Three Big Questions Surrounding Hubbell's Recent Move in NoCal
Lighting Systems and Hubbell Lighting have reunited as business partners in Northern California. Here are some ideas worth exploring as the partnership evolves:
By most accounts, Hubbell Lighting is a very good company. They have good products and a solid reputation. We don't have access to any of their sales numbers, yet based on market feedback we tend to think that the company often struggles with market share in big markets compared to their share in medium to small markets. The greater Philadelphia market is the only Top 10 market where they seem to have the #1 (market share) agent. If you count San Diego as a top market, (we do not), then the same is true there. They upgraded their under-performing agent revolving door in Chicago by joining forces with the very strong PG enlighten team in the summer of 2016.
Time will tell how the Lighting Systems/Hubbell Lighting 2.0 arrangement will work. There is different personnel in place since the 1.0 partnership. Former principals Marshall Dunbar and Keith Roberts have since retired. Nazzi Nazeri and Brent Chaffee are now principals -- alongside long-time principal Dan Thompson.
Here are our 3 Big Questions surrounding the recent move in Northern California:
1. How do Cree, LSI and other manufacturers react?
Is it possible for Lighting Systems to continue to represent and satisfy Hubbell, Cree and LSI? Our guess is that there may only be two seats and three players in this game of musical chairs. We predict that one or both (Cree/LSI) will have a different Bay Area agent by the end of summer.
Cree and Hubbell Lighting don't typically like to share the same agent. In some instances, it does happen, though: Michigan, Kansas City, Oklahoma, Winnipeg, and New Mexico are some examples of Hubbell-Cree coexistence.
LSI and Hubbell have common partners in other markets including Philadelphia/S. NJ/DE and Spokane, WA.
If we had to bet our paltry month's salary on one outcome, we believe that LSI stays and Cree eventually goes. That's a simple guess with no inside sources.
If Ewing Foley, the agent that no longer represents Hubbell, does not attract another larger anchor line, does that comprimise their ability to package projects and deliver results for the independent manufacturers that they represent? If that happens, will EFI lines move elsewhere?
2. What is the impact on other Bay Area agents?
ALR: Big, strong ALR will likely not be fazed by this move in the short term. In fact, when major lines shift, it's common for the moving line to see a short-term dip, which is usually picked up by the other agents in town. We imagine, that ALR will see short term gains. With Hubbell upgrading to a stronger agent, the new Lighting Systems package may eventually be able to earn a small piece of ALR's very large market share.
Ewing Foley: Ewing Foley is the agent that most recently represented Hubbell Lighting. It's likely that they are in discussions with Cree and other lines that might be able to replace the void left by Hubbell. It's hard to imagine that they can sustain current headcount without replacing the lost Hubbell commissions with revenue from other lines.
16500 and CAL Lighting: 16500 benefited from Acuity Brands' quasi-recent acquisition of Juno Lighting Group which moved the downlight/track product line (and all JLG product lines) from Lighting Systems to their agency. We believe that both CAL Lighting and 16500 will remain strong by serving customers with the lines they have -- while possibly adding other lines that part ways with Lighting Systems because they don't want to share a line card with Hubbell. Best bet: outdoor lines get antsy.
3. Can Lighting Systems make this work?
We are not privy to sales revenue and commission percentages, but using round hypothetical numbers as an example only, if Lighting Systems gains a $20M line in Hubbell that pays $1.2M (6%) in commission, and they lose a $12M line that pays $960K (8%) in commission, they have a net gain of $240K. Sounds pretty good. This upside could be quickly compromised, however, if Lighting Systems made commitments to Hubbell to hire multiple people or made other costly investments to support the growth.
It's obvious that neither Hubbell nor Lighting Systems would have made this move if they didn't evaluate the risks, upside, opportunities and best-case/worst-case scenarios. Often times, other financial terms like incentives, loans, loan-forgiveness, etc. can help mitigate risks while inspiring conglomerate-focused growth within the agency. We wish the new partnership the best and look forward to watching the renewed partnership evolve in Northern California.
Inquiries to Hubbell and Lighting Systems management in recent weeks were not returned.
NOTE: Edits were made to correct (1) the list of agents shared by LSI & Hubbell and (2) our previous omission of one of the Lighting Systems' principal names. Apr 13, 2017 3:24pm CDT.