CONNECTING THE WEAKNESSES BY BILL ATTARDI The traditional manufacturers have depended on their Supply Chain in the development of the traditional electrical / lighting industry. We all agree…… ‘but times, they are a changin’. Chris Brown is putting on his optimistic hat and will talk about Distribution’s STRENGTHS next week. Chicken Little, his glass half full alter ego, will talk about Distribution’s WEAKNESSES over the next couple of weeks as well. This week however, I want to focus on the WEAKNESSES and ask you if these weaknesses apply to you and will prevail and keep the Lighting Supply Chain from competing effectively in the new digital lighting industry. For this discussion the Supply Chain consists of Independent Manufacturer’s Agents, Traditional Electrical / Lighting Distribution and ESCO Channels of Distribution all working together to serve the market, understanding that Contractors, Architects, Lighting Designers, Engineering Firms, even Retailers are in the mix as well.

And as we have said, this is not intended to be a complete list, and everyone is invited to add their own dots. Not all the dots / weaknesses are anywhere near as significant as some, but they could be in the future. And the connections are usually not within channels but between channels. Remember we are connecting the dots…those weaknesses common to the traditional supply chain must be identified, acknowledged and corrected or face the consequences……
What weaknesses apply to you and are still endemic in your business?

TRADITIONAL LIGHTING MANUFACTURERS – When change is this dynamic, the incumbent players are always threatened. In a mature industry like lighting that has seen gradual change, you can get by by being mediocre but not now. The entire traditional network of serving the new needs of their customers is under fire. Weaknesses are amplified.
1. Not accustomed to dynamic change
2. Innovation not a priority – fast follower good enough mentality
3. Ability to compete with low cost producers, especially foreign
4. Dependent on Supply Chain for End-User relationships
5. Depreciated investments in making the existing product lines
6. Insufficient profits to make necessary new significant investments
7. Social network for content marketing
8. Salaried sales force vs. independent rep network dilemma
9. Ability to control events
10. Reality-based vision

INDEPENDENT MANUFACTURER’S AGENCIES – The first channel of distribution for the electrical industry has been the Independent Manufacturer Representative. Here are some of their weaknesses that, in my view, need to be addressed:
1. Short-term sales focus…instant gratification not fast enough
2. Generally do not sell to the end-user executive management levels
3. Limited resources for significant investment
4. Geographical constraints – do not serve national accounts….more local coverage
5. Reliable feedback……..self-interests prevail
6. Loyalty to their represented manufacturer is suspect at times
7. Energy project work takes too long for them….too complicated / not a core competency
8. Reactive rather than proactive – guided by activities of others
9. Loss of accountability – too many lines
10. Debate goes on – manufacturer suspicion………salaried sales force vs. independent rep

TRADITIONAL ELECTRICAL / LIGHTING DISTRIBUTION – The Electrical Industry traditionally sells its products to and through various channels of distribution. In the Commercial / Industrial market segment, the primary channel of distribution is the Traditional Electrical / Lighting Distributor. History has shown that this relationship between the electrical manufacturer and the electrical distributor has in essence developed a formidable industry, making its products readily available. Can you identify with any of these weaknesses?
1. All distributors are alike……..customers’ perception
2. Short-term sales focus……….satisfy demand vs create demand
3. Commodity orientation………..reactive vs. proactive
4. Lack of innovation
5. Stuck in old business models
6. Victims of tyranny of the urgent
7. Not up to technical / technology challenges……, selling. marketing
8. Not capable of pivoting from product distribution to providing services / solutions
9. Poor “new product” sales history – rather stock and sell existing products
10. Geographical constraints……….local focus even for the national distributor chains
11. Do not have a compelling knowledge of the energy market segment
12. Not fully developed sales skills to sell the benefits of energy efficient products
13. Limited value-added energy services……added cost with little added value
14. Not providing the needed link for the manufacturer in the energy market segment

ESCO CHANNELS OF DISTRIBUTION – The ESCO channel of distribution has emerged and grown over the last 30 years as any new channel of distribution does to fill a vacuum………. But they have weaknesses too:

1. New business development difficulties – image building / cold calling
2. Customer relations – trust / comfort level in early stages of the sale
3. People – quantity and quality
4. Infrastructure still in the development stage
5. Product knowledge evolving – new in the lighting game
6. Sales and marketing skills still developing in lighting
7. Cash flow problems – credit issues
8. ESCO consolidation and fall out
9. Utilities consolidating and unbundling……..restructuring
10. Somewhat dependent on rebate programs

Traditional Distribution has learned over its long history that existing channels must evolve and serve the new needs of their customers. End-User customers in the final analysis determine with whom they chose to do business and continue to switch away from ineffective channels of distribution. Are your customers making the switch???????

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  1. David Gordon says:

    Bill – some thoughts to add to your discussion …

    1. Given that LEDs are an electronic product, will manufacturers and distributors be able to adapt to the need change inventory regularly to accommodate new products? How will they handle demand forecasting, turning inventory quickly, the need for returns and potentially discounting to move “old” inventory?
    2. Lighting agents are very effective in selling new construction projects, but not too good at retrofits and the industrial lighting market. Who is best at pursuing these markets?
    3. What % of future lighting sales do you think that the traditional channel will serve? Where will the remainder go (other than direct)? Will others invest to provide expertise? Will they have the “ear” (and wallet) of the installers (which will still primarily be contractors who need credit to buy material)?
    4. It will be interesting to see how manufacturers adapt to a service model (that could also monitor data). How will they monetize this? Compensate “sellers?”
    5. Will there be different models for the new construction base and the installed base (given that it is so large)?
    6. And given the wealth of LED manufacturers currently on the market, what will buyer reaction be when some inevitable close due to lack of support, product issues or lack of funding? Will be have a carousel wheel of suppliers? … which also begs the question of “how does one tell a quality manufacturer / product from another when many non-lighting companies are offering LEDs … they just need to source from China.

    Just some food for thought.

    • BillAttardi says:

      Thank you David, but these are tough questions. My head hurts. You really nailed it. When the game changes, are there new rules……what are they? Now I’m asking the questions. What we need is to find the answers. In the end, each specific business must provide the answers. Your comments are much appreciated. Chris and I will try to provide some of the answers in later blogs. Again thanks…..

  2. Rod Heller says:

    As an ESCO, it all comes down to reps and distributors add little to no value to our supply chain. The reps do not visit us, they require us to buy through distribution, and they do not know lighting upgrades.
    The distributors are worse, their knowledge of light and how it works is shallow at best, they do not stock the products we need because the technology is changing so fast, and we do not need their “banking” services they provide new construction contractors.
    We can reduce product costs 20-30% by going direct and that is what we do when we can. This is critical in achieving our required paybacks for our customers. When we find a good supplier, we are loyal to them and send them a large portion of our business to keep them loyal to us!

    • BillAttardi says:

      Thanks Rod for your comments. I see the conflict between distributor and ESCO is still alive. Not surprising. It may intensify as new players surface. I believe conflict is intensified during change………old relationships break down and self-interests prevail.
      Hope the vast opportunities will create a more co-operative environment between channels. Time will tell……thanks again Rod

  3. BillAttardi says:

    Rodger Lantz says:
    Enjoyed reading your comments-very interesting.
    As an outsider, who hasn’t been involved in the lighting industry for a long, long time, it seems to me the next evolution, would be a “womb to tomb” company. One who makes the product, gets it specified, delivers and installs it.
    Obviously, this will take some time, with numerous acquisitions, etc.
    The basis is, the long product life cycle, which will reduce inventories, strong need for excellent product/market knowledge-being fully entrenched in “the totality of the process”, i.e., all the elements surrounding the installation (traffic control, crowd comfort, visual clarity, etc., etc.).
    I would not want to be a typical lighting/electrical wholesaler right now.
    Just some thoughts from an old, out-of-touch lighting guy.

    • BillAttardi says:

      Rodge, what are you talking about. OUTSIDER…….YOU? Never, you just spent most of your life in this industry and just when you think you are out, they pull you back in. I heard that somewhere. I love the “the totality of the process”………it may be going in that direction. Thanks my friend and keep those cards and letters coming.

  4. A very insightful and in depth analysis. There seems to be a great deal of contentiousness bubbling beneath the surface in the lighting industry among manufacturers, representatives and distributors. My theory points to the fixtures themselves. Light fixtures are rated by the output of mean lumens. Perhaps things would get better if manufacturers could develop fixtures with nice lumens.

    • BillAttardi says:

      Thanks Chuck……the channels are all in flux and confusion reigns. You may be right……the luminaire companies could lead the way in the digital lighting industry.

  5. Christina Calaway says:

    It certainly is an interesting time in our industry. As a lighting manufacturer we’ve come to recognize the formidable presence of the ESCO channel. These are in most cases, extremely knowledgeable professionals who have a lighting or electrical distribution background. With larger organizations offering credentials in the lighting and lighting maintenance/management fields – we’re seeing ways to qualify these professionals and the end user is seeing who has the knowledge and wherewithal to accomplish a true audit and retrofit specification. It is my belief that as we move forward; firms with staff who are legitimized by these credentials will no doubt be the foremost “experts” on lighting and therefore be sought for their abilities.

    • BillAttardi says:

      Thanks you Christina for your comments. My experience is that ESCOs are more focused on the financial sale…….it’s a money deal, they tell me. It still is but now an ongoing service / network need is developing with new credentials required. I feel the industry is very good at new construction and retrofits but what happens after that? Some believe that that user is out of the lighting market for 10 years or so…..I’m not so sure.

  6. BillAttardi says:

    From Rob Quintal, LFE Solutions
    I guess I weigh in on the dark side here with Bill. I learned all about Create-Demand selling from the Master and it has served me well. The shortcomings of the legacy channel are well laid out in your article, and I see it on a daily basis. When I formed the new Rep. agency LFE Solutions (Lighting For ESCOs) over two years ago, we ran into every roadblock the channel could put up. Surprisingly, not much has changed in the past two years. Our model which consists of a vertical-market ESCO-centric lighting Rep. without geographic boundaries that calls directly on ESCOs has certainly been well received by the customer because we are solution oriented and we understand the ESCO sales cycle. We see very few manufacturers or electrical distributors that get it but we are now embarking on a mission to help educate the distributor market with our new division LFD Solutions – Lighting For Distributors!

  7. Bill Brown says:

    to Mr. Mark Lien, Sylvania

    Like yourself, Mark …
    … I very much enjoyed the discussion between Bill Attardi and Chris Brown as concerns Bill Brown Sales’ point of view that we have to transition into a new dynamic era of lighting, and Chris is picturing a Dystopian future creating the term Illumageddon whenever change occurs, and there are those that regard change as a positive challenge and an opportunity. There are others that view change fearfully and truly look at change as a potential threat.

    As I approach my 87th year and I consider my 65th year in the lighting business, I tend to regard change as both a challenge and an opportunity.

    Bill Brown Sales will be celebrating our 60th anniversary next month, and I can tell you I never anticipated that I would still be active and indeed my sons would be grooming the company for further growth.

    I can tell you that I am both challenged by the present and excited by the future.

    I thought about retiring, and truthfully both my wife and my sons indicated that as long as I am healthy and I enjoy what I do that I should consider staying active.

    I very much appreciate, Mark, our long friendship.

    By copy of this e-mail to both Bill Attardi and Chris Brown I will let them know that their discussion is indeed a positive sign for both our industry and our future.
    Bill Brown

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