By Nancy Meyer
The outlook has dimmed in the residential lighting market, as vendors and retailers come to grips with the most challenging economic environment in memory.
What’s different today from past recessions is the depth of the housing and credit crisis, coupled with extreme pressures from China that make getting product at reasonable prices very difficult. Price quotes change weekly and a significant number of factories are shutting down, leaving vendors scrambling to get goods.
Wholesalers are being squeezed by their factories and suppliers in Asia, and by retailers who are struggling to sell the merchandise they have and are reluctant to pay higher prices for their next orders.
“This is an extraordinary slowdown and there’s no evidence we’ve seen the bottom,” said Tracy Bilbrough, chief executive officer of Generation Brands, the holding company for Feiss Import, Sea Gull Lighting, Monte Carlo Fan and Encompass Lighting Group.
While Generation Brands doesn’t release sales data, Bilbrough said its core lighting showroom channel was down 15 to 20 percent last year and 20 to 25 percent so far this year. “Our numbers are significantly better than that and we’re confident we’ve gained market share, but you can’t be as big a player as we are in this space and have your end-player drop so much and not feel it on your top line. All the big players have felt it that much more,” he said.
In his dialogues with others in the industry, Bilbrough said, “None of us has seen anything like this.”
The situation is taking its toll on retailers in every channel, from big-box to mom-and-pop. Home Depot and Lowe’s have cut back on store growth and are focusing on managing inventories, vendors said. Extreme sales weakness in lighting is reflected in much smaller orders, they said.
Lighting and specialty stores, which command the second-largest share of market, have suffered greatly, too. “My largest concern is how many distributors will end up getting washed away due to poor cash-flow management,” said Terry Fraser, general manager of Thomas Lighting. “Already, 40 to 50 showrooms have gone out of business since the start of the year. I’m concerned about showrooms’ ability to stay in business and have a legitimate business strategy for the future.
“We have good customers who know how to manage builders and can manage the downturn, but we don’t have a lot of customers who understand retail, and who have bad retail locations,” Fraser added.
Thomas, which joined the Lighting One buying cooperative recently to enhance its commitment to this channel, is encouraging showrooms to focus their marketing on the retail rather than builder business.
“It is incumbent on all of us to attract more retail trade, decorators, interior designers and work with them to help people redecorate their homes,” he said.
Kichler, Progress, Murray Feiss and others offer merchandising packages in which showrooms can be redesigned with new displays, fabrics, backdrops and props in exchange for orders. Discount offers, sales spiffs, cooperative advertising and other techniques are common. But dealer support shouldn’t include year-long payment terms, buyback guarantees and other gimmicks that will only hurt retailers in the long run, said one vendor.
“We’re not just giving our product away to get placement,” said Brad Smith, chief executive officer of Elk Lighting and Landmark Lighting. “It’s a poor business move that’s not sustainable and creates a poor relationship with the customer,” Smith said. Elk continues to come out with lighting that’s very different, which gives the company an edge, he said.
“We’re trying to help our customers get the product out their front door by giving showrooms ideas to help them grow their business,” Smith said. Elk just produced some educational brochures on best practices in lighting for sales associates, and has been passing on leads generated at contract and hospitality trade shows and other venues to showrooms, among other programs, to help the independents, Smith said.
But weakness at retail is hurting the crowded lighting vendor base, which is beginning to show signs of a shakeout, sources said.
Concord Fan went out of business last month, and several small and midsized lighting companies are reported to be closing their Dallas Market Center showrooms after June market, sources said.
Managing the business is key for everyone throughout the supply chain.
Bilbrough said that Generation Brands has found more synergies between its companies than executives had expected. The group of companies is saving on ocean freight, information technology, finance, employee benefits and health insurance, and other back-office functions that are invisible to customers, he said.
“It helps cushion the blow of this end market,” Bilbrough said.
Even so, cuts had to be made in warehouses, customer service and advertising spending. Additionally, because the credit markets have virtually been shut down, Generation Brands has had to shelve its plans to acquire companies, Bilbrough said.
Other companies are cutting back on trade show attendance and travel, advertising and literature, and customer service, they said.
But one thing that Generation Brands and other companies said they refuse to cut is product development and technology.
“Technology and innovation are where the growth will be,” said the president of a major lamp company.
Thomas and Genlyte were recently acquired by Philips, which has been very proactive in light-emitting diode development and the move to eliminate the incandescent light bulb. “We’re working with Philips to find the sweet spot in LEDs,” which are high-quality, but priced affordably, Fraser said.
All the major lighting companies are working furiously on LEDs to achieve quality general illumination, whether decorative or recessed downlights or commercial troffers. They’re trying to make LEDs with the right color temperature, lumen output and other characteristics of quality lighting that are affordable, but so far it’s been elusive.
“That’s the holy grail, to make LED viable for a general lighting application,” Bilbrough said. “But we think we’re on the verge of some breakthroughs” in this technology, thanks to outside developers working with Generation Brands’ inside engineers, he said. Within six to nine months, the company may release the big news, he promised. “We’re pretty excited; this will put fluorescent to shame” on certain applications.