Distributors were asked about the impact of tariffs on 2020 lighting sales? The answer … a decline, especially in large projects and bleeding into medium size projects. Why? Overall construction costs will increase.
• Competition remains fierce and price is a driver given that quality is more comparable than ever. The lines that primarily, or totally, import, have negotiated their acquisition costs and/or are not passing on the complete tariff. After all, the market is the governor on price if they want to stay in business and they need market share.
• The conglomerates continue to report low to mid-single digit growth. Some reports that a couple are becoming easier to do business with and earning more stock business with their “contractor” lines (which also come from China). Name brand purchases from conglomerates declined to less than 50% of distributor purchases for the first time.
  • The larger companies are reportedly “flexing muscles” to retain some “preference” and earn some stock business, however, manufacturers and reps report that they are spending more time at contractors and end-users to generate demand. For some companies this may mean “selling direct”, for others it means being able to influence / “control” the business to be able to walk it back to a distributor branch / salesperson and the project doesn’t get “re-engineered.”

For more detail, click here to order the 2019 Q2 Pulse of Lighting report for only $19 and it will be emailed to you within 24 hours.

What are you seeing in your market? Expectations for the summer given the expectation that tariffs will hold through the summer (or till the next tweet!)?