EXTENSION CORD MARKET Abstract

A bounce-back in U.S. construction activity and an increasing trend toward energy savings and aging electrical

systems is expected to drive future growth for electrical equipment wholesalers.

Introduction The purpose of this report is to inform the reader of the electrical equipment

industry – with special focus on extension cords, which have a general association

with new home and commercial construction. Although this report will indicate

some global sources, emphasis will be placed on the U.S. market.

Market Highlights

An extension cord is an electrical accessory, which is a sub-segment of the

electrical equipment industry.

The demand for cable and wire in the U.S. will remain high, since these

products are regarded as mainstays of the modern information era.

Power cables is the largest segment of the global electrical equipment

market, encompassing 59.2 percent of the industry’s total value.

More balanced growth is expected for the U.S. construction industry in

2015.

Market Between 2010 and 2015, the U.S. electrical equipment manufacturing industry

faced heightened competition from abroad while recessions lowered consumer

demand. Going forward, improvements in infrastructure are expected to motivate

consumer demand over the next five years1.

The demand for electrical components are influenced by various factors, including

construction spending, consumer income and industrial production. Whether

companies make a profit depends on the effectiveness of applied operational,

marketing and technological strategies.

Large companies have cost advantages in terms of purchasing, production,

marketing and distribution. Smaller businesses can remain competitive by

offering niche products and impressive customer service.

The industry is concentrated, dominated by a few large firms and with the top 50

companies generating 50 percent of industry revenue. Below are the major

products (with associated revenue share) in this industry2:

Communication and energy wire and cable = 15 percent

Lighting equipment = 10 percent

Batteries = 10 percent

Wiring devices = 10 percent

Industrial controls = 10 percent

Generators and motors = 10 percent

Transformers = 5 percent

Globally, Asia-Pacific had the highest market value percentage in 20133. Next

were Europe, the Americas and Middle East and Africa. The chart below reveals

the individual shares by geographic location:

1 http://www.ibisworld.com/industry/default.aspx?indid=1916

2 http://www.hoovers.com/industry-facts.electrical-products-manufacturing.1229.html

3 MarketLine Industry Profile: Global Electrical Components & Equipment, July 2014

An upswing in U.S. construction activity, particularly new building and

government-funded road construction, will spike demand for industry products

such as wiring and light fixtures.

According to the U.S. Census Bureau, in June 2015, there were approximately

482,000 new single-family houses4. Though this amount is 6.8 percent less than

the May 2015 rate, it is 18.1 percent higher than the June 2014 rate. There were

392,841 private non-residential constructions in May 2015, an increase from

387,142 in April 20155.

Industry Revenue The U.S. electrical equipment manufacturing industry earns around 43 billion

annually6. Globally, the market grossed $114.1 billion in 2013, an increase of 10.4

percent from 2012.

Manufacturers in the U.S. typically have a low level of capital investment, as

activities needing high-level investment are usually conducted offshore. Each

$1.00 that manufacturers spend on wages is expected to yield capital investment

of $0.08, with most of that investment going toward new equipment and

machinery.

4 http://www.census.gov/construction/nrs/pdf/newressales.pdf

5 https://www.census.gov/construction/c30/pdf/nonresidentialsa.pdf

6 http://www.ibisworld.com/industry/default.aspx?indid=795

The shift in production to countries with low labor costs has caused a decline in

capital expenditures in the U.S. manufacturing market. However, because this

industry requires relatively skilled labor, average wage costs are rising. Companies

in the electrical equipment manufacturing industry largely depend on operational

efficiency to succeed. Typically, operating margins range from 10 to 20 percent,

with some leaders obtaining margins in the 30s and 40s, and a few seeing

profitability in single-digit measures7.

Globally, the industry is predicted to amass $138 billion in 2018, a growth of 2.9

percent since 2013.

The U.S. Home Centers industry – which include retailers of new home repair and

improvement supplies such as electrical goods – experienced gross margin of 28.7

percent in 2014, a decrease of 1.6 percent from 2013 and an increase of 2 percent

from 2012. This industry had a gross profit of 2 percent in 2014, decreasing from

2.1 percent in 2013 and increasing from 0.5 percent in 20128. See profit

percentages below:

Source: Retail Owners Institute

7

http://www.valueline.com/Stocks/Industries/Industry_Analysis__Electrical_Equipment.aspx#.Vbjl8vlVik

p

8 http://www.retailowner.com/Benchmarks/Bldg-Materials-Garden-Supplies-Dealers/Home-

Centers#2880248-gross-margin

The home builders market generates approximately $66 billion yearly9, while the

commercial building industry produces around $143 billion10. Construction and

construction-related markets continue to lead the list of growth industries, with

projected average compounded annual growth rate of 8-9 percent through

201911. New construction projects in the U.S. are expected to increase 9 percent

($612 billion), which is more than 2014’s estimated increase of 5 percent ($564

billion) 12.

Globally, construction output is predicted to grow by over 70 percent to $15

trillion by 2025, with China, India and the U.S. accounting for nearly 60 percent of

worldwide growth13.

Products/Pricing To understand the potential of a new entrant, an examination of similar products

on the market is necessary.

An extension cord is used to power a device when the cable on the device is not

long enough to reach the electrical outlet. Factors influencing cost are:

Environment and usage, such as indoor or outdoor and general or industrial

Power rating, such as maximum current

Plug type, such as 3- or 2-prong

In considering the above three dynamics, the cost of an extension cord varies

significantly, sometimes retailing for as low as $1.47 to as high as $146. While

there is an abundance of extension cords available on the U.S. market, these

products do not allow easy access to electrical outlets that are blocked by heavy

furniture or other weighty items.

9 http://www.ibisworld.com/industry/default.aspx?indid=169

10 http://www.ibisworld.com/industry/default.aspx?indid=1916

11 http://bizmology.hoovers.com/first-research-updates-industry-forecasts/

12 http://construction.com/about-us/press/construction-industry-to-see-more-balanced-growth-in-

2015-according-to-DDG.asp

13 http://www.pwc.com/gx/en/engineering-construction/publications/global-construction-2025.jhtml

This HDX 6-ft. extension cord, which retails for $1.47,

helps to power lightweight household appliances

such as lamps and clocks. Made of vinyl and ideal for

indoor or general use, the cord comes with a 3-outlet

cube tap, 13 amps and 125 volts.

Manufactured by GoGreen Power, this 20-ft. heavy

duty cord is suitable for hefty appliances such as

refrigerators, washers and dryers. With 15 amps, 220

volts and a 3-prong grounded plug for extra safety,

the cord retails for $25.54 and is designed for indoor

use.

The Cerrowire 100-ft. extension cord retails for

$35.93 and can be used for indoor and outdoor

purposes. The cable has a holding strength of up to

40 pounds and the jacket is resistant to abrasion

and moisture. Containing 15 amps and 125 volts,

the cord provides consistent current in various

situations.

The RIDGID extension cord sells for $146 and is

designed to endure cold weather, with flexibility ranging

from -58°F to 221°F. Constructed for indoor or outdoor

use, the cord is oil resistant and offers 15 amps, 125

volts plus a lighted female end which shows that power

is being transmitted to the cord.

Sales Projections To obtain a 40-percent gross margin on an extension cord retailing for $25.54, the

manufacturer must spend $7.03 to make and deliver the unit. The average retail

markup in the electrical equipment industry is between 40 and 60 percent. In this

report’s example, however, the manufacturer and the retailer would receive a 67-

percent markup. See channel margins below:

If this product were to gain rapid market share and sell 250,000 units with a gross

margin of $4.69, the manufacturer would generate gross profit of $1,172,500 in

the first year of production. The anticipated growth rates over a 5-year period

are:

Year 1 Year 2 Year 3 Year 4 Year 5

15% 20% 25% 20% 15%

$1,348,375 $1,618,050 $2,022,563 $2,427,075 $2,791,136

Licensing Your Product When you have a great idea for a product, there is an important decision to make

right up front: do you want to build a brand new company from the ground up in

order to commercialize the product OR do you sign a product licensing deal with a

pre-existing company that already has the resources needed to market the

product?

If you choose the latter – and you are successful in getting your product licensed

– you will receive royalties on sales of the product, and you will have a lot more

time on your hands to tend to other activities in your life. The tradeoff is that you

will receive a far smaller percentage of the profit from the sale of your invention.

The percentage of royalty paid to an inventor varies. The most common

percentage is 5 percent. That is not a hard and fast rule, however. Some royalty

rates can be as low as 1-2 percent, or as high as 15-20 percent or more. It all

depends on the item and industry. Rates relating to gimmicky infomercial products

may be much higher (as much as 20 percent), but they typically have a

substantially shorter product life. The reported royalty rate for consumer goods,

which is the category that the Receptacle Relocator would fall under, is 6 percent.

Based on the sales and manufacturer profit projections in the previous section,

below is a breakdown of the royalty commission that could be expected over the

first 5 years.

Rate Type

RateRate

Type

Year 1 Year 2 Year 3 Year 4 Year 5 Projected Growth 15.00% 20.00% 25.00% 20.00% 15.00%

Revenue $1,348,375 $1,618,050 $2,022,563 $2,427,075 $2,791,136

Royalty $80,903 $97,803 $121,354 $145,623 $167,468

Profit (After Tax) $68,7673 $82,521 $103,151 $123,781 $142,348

Potential Manufacturers Whirlpool Corporation

A top manufacturer of home appliances, Whirlpool specializes in refrigerators,

washers, dryers, dishwashers, compressors, cooking appliances, filters and

accessories. The company’s products are sold under various brand names such as

Whirlpool, Maytag and Amana.

www.whirlpool.com

Southwire

Southwire is the largest manufacturer of wire, cable, copper and aluminum rod in

the U.S. The company’s products are designed for residential, commercial and

industrial use.

www.southwire.com

General Cable Corporation

Incorporated since 1994, General Cable makes wire and cable products which are

used in the construction, industrial, energy, communications and specialty

markets.

www.generalcable.com

General Electric

A major player in the electrical industry, General Electric produces a vast range of

products including lighting, aircraft engines, locomotive equipment, medical

imaging supplies, turbines, generators and electric control equipment.

www.ge.com

Hubbell Incorporated

Headquartered in Shelton, Connecticut, Hubbell manufactures electronic and

electrical items for residential and non-residential construction and industrial

applications. The company operates out of multiple facilities including the U.S.,

China, Mexico, Canada and Switzerland.

www.hubbell.com

The Ridge Tool Company

The Ridge Tool Company makes and distributes hand tools for wrenching and

draining under the RIDGID brand name. Tools include wrenches, pipe cutters,

extension cords, band saws, drill presses, pipe cutters and construction

equipment.

www.ridgid.com

Prime Wire & Cable

A manufacturer of wiring and cable products, Prime Wire & Cable offers indoor

and outdoor extension cords, power supply cords, surge protectors, lighting and

cabling products.

www.primewirecable.com

Potential Retailers Best Buy

1,731 stores

$40.34 billion in sales for fiscal year ending January 2015

Headquarters: 7601 Penn Ave S, Minneapolis, MN 55423

Website: www.bestbuy.com

Lowe’s

1,840 stores

$56.22 billion in sales for fiscal year ending January 2015

Headquarters: 1000 Lowes Blvd, Mooresville, NC 28117

Website: www.lowes.com

Ace Hardware

4,700 stores

$4.7 billion in sales for 2014

Headquarters: 2200 Kensington Ct, Oak Brook, IL 60523

Website: www.acehardware.com

Home Depot

Over 2,200 stores

$83.18 billion in sales for fiscal year ending January 2015

Headquarters: 2455 Paces Ferry Road, Atlanta, GA 30339

Website: www.homedepot.com

Office Depot

Over 1,500 stores

$16.1 billion in sales for 2014

Headquarters: 6600 North Military Trail, Boca Raton, FL 33496

Website: www.officedepot.com

Northern Tool + Equipment

Approximately 90 stores

$1.5 billion in annual sales

Headquarters: 2800 Southcross Drive W, Burnsville, MN 55306

Website: www.northerntool.com

Wal-Mart

Over 11,000 stores

$485.65 billion in sales for fiscal year ending January 2015

Headquarters: 702 SW 8th Street, Bentonville, AR 72716

Website: www.walmart.com

CVS Pharmacy

Over 7,800 stores

$139.37 billion in sales for 2014

Headquarters: One CVS Drive, Woonsocket, RI 02895

Website: www.cvs.com

True Value Company

Approximately 4,500 stores

$2 billion in sales for 2014

Headquarters: 8600 W. Bryn Mawr Avenue, Chicago, IL 60631

Website: www.truevalue.com