2008 Registration Document - Rexel

3. Business description− growing access to electricity.In addition to macroeconomic factors, the Rexel Groupbelieves that the market for the professional distribution oflow- and ultra-low voltage electrical products is supportedby a combination of other factors, including:− continuous technological innovation (e.g., homeautomation) and a modernization of existing materials.Customers are looking for products with high addedvalue that offer increased functionality, in particular withregard to security, comfort and energy saving, whichleads to a high rate of renewal of product references;− a regulatory environment that is evolving and differentfrom country to country. Changes in security standardsand energy consumption are notable factors in thereplacement of equipment; and− the development of technical assistance and maintenanceservices, as a result of the increasing technologicalcomplexity of products and a growing demand for valueadded products from customers.A more developed market in countrieswith mature economiesThe characteristics of the professional distribution of lowandultra-low voltage electrical products sector vary withregard to the maturity of the market. In emerging marketcountries, the market is centered on large infrastructureprojects and is served by manufacturers which sell theirproducts directly to the end user. Developed economycountries (such as France, the United States, the UnitedKingdom, or Sweden) present a more favorable environmentto the professional distribution model, the preferred interfacebetween manufacturers and end users, primarily becauseof the more diffused needs of industry and construction, ahigher comfort level (linked to higher purchasing power) ora higher level of regulation.The development of new marketsThe worldwide market for the professional distributionof low- and ultra-low voltage electrical products couldeventually benefit from the development of certain emergingmarkets. Economic development could enable distributorsto participate in the distribution of their products and thedevelopment of value-added services.On the basis of a multi-criteria analysis of the differentemerging markets (by considering, for example, marketpotential, ease of access to customers, strategicimportance of local suppliers, standardization of equipment,importance of multi-brand distributors and the existingstate of professional distribution), the Rexel Group believesthat China will offer a major opportunity with a distributionmarket that still represents a relatively small portion of endconsumption.Finally, the Rexel Group believes that the role of professionaldistributors is strengthened by the development ofcustomers’ expectations; customers are demanding abetter quality of service with respect to the availability ofproducts and the ease in obtaining them.Renewal of product offering that strengthens priceincreasesThe continuous development and renewal of the RexelGroup’s product offering to include products with higheradded value tends to support the steady growth of averageprices. This trend is particularly noticeable in the moretechnical product families, such as industrial automation,lighting, security and communication products. Priceincreases also occur as a result of changes in productsafety and energy savings standards, which tend to lead toproduct renewals and more sophisticated product ranges(for example: scheduled outage of incandescent lamps,development of ENR-type heating solutions).A fragmented marketAt the worldwide level, the market for the professionaldistribution of low- and ultra-low voltage electrical productsis characterized by a large number of players. The RexelGroup believes that it holds a market share of 8% to 9% anda network of 2,412 branches, based on 2008 financial data,excluding the 60 branches of the ACE division.The consolidation level of the market is extremely variedfrom country to country. More specifically, in the UnitedStates, a market in which the Rexel Group believes it isthe leader, the market is particularly fragmented. In thiscountry, the Rexel Group believes that the six leadingdistributors, which includes the Rexel Group, representedless than 30% of all sales made in 2008. This results, inparticular, from the geographic breadth of the market andthe historical presence of local market players. Accordingto a study published by Electrical Wholesaling in June 2008based on 2007 data, the 200 top distributors of electricalmaterials operating in the United States would representapproximately 60% of the American market and wouldachieve sales of over US $50 billion. By contrast, in certaincountries such as France, The Netherlands, Australia, theUnited Kingdom or Canada, a large portion of the marketis occupied by a limited number of distributors, due to thestrong historical presence of players who have consolidatedand structured these markets.The Rexel Group estimates that, in 2008, approximately25% of worldwide sales in the market for the professionaldistribution of low- and ultra-low voltage electrical productswere made by 6 major distributors: the Rexel and Sonepargroups, acting on the main world markets, ConsolidatedElectrical Distributors, W.W. Grainger, Graybar ElectricCompany and WESCO International, which principallyoperate in North America.A large number of medium-sized businesses that operate ona national, regional or local level account for approximately75% of worldwide sales on the market of the professionaldistribution of low- and ultra-low voltage electrical products.In certain countries, smaller electrical products distributorsare seeking to increase their power by creating purchasingPAGE 28 | REXEL 2008