Electrical, Plumbing, and Hardware Distributors
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Industry Overview
The US electrical, plumbing, and hardware distributors industry includes about 30,000 establishments (single-unit companies and locations of multi-unit companies) with combined annual revenue of about $200 billion. Major companies include Anixter, Graybar Electric, True Value, and WESCO International. The hardware, plumbing, and heating equipment and supplies segment of the industry is fragmented: the 50 largest companies generate about 40 percent of revenue. The electrical apparatus and equipment, wiring supplies, and related equipment segment is concentrated: the 50 largest companies generate about 55 percent of revenue.
Competitive Landscape
Sales are driven by demand from the construction, telecommunications, and hardware retailing industries. Profitability depends largely on merchandising and efficient inventory management. Large companies have wide distribution networks and may offer customers a broad selection of products and services. Small operators can compete successfully by stocking specialty products, stocking all of the parts their particular customers need, or delivering superior service. The industry is capital-intensive: average annual revenue per employee is about $450,000.
Products, Operations & Technology
Distributors are middlemen between manufacturers and end-users. The companies in this industry buy large quantities of products from hundreds of manufacturers, then "break bulk" and resell them to thousands of customers. This practice allows customers to buy small quantities of products from many different manufacturers. Products may include wire, cable, wiring devices, fiber optic products, electrical connectors, bolts, fittings, screws, and data products for local or wide area networks. In addition to selling products, many distributors provide technical knowledge and support and some provide maintenance and repair. A specialty distributor of fasteners (screws, nuts, bolts) may buy some 100,000 stock-keeping units (SKUs) from 1,000 manufacturers and sell to around 6,000 customers. Electrical supplier WESCO buys some 250,000 items from around 23,000 suppliers and sells to about 115,000 customers.
Small distributors usually operate out of a single location. Tracking inventory and sales and restocking are major activities. A national distributor might operate numerous small distribution centers of 30,000 to 100,000 square feet throughout the country, or might maintain a hierarchical system of zone and area warehouses and district distribution centers. A regional distributor might service mainly from a large central 500,000 square feet distribution center.
Companies take orders over the phone, by fax, and increasingly by electronic data interchange (EDI) or over the Internet. Large deliveries may be made via a fleet of owned trucks or by third parties. Small orders can be picked up by the customer.
Fast service and a wide selection are key, as firms act as the inventory warehouse for customers. Distributors closely monitor "fill-rate," the percentage of items shipped to customers within 24 or 48 hours; a good rate is above 95 percent. Many distributors provide free same- or next-day delivery, extend credit, and offer product advice and training.
