Private Label Static from Electrical Products

The growth of private label brands is the very first major trend that I present in the new Facing the Forces of Change®: Lead the Way in the Supply Chain report. The electrical industry shows just how controversial and disruptive this trend will be for wholesale distribution channels.

The Distributors' View

Private labels are less common in electrical wholesaling than other wholesale distribution industries. Our research found that 43% wholesaler-distributors currently sell their own private label products using the entire wholesale distribution industry sample from Lead the Way.

In contrast, our study discovered that only 14% of electrical wholesalers offer a private label. One well-known example is Rexel, which offers private label fasteners, exit signs, and emergency lighting fixtures. (Rexel is now #2 on Industrial Distribution’s just-published list of electrical distributors.) About one-third of electrical wholesalers will offer private label products by 2012.

However, not all electrical wholesalers support private labels. Last month, Bob Reynolds, Chairman, President, and CEO of Graybar Electric, boldly announced that Graybar would not offer private labels. (See Graybar Takes a Stand Against Private Labeling.) Graybar is #6 on ID’s electrical distributor list, so Graybar’s announcement shows just how important this issue has become.

The Customers' View

Contractor preferences are a major barrier to private labels faced by electrical wholesalers. Some contractors use premium brands to communicate the quality and reliability of their services to their customers, thereby increasing the importance of carrying high-quality national brands. Product liability issues also limit the willingness of wholesalers to enter certain categories.

Electrical Wholesaling has been running an excellent multi-part series on the private label trend. In the May issue, David Gordon and Allen Ray provide some data from a survey of 600 contractors in Customers Speak Out on the Industry's Five-Ton Elephant. Some key findings:

• Almost 20 percent of the end-user respondents said they know at least one distributor selling private-label products.
• In some categories, contractors are “brand apathetic” – the customer will accept any manufacturer’s brand or a distributor’s own brand. The product categories with the greatest apathy scores were cable ties, fasteners, chemicals & lubricants, and metal fittings.
• Brand preference is alive and well for mission-critical electrified products such as breakers, switchgear, and controls.

These results match up well with the six questions for assessing private label potential on page 27 of Lead the Way in the Supply Chain.

Channel Conflict

As I point out in Brand Killers, private labels will continue to grow in categories where the manufacturer's brand does not add enough value to the customer. Sometimes, private labels can even strengthen channel relationships.

But make no mistake – suppliers and their distributors will be battling over private labels. Private label brands shift the balance of power away from manufacturers and toward customers.

For consumers, private label brands are moving out of groceries into higher-profit categories such as clothing. The losers have been manufacturers of mid-range brands lacking either consumer loyalty or the lowest costs. (See Private Lines from The Economist for more on this dynamic.)

EW editor Jim Lucy, quoting noted management theorist Paul Simon, advises manufacturers to keep innovating so that their brand equity doesn’t start slip slidin’ away. Good advice for manufacturers who also don’t want their distributors to start singing “50 ways to leave your supplier.”