This report covers the market for the wholesale distribution of electrical components and materials, largely, though not exclusively, supplying the building and construction sector.

Distributors stock a wide range of electrical components and materials, including various combinations of the following products:

• cable management products, including cables, cable ties, conduits, terminals and trunking

• circuit protection equipment, including circuit breakers, residual current devices, enclosures, panel boards, distribution boards, fuses and fuse boards

• wiring accessories, including junction boxes, switches, socket boxes, plugs and sockets, connectors, moulded boxes, and earthing clamps

• lighting equipment, such as lamp holders, lamps, tubes, emergency lighting, security lighting, outdoor lighting, trunking and transformers

• fire & security equipment, including fire alarms, security alarms, timers, door entry systems and personal security products

• heating and ventilation products, comprising space heaters, showers, water heaters and relays

• power supply & control equipment, such as batteries, motor starters and relays

• tools, including hand tools, fixings, tape and insulation materials

Some numbers in tables do not add exactly due to rounding. The term billion is used to represent one thousand million.

All values are at current prices unless otherwise specified.

Reports are researched and written by MBD’s in-house, specialist business-to-business consultants. Research is based on both an analysis of official information and on original, trade research, providing both a quantitative and qualitative view of the market. MBD’s unique range of frequently updated reports provide an integrated body of on-going research, enabling deep understanding of the prevailing trends and the drivers of these trends based on trade opinion.

The following abbreviations appear in this report:

In common with other wholesale activities, the main function of electrical wholesalers is to act as a distribution channel for UK manufactured and imported goods. Electrical wholesalers typically distribute directly to end users in the building trade, although some items may be distributed to retailers. Electrical wholesalers therefore compete with other suppliers of building products, principally builders’ merchants. However, in some product sectors, there are alternative, direct competitive channels - most evidently plumbing merchants. Electrical wholesalers also sometimes act as third-party intermediaries between OEMs. In such cases, there is an element of competition with electronic component distributors, although direct competition with this sector is relatively rare.

The industry is also dependent on the performance of the UK construction industry. However, the relationship between the two industries is not a simple correlation due to a number of issues. Firstly, electrical wholesaling is not the only route to market for the materials and equipment used in construction, as some products are sold directly to end users by manufacturers. There is also a degree of competition with DIY and builders’ merchants, although MBD again believes that such direct competition is relatively small. Few members of the public visit electrical wholesalers for products, although smaller builders may source materials available from electrical wholesalers from DIY outlets, reflecting the continued erosion of traditional barriers between DIY shed and builders’ merchants.

Electrical wholesalers remain the dominant method of distribution for most electrical products. Characteristically, the customer base demonstrates a high degree of loyalty based not only on delivery and product knowledge, but also credit and payment facilities, which effectively act as a switching cost for customers.

The overall value of the electrical wholesale business is fundamentally dependant on terms agreed between manufacturers and wholesalers. Manufacturers are commonly aggressive in the low margins they allow wholesalers, which can ultimately lead to significant changes in volume sales, whereas value sales may remain consistent due to changes in wholesalers’ margins on manufacturers’ prices.

Large, national house builders often deal directly with electrical equipment manufacturers so the direct sales channel also represents competition for wholesalers.

Wholesalers can be either entirely independent from manufacturers or owned by equipment producers. Indeed, ownership of wholesalers often acts as a market entry strategy for international manufacturers. The relationship between distributors and manufacturers is further complicated by the fact that some wholesalers also manufacture equipment ranges. The difference between the two situations is largely strategic and based on heritage. The trend for wholesalers to manufacture products has been fuelled by the development of own branding by wholesalers.

Manufacturers of electrical products are, however, unlikely to fund their own distribution businesses as this would prove very expensive and raise issues with efficiency. These factors further strengthen the position of intermediary distributors, who are able to adapt quickly to changing needs in the market.

The electrical wholesale market is necessarily dependent on the overall construction market. However, the electrical contracting industry serves virtually all sectors of the community as its interests cover such a diverse range of the construction market. The overall development of the industry therefore tends to reflect the country’s economic activity. While new build activity tends to demonstrate cyclical trends, repair and maintenance activity, which represents a significant proportion of demand, is less prone to such cycles.

Other factors that have implications for the electrical wholesalers market include the introduction of government legislation. For example, the Low Voltage Directive (2005) ruled that all equipment introduced and already available in the market must obtain the CE standard. This led to rising demand as current electrical accessories had to be updated to obtain the new standard.

Electrical wholesalers are also legally required to keep informed about and observe the latest building regulations - a legal requirement for all electrical and non-electrical contractors working on buildings. Specific regulations relate to electrical equipment and are therefore relevant to the electrical wholesale industry. This includes:

• Part B - Fire Safety, (fire alarms and detection)

• Part F - Ventilation, (electrical ventilation products)

• Part L - Conservation of fuel and power, (lighting and controls)

• Part M - Access/use of buildings, (socket outlets and height of switches)

• Part P - Electrical Safety

Part P of the Building Regulations is split into two key areas: design, installation, inspection and testing; and the provision of information.

Another factor influencing the electrical wholesalers industry is the UK WEEE Regulations, which came into effect in January 2007. WEEE aims to reduce the amount of electrical equipment in landfill sites by ensuring it is collected, treated, and recycled. The regulations affect all businesses that handle electrical goods, whether they are producers, retailers, or importers. They apply to electrical and electronic equipment that falls within the 10 product categories listed in the WEEE Directive:

• large household appliances

• all household appliances

• IT and telecommunications equipment

• consumer equipment

• lighting equipment

• electrical and electronic tools

• toys, leisure and sports equipment

• medical devices

• monitoring and control instruments

• automatic dispensers

The WEEE Regulations differentiate between products sold for non-household (business, professional) and household (consumer as a member of the public) purposes. However, any business selling directly to household users may be deemed both a producer and distributor, and will therefore be required to fulfil dual obligations. The regulations are likely to impact the costs and ultimately the profitability of electrical wholesalers in the UK . The number of obligations distributors and wholesalers face has also been significantly increased by the new regulations, including:

• providing consumers with a take-back and collection on delivery, or joining a distributor take-back scheme which is likely to incur a joining fee

• providing customers with information regarding environmental impacts, reasons for separate collection of WEEE, and the means of disposal of WEEE

• obtain a waste management licence or register an exemption with the environment agency

• there is no obligation on a distributor to take-back non household WEEE

Following the 2007 Energy White Paper: Meeting the Energy Challenge, the Energy Bill received royal assent in November 2008 and became the Energy Act 2010. In the act, the UK government set legally binding carbon reduction targets, such as an overall 80% cut in greenhouse gas emissions by 2050 and a 34% reduction target for 2020. The act also permits future governments to be taken to court if they fail to achieve the “carbon budget” targets set by an independent panel every five years.

The first carbon budget, between 2008 and 2012, mandated a 22% cut in carbon emissions compared with the 1990 baseline. Between 2013 and 2017, a further 28% reduction has been targeted to ensure the UK complies with its overall target of an 80% cut in greenhouse gases. By 2018 to 2022, a further 34% reduction should be achieved.

The Energy Bill will not have a direct effect on the electrical wholesalers industry because it does not stipulate how carbon dioxide emissions should be reduced. However, demand for more energy efficient products and equipment is likely to increase from electrical wholesalers’ end-use industries as a result of the bill. The renewable energy market is well supported by the government and the EU, with both imposing legislation that encourages businesses and local authorities to invest in renewable energy, in turn driving the market for energy efficient products and components. The ECA also believes that a move towards local generation of electricity and micro-renewable electricity are key options towards achieving the bill’s targets. However, the coalition government has reduced rates following the introduction of Feed in Tarriffs to encourage small-scale renewable energy under the previous Labour administration, impacting investment levels in the sector.

Demand for energy-efficient lighting equipment has been boosted by the Energy Using Products (EuP) Directive passed in April 2009. The law prohibits the sale of particularly energyintensive lamps for household use through a series of stages up to 2016. As a result, wholesalers are supplying a wider range of CFLs, low energy halogens, and new-generation lamp fittings.

The latest revisions to Part L1A of the Building Regulations: Conservation of Fuel and Power in 2006 ruled that there should be at least one energy efficient fitting for every 25m² of floor area, while at least a quarter of fittings should be energy efficient. The increase in efficiency requirements of lighting in office, industrial, and storage premises to a new minimum of 40 lumens/circuit watt has created demand for newer, more efficient fittings than already in place.

In February 2008, the government also published an updated version of The Code for Sustainable Homes, which contained mandatory performance levels that will affect the way homes are built in the future. The Code for Sustainable Homes is expected to be beneficial for the electrical wholesalers market as achieving the mandatory standards will require design and specification changes, particularly to energy-efficient products.

Trade sources suggest that electrical wholesalers that provide their customers with a one-stop-shop solution are the most likely to thrive. The product range offered by wholesalers has widened in recent years, with distributors offering products that were previously unheard of, such as power tools, site equipment, clothing, and heating and ventilation.

Increasing levels of competition from both DIY stores and builders’ merchants is also having an influence on the electrical wholesalers market. Recent developments by companies such as B&Q, which has introduced warehouse, mini-warehouse, and super-centre store formats, are placing increasing pressure on wholesalers in both price and availability. Smaller contractors may be more open to using DIY stores as they allow more flexibility in order size and convenience.

Builders’ merchants also provide competition for electrical wholesalers, as do suppliers of electrical materials and components on trade terms.

The internet has also become an increasingly important distribution channel for the electrical wholesale industry in recent years, with many companies now publishing catalogues online. This allows customers to make purchases via the internet and also allows wholesalers to expand their product ranges and reduce stockholding. ICT is now believed to be crucial to the success of electrical wholesalers and failure to adapt to new technologies may lead to loss of customers.

Customers identify a number of factors that are critical to the success of electrical wholesalers and influence choice over supplier selection. These include:

• reliable delivery promises

• quality of goods delivered

• service and product advice

• adaptability

Price and product range, which are conventionally viewed as critical differentiations by wholesalers, typically rank relatively low in customers’ perceived selection criteria. This is partly because an extensive product range is now a given factor. MBD also believes that there is an element of customer loyalty, partly due to the switching costs of establishing new accounts and lines of credit. However, the development of internet-based supply and e-commerce threatens to reduce such switching costs by creating a more transparent market and a wider range of potential direct suppliers.

The steady introduction of wholesalers’ own-brand products, which are manufactured (or manufactured for) and distributed by wholesaling companies, is another trend in the market. This is of particular importance as it allows wholesalers to gain additional revenues from traditional electric and electrical product manufacturers. There is unlikely to be similar diversification from manufacturers as the costs associated with the introduction of distribution networks make it a largely unattractive proposition unless they utilise e-commerce.

There is a degree of competition with DIY merchants, although MBD believes that such direct competition is relatively rare. Few members of the public visit electrical wholesalers for products, although some smaller builders may source materials that are available from electrical wholesalers from DIY outlets due to accessibility, reflecting the continued erosion of the traditional barriers between DIY shed and builders’ merchants. There is also already competition with builders’ merchants in some areas of the electrical wholesalers activity.

A number of factors have affected the development of the UK electrical wholesalers market over the last decade. Firstly, improved product reliability and durability - partly associated with the drive to reduce the costs of maintenance and repair - have increased the replacement cycle of products in certain sectors, placing a downward pressure on the market. Replacement component prices have also been reduced, limiting market growth. These factors have contributed to increasing price competition between wholesalers and further pressured margins. The industry has also faced fresh competition from alternative distribution channels, such as electronic component distributors, the internet, and catalogue-based companies. Some electrical wholesalers are now looking to the internet to increase opportunities.