The Road Ahead

How the economy is affecting the lighting industry

Source: ARCHITECTURAL LIGHTING Magazine
Publication date: February 1, 2009

By Elizabeth Donoff

The current economic turmoil is forcing individuals and businesses to address an unprecedented set of challenges. While certain sectors such as the housing market have been completely blindsided, the lighting industry, both in design practice and manufacturing, is reacting somewhat differently. Firms and lighting companies have remained busy and it is only now, at the beginning of 2009, that the lighting industry is starting to see the impact of project slowdowns. What follows is an overview of some of the issues at hand for the lighting community as it navigates present economic conditions.

Overall, the lighting community has experienced unprecedented growth over the past several years. The architectural community at large is more focused than ever on the value of good lighting. Lighting designers, in the U.S. and abroad, were still indicating at the close of 2008 that they remained extremely busy and could not hire enough staff to support their project load. “There are just not enough lighting designers out there to meet the demand,” says lighting designer Brian Stacy, of Arup Lighting in New York. This is in part due to the limited number of university-based lighting design programs and the correspondingly small number of graduates entering the workforce each year. Additionally, there is a gap between entry- and senior-level professionals; past recessions removed the ever-valuable midcareer designer from the continuum as they left lighting for other industries.

While many architecture firms are being forced to cut significant percentages of their staffs, at present lighting design firms are not facing a similar situation. With a growing group of newly unemployed architects and designers looking for work, as well as recent architecture graduates entering a profession that is not hiring, one wonders if architecture's misfortune could be lighting's gain? Lighting designers could take advantage of tapping into new employee streams. But the opportunity may vanish quickly. As projects are canceled or put on hold, and the effects trickle down to lighting designers, they may lose the chance to recruit this potential human resource. The lighting community may be equally at risk of losing its own group of recent and new graduates from lighting programs, as they search for employment in other fields during these difficult economic times. “There are some upcoming graduates we'd like to hire,” says Glenn Heinmiller, principal at Cambridge, Mass.–based Lam Partners. “But given the economic situation, we need to be especially careful about our employment commitments.”

Many companies such as B-K Lighting, Day-Brite Lighting, Erco, Litecontrol, Martin, Selux, and Visa Lighting indicated stellar growth overall through the end of 2008, commenting generally that they had seen some of their highest sales figures to date. Brian Golden of Hanson, Mass.–based Litecontrol notes the company had experienced record shipments at the end of 2008. “There is no doubt that 2009 is expected to be difficult,” says Nick Bleeker, director of business development for Tupelo, Miss.–based Day-Brite Lighting.

Initially, when the U.S. housing and mortgage crisis began to reveal itself in summer 2008, lighting manufacturers were operating under production schedules with a 12- to 18-month outlook. From June to December 2008, manufacturers reworked these timelines to a more immediate three- to six-month window that will require designers and manufacturers to be much more efficient in their project planning. “We anticipate a slowdown in the next quarter as jobs are being pushed off by a month or two,” Golden says. Since November 2008, lighting manufacturers have seen a decline in quotes, an indicator in a general slowdown of new work.

In an effort to assess business cycles, designers and manufacturers alike are paying close attention to several construction- and lighting-specific economic indexes, including the American Institute of Architects (AIA) Architecture Billings Index (ABI) and the National Electrical Manufacturers Association (NEMA) Lighting Systems Index (LSI). In December, the ABI, for the second consecutive month, posted its lowest level since the survey was initiated in 1995: 34.7. The ABI has fallen below 50 for eight consecutive months. (Scores above 50 represent billing increases.) Inquiries for new projects scored at 38.3, also a historic low. A regional look indicates that the Northeast (39.5) remains busiest in terms of project activity followed by the South (36.8), West (33.5), and Midwest (31.4). In terms of project types, mixed practice (44.5) remains strong followed by institutional (40.8), multifamily residential (30), and commercial/industrial (26.7).

The LSI, the key index for lighting manufacturers, declined by 4.3 percent in the third quarter of 2008. And while the index has fluctuated over the past several quarters, overall it has contracted by 7.5 percent in the past year, and by 12 percent since the start of 2006. (Data from 2002 is used as the index's 100-point benchmark.) The third quarter of 2008 represented a point level of 92.5. Previous lows date back to the fourth quarter of 2006 (93.5) and the first quarter of 1999 (94.5). The low mark for the third quarter of 2008 indicates the reduction of domestic shipments for all six lighting equipment segments—ballasts, emergency lighting, lamps, lighting controls, luminaries, and solid-state lighting—with large lamps posting the greatest overall decline.

Not surprisingly, demand for residential lighting equipment was weak. Housing starts are limited, and builders still do not have a sense whether the market has hit bottom. Very few lighting design firms have concentrated their practices solely on residential work, and it appears that manufacturers will continue to feel a greater impact in this sector than designers.

With banks limiting credit and consumers being extremely cautious about new purchases, even energy-efficient lighting equipment, such as compact fluorescent light bulbs, has experienced a decline in sales according to the LSI. Belt-tightening consumers view the higher first-cost pricing of such products as a deterrent. While this might seem like a small point, it actually calls attention to a much more troubling scenario: The economic recession could stunt the growth and success of the green building movement.

Contrary to what the LSI indicates for the green residential market, lighting manufacturers who create products for the commercial sector remain confident that lighting specifiers will continue to request energy-efficient products. “It's about producing luminaires that optimize performance,” Day-Brite Lighting's Bleeker says.

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How to sell in a recession

Worried about your sales numbers? You should be.

You should be aware of the problems and opportunities in this economy and that business failure rates are increasing and haven’t peaked.

With the last serious economic downturn more than 30 years ago, not many current sales professionals were in sales in the mid to late 1970’s. So if you are under 53, you haven’t sold in a tough economy.

The recession of 1980-‘82 was one of the mildest in history and represented more economic stagnation than loss. So if you are under 46, you likely didn’t sell during that mild recession either.

Sales reps will cite the bubble burst at the turn of the millennia — but in real economic terms, the economy grew those years. We’ve seen the longest period of economic expansion in history. There is an unfortunate price for the good fortune: The sales force of today isn’t prepared to deal with selling in a recession.

Here are three keys to selling in a recession that may help you:

Down economic times doesn’t mean there isn't any money to spend.
It just means that customers are driven differently than in a boom economy. Customers are saying money is tight. Credit lines have been disappearing, profits are down, non-essential spending is down — so customers aren’t lying but they aren’t telling you everything either.

The customers aren’t saying there is no money. Every major study in sales since 1950 has found that neither price nor budget is any higher on buying motivations. But in a recession, what does drive a customer?

Neil Rackham, author of "Spin Selling," gave the compelling statistics on selling in a depressed economy this year. What swayed customers in the Great Depression, the recessions of 1953-‘54, the 1973-‘75 recession, the 1980-‘82 recession and today’s recession? Customers want protection - they want to avoid risk and will pay a premium to do so.

During down economic times, people want security even if it is at a price. Price or "no budget" objections are an easy way to get rid of sales reps because most won’t probe further. When you don’t know what will happen with your vendors, clients, or credit lines — wouldn’t you want a little more security as well?

Force objectivity about your pipelines.
It’s tempting to stick with the prospects that you already know as times get tough. It’s tempting but it will cost you dearly.

Chasing losses isn’t something only done in Vegas. Its typical human behavior to want to invest "just a little more" to reclaim our losses. Sales is no different. The prospects that you’ve called on five or six times that you know are stalled or aren’t closing take on an added perception of value in tougher times.

You already know these prospects and feel like you’ve already made the investment to get "this close." Sales reps will call these prospects twice as often in a recession than they otherwise would. The result? The sales numbers go down.

Those customers didn’t close in the normal amount of time for a reason. You will be more profitable spending that extra time developing new prospects than to resurrect a customer that never was close to closing. This can give you an edge since your competitors are likely making the same mistake and not focusing on new prospects.

Aggressiveness in sales and sales management wins the day in tough times.
A down economy presents a chance for radical change. The job market is drying up, and, as we pointed out earlier, people will pay more for security (including your sales staff).

Make the changes you know will improve your sales performance and profitability but that you haven’t tried for fear of rocking the boat. Radical thinking and aggressiveness are the key characteristics of successful sales people and successful businesspeople in general.

Your sales force has to be aggressive, know how to ask questions, and be rewarded well when they succeed. Focus your efforts on what makes you money — the successes within your sales group. Many companies will cut budgets, lay off trainers and cut sales support or marketing. Drinking less water in a drought just delays the inevitable. The solution is to find new sources of water and use every tool you have to get there.

The times are challenging for sales. But they’ve been so before and will be so again. You can either profit from the opportunity or become a statistic.

It’s time to profit from history.

http://www.cobizmag.com/articles.asp?id=2515&page=2