Tags continue to creep up despite soft market
While the demand for fluorescent lighting is increasing at a faster rate than the entire industry, sales continue to decrease for incandescent lights.
By Agatha Ciancarelli -- Purchasing, 3/25/1999 7:00:00 AM
Most or all lighting manufacturers increased prices 3%-4% at the end of 1998 to relieve cost pressures. According to data put together by Thinking Cap Solutions, manufacturing costs increased 1.5% in 1998, but average prices decreased by 0.31%. This divergence in price/cost escalation has decreased margin levels and has put more pressure on manufacturers to increase pricing. However, increases have not affected every lighting product equally.
One manufacturer that implemented a price increase in November, 1998, is Osram Sylvania. Mike Colotti, vice president of industrial/commercial lighting, explains, "The increase was driven by rising manufacturing, labor, and transportation costs."
Demand softened in 1998
Demand slowed in 1998 after years of continuous growth and a record-high year in 1997. Says Steve Goldmacher, director of public affairs, Philips Lighting, "After many years of typically sustained growth of 3%-4%, last year's market shrank a bit. No one expected the market to be off because of all the growth it had experienced."
He continues: "1997 filled up the pipeline and the result was that demand in 1998 was slightly off. We oversold in 1997 and the products have a certain life span, so they have to start wearing out before we can start selling."
Inventory cuts also are to blame for the demand slump in 1998. Says Goldmacker, "Carrying inventory costs a lot of money so many are cutting back. This, combined with overselling, kept the market down."
However, manufacturers expect demand to improve this year. Says Colotti: "Over the next 12 months the industry should show 3%-4% overall growth." Goldmacker agrees saying, "We will go back to a small growth rate for 1999."
Product inconsistencies
While the demand for fluorescent lighting is increasing at a faster rate than the entire industry, sales continue to decrease for incandescent lights. According to the Freedonia Group, a market research firm in Cleveland, incandescent lamps are the least energy-efficient and have the shortest operating lives. Fluorescent lamps are significantly more efficient and are among the lamps with the longest life cycle.
Manufacturers have had to cut back or close certain plants for incandescent lamps, while increasing capacity levels for fluorescent lamps. However, manufacturers do not believe further capacity adjustments are needed.
In fact, the industry is running at a comfortable capacity in the 88%-92% range, and supply is not a problem. Says Colotti, "There is ample supply." Also, leadtimes are running at standard levels and the industry is experiencing virtually no back orders. Says Goldmacker, "Leadtimes are within weeks with no back orders."
E-commerce is the buzz word
E-commerce is adding value to the industry by providing more accurate information and instant availability to the end user. Says Colotti, "E-commerce is our watch word right now in terms of streamlining transactions and accuracy of the information. It also enables us to do commerce 24 hours a day."
The industry data warehouse initiative (IDW) is another example of manufacturers increasing value to the customers. The virtual warehouse was created 12 months ago and has gone into high gear over the last six months. It provides a data field of information to distributors.
Manufacturers also are simplifying the process by offering system solutions and one-stop shopping by selling a lamp with a ballast. Manufacturers also provide service for their products. Says Colotti, "We have a company within our company that deals with maintenance and contractor-related work."
Emphasis has also been placed on improving energy efficiency for lamps and making them less hazardous. Says Goldmacher, "Eliminating the toxic characteristic in fluorescents means eliminating the mercury. We are now in the process of turning our entire line over to low-mercury fluorescents."
Market at a glance
Demand: Growth of 3%-4% is expected in 1999. Growth will vary by product type.
Supply: Ample, with capacity running between 80% and 90%.
Prices: Hike of 3%-4% was implemented in fourth-quarter 1998 and should carry through 1999.
Leadtimes: Standard, within 2-4 weeks.
Average Product Prices vs. Direct Manufacturing Costs
Average Product Price Index Mar-98 Jun-98 Sep-98 Dec-98
Annual % change 2.42 .71 .03 -0.31
Industry's Direct Marketing Costs Mar-98 Jun-98 Sep-98 Dec-98
Annual % change 2.11 1.71 1.69 1.51
SOURCE: THINKING CAP SOLUTIONS
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