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Monday, March 22, 2010

Positioning HD for ??????

There have been some recent changes at HD Supply ... some announced and some unannounced (yet) that appear may answer the question "What is HD Supply's future?"

As you may know, Home Depot recently wrote down its valuation of HD Supply to $0. HD Supply's private equity owners also took write-downs last year. And we hear that private equity is not "enthralled" with the cash position of the company relative to its expense rate (and in this economy, not too much of a surprise). So it was a matter of time before some structural and personnel changes were to occur.

As reported in Home Channel News, "John Stegeman, the former president and CEO of Ferguson Enterprises, to lead its HD Supply Canada, HD Supply Electrical, HD Supply Plumbing/HVAC, HD Supply Waterworks and HD Supply White Cap businesses."  We understand that Joe D'Angelo will be directly running the remainining businesses ... Facilities Maintenance, Utility, PVF and others.

The segmentation is interesting ... contractor businesses in one grouping, industrial and maintenance businesses in another grouping (or, as someone said, "unprofitable businesses and profitable businesses".)

With the business being nicely segmented, could this be positioning the company for further restructuring, or divestiture?  Reportedly, HD Supply's electrical division may also be undergoing leadership change. While HD Supply has historically been a relatively nominal distributor in the electrical space, its size and potential has warranted industry awareness, but could it be a casualty of the economy (and/or an opportunity for someone else?)

4 comments:

  1. Stegeman will either be a super pick for HD or a real drag. He was let go from Ferguson Enterprises earlier in 2009 in what was termed a "cost cutting move." Inside reports say he was a outspoken backer of former CEO Chip Hornsby's "buy up the world of distribution strategy" which, as of the latest Wolseley Plc filing, is still losing money and coming undone.

    HD Supply, similar to Wolseley, is a conglomeration of wholesalers made during the medieval reign of Nardelli. The key in any conglomeration, in a down market, is finding market synergies across divisions and driving the firm toward them while reducing redundant costs. It also helps if the markets have size, staying power, and upside in the near term.

    Can Stegemann make the Elephant Dance? It is hard to say. He had over a quarter of a century at Ferguson Enterprises and knows how to drive organic growth which is what HD supply needs. But he is starting with a challenged company in a declining market where, at Ferguson, he started with a company at the growth stage of the life cycle and whose model, at the time, was best in class.

    He and HD Supply are wished well.

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  2. Every blog entry you clowns make about HD Supply always seems to be negative and diminutive...What's the deal??

    From what I hear the Electrical segment is one of the better run divisions of HD Supply...perhaps you should guys should do some more research

    Example:
    While HD Supply has historically been a relatively nominal distributor in the electrical space, its size and potential has warranted industry awareness, but could it be a casualty of the economy (and/or an opportunity for someone else?)

    Or perhaps this one...

    HD Supply agreed to sell its Rheem/Ruud HVAC group to Watsco. While in and of itself this isn't important to the electrical channel, it is the second significant business that HD Supply has recently sold. it was also reported in Home Channel News that HD Supply's LBM sale to Pro-Build may have sold for book value. Given the continuing residential market issues, it would be doubtful that the HVAC group would attract much more. Question - could HD Supply's electrical, or elements of electrical (especially residential - i.e. Edson Electric, selected branches/geographic areas), be far behind?

    Or this one...

    HD Supply appears to essentially be a commodity supplier (while providing services)vs. being able to support up-sell environments.

    ReplyDelete
  3. Anonymous - thank you for reading ElectricalTrends and for your comments. Our input, information, observations and commentary comes from either publicly available information, which we link to the source, or from individuals who share information on the various topics. We take these inputs and share thoughts. The input we've received from multiple sources is reflected in the postings (and there is other that we haven't posted as we haven't been able to corroborate through other sources).

    While HD's electrical division may be well run, we haven't heard much from suppliers or competitors about them. We do know that some of the companies that they acquired were well run companies. Perhaps unfortunately for HD, electrical isn't a major percentage of its overall business. If HD decides to spin off the division, a well run company would be of significant interest to potential acquirers.

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  4. Anonymous - and feel free to share any information that you may have regarding HD or to contact either one of us

    ReplyDelete

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