Electrocomponents PLC

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Electrocomponents PLC

5000 Oxford Business Park South
Oxford OX4 2BH
United Kingdom
Telephone:+ 44 (0) 1865-204000
Fax: +44 (0) 1865-207400
Web site:http://www.electrocomponents.com

Public Company
Incorporated: 1937 as Radiospares
Employees: 4,900 (2002)
Sales: £824 million (2001)
Stock Exchanges: London
Ticker Symbol: ECM
NAIC: 444190 Other Building Material Dealers; 421690 Other Electronic Parts and Equipment Wholesalers; 421610 Electrical Apparatus and Equipment, Wiring Supplies, and Construction Material Wholesalers.

Electrocomponents PLC sits in the top tier of U.K. companies. Electrocomponents has joined the FTSE 100 index of the United Kingdom’s largest companies and was recently noted in a Management Today survey as Britain’s eighth most admired company. The international company sells a wide array of electronic products to engineers, technical users, small electronic companies, and other business clients through paper, online, and CD-Rom catalogues. Almost all of the products found in an Electrocomponents’ group catalog, and there are approximately 300,000 products offered group-wide, can be delivered to the customer overnight. Electrocomponents has expanded out of its original U.K. market to service many countries in Europe, Asia, and most recently, with the purchase of Allied Electronics in 1999, the United States and Canada. In addition to purchasing Allied Electronics from Avnet Corporation, Electrocomponents has formed a strategic alliance with Avnet, giving Electrocomponents an opportunity to expand its business capabilities and service more high-volume orders.

Small Beginnings

Electrocomponents was founded in 1937 by two Jewish émigrés who had fled to London to escape Hitler. The two men, J.H. Waring and P.M. Sebestyen, found themselves in London with the prospect of supporting themselves weighing heavily on them. Their gaze settled on a niche they’d uncovered, supplying parts for the radios that were quickly becoming an integral part of many Londoners’ daily lives. The men saw opportunity because they observed that the radios’ parts broke often, the valves in particular, and the parts needed to repair them were difficult to come by. The two men took advantage of these machines’ unreliability and began distributing the scarce parts to local radio repair shops. The company, called Radiospares Limited and located in northwest London, grew rapidly, and within a year, six sales representative were added to the Radiospares staff.

The founders’ objective was to provide a replacement part for every job, so they were always open to adding additional products to their offerings. When televisions became popular (and proved as unreliable as radios), television parts were added to Radiospares’ product list. In 1947, the same year that the company began to sell television parts, Radiospares established its first export link with Radionics in Dublin, Ireland. By the end of the war, the small, local distribution company had evolved into a much larger national distribution company. In 1954, the founders of Radiospares decided to expand the company’s focus from distributing solely to fix-it shops and home users to include distribution to the industrial sector. In the early 1960s, the work of manufacturing radios and TVs had shifted from English to Japanese manufacturers. Radiospares understood that when the new products were released, they would not need as much repair as the old products had required because the new manufacturers were focusing efforts on creating products that worked more reliably. Radiospares saw that their market would drop off drastically in the coming years, so the company shifted its business strategy more completely into supplying components to the industrial sector.

The shift away from home users was a good one, and in 1967 Radiospares was “floated” on the London Stock Exchange as Electrocomponents PLC. Soon after the company’s successful stock exchange listing, the company was valued at £2.75 million. The founders decided that it was time for them to leave the company.

Continued Success

The founders’ departures did nothing to affect the continued growth and success of the original company. In 1971, the company changed its name from Radiospares to RS Components. RS Components’ success as a distributor of electronic components to small businesses was based on the company’s dedication to offering a large variety of products, and having all of those products available for quick delivery. RS Components supplied product primarily to small electronics companies, and by 1974 the RS catalogue offered over 2,500 products and had opened distribution centers in both Birmingham and Manchester. RS Components continued to grow and succeed through the 1970s, and in 1976 RS Components’ sales exceeded £1 million per month. As the company succeeded in its niche, the executives had to continually reassess the company’s focus in order to decide which direction to allow the company to grow.

Diversification during the 1980s

The direction that the company decided to take in the 1980s was toward diversification. The company built up a subsidiary called Electrolighting that was designed to sell lights to retail outlets, and purchased other companies involved in computers and in the distribution of office supplies. The only long-term division that Electrocomponents held onto was called Pact. Pact was a distributor of electrical appliances and audio accessories complete with its own Panda and Wellco brands, and its own label and packaging facilities. Pact continued to operate until its closure in March 2001, when Electrocomponents announced, “[Pact’s] operations were not core to the Group’s strategy.”

In 1981, the company’s market value had risen to £60 million, and in 1984 they made a move out of London to a newly built warehouse in Corby. The warehouse had been built to become the company’s main warehouse and it would hold and distribute the bulk of the company’s product. By 1995, the warehouse stocked 58,000 different product lines, and any product on its shelves could be shipped on the same day the order was placed-which meant that customers could receive their product the next day. The bulk of the orders came in during the last few hours of the workday (the warehouse was open from 8:00 a.m. to 8:00 p.m.); as soon as the order was logged into the computer, the warehouse staff could begin the process of locating, packaging, and sending it out to the customer. In 1995, it was reported that the Corby warehouse alone serviced the bulk of the company’s average 16,000 orders a day. This next-day service was a major aspect of RS Components’ success. The company’s ability to stock a large array and quantity of products and their dedication to quick turnaround won them the loyalty of a large customer base.

Changing of the Guard: Diversification Gives Way to Expansion

In 1990, the longtime leading executive of Electrocomponents, John Robinson, resigned from his position of managing director of the company and was quickly replaced by Sir Keith Bright. There was speculation about whether Robinson had been strong-armed out of the company. Robinson said of his departure, “It was not an amicable parting. But it was more to do with personalities than questions of strategy.” Bright, who had worked at London Regional Transport, was given the titles of deputy chairman and chief executive. In 1991, the same year that the company’s profits fell by six percent, Bright brought in a new chief executive, Bob Lawson.

Lawson made some substantive changes upon taking office—he closed or disposed of most of the newer businesses that the company had taken on during their diversification phase, and turned his attention toward expanding the company’s reach. In the first year that he was in office, the company expanded, opening RS Germany. The following year (1992), the company acquired and merged Radio Parts in Denmark into RS Denmark, an RSCC joint venture was begun in India, and RS’s former New Zealand distributor was acquired in order to form RS New Zealand. The expansion continued, and in 1995 and 1996, RS acquired three more companies—its former distributor in Singapore to open RS Singapore; the company’s Spanish distributor Amidata to form RS Amidata; and RS Component’s South African distributor. In 1996, RS Chile opened as a start-up.

One of the largest and most important moves that Lawson made was to expand upon RS Components’ business in the Far East. The initial moves he made toward the East developed into hubs in Singapore and Hong Kong. RS Singapore was opened to service the ASEAN region in South Asia, and RS Hong Kong to service China and North Asia. In April 2000, the company published its first Chinese language catalogue (60,000 products), CD-Rom, and Web site, and in September 2000, the company opened a fulfillment center in Shanghai. In 1998, Electrocomponents committed around £30 million toward developing a centralized distribution center in Japan. The RS form of distribution was not available to Japan before RS Components launched their business there.

Company Perspectives:

What we do is high service distribution to technical users. By stocking a very wide range of products, by providing the highest service levels in our markets, and by making buying from us easy, we offer engineers, technical users and other buyers within businesses the best and most cost-efficient way to fulfill their small order requirements and satisfy their urgent needs. Through our RS and Allied subsidiaries we distribute over 300,000 products to over 1,500,000 technical and industrial professionals throughout the world. We provide the best service levels in each of our marketplaces: unrivalled choice, availability, support and reliability. Our commitment to service is reflected in our continued success.

Another major change that the company underwent during Lawson’s first few years in office was to alter one of the company’s fundamental business practices. Lawson said in 1995, “Historically, the business was always product-driven. In the past five years, I believe we have made it service-driven.” Some aspects of the service-driven elements of Electrocomponents are: next-day delivery, catalogues in three formats (paper, CD-Rom, and Internet), teams of engineers in constant search for new and better products that fit the company’s quality standards, and another team of engineers who answer customers’ questions about the company’s products. In 1998, Lawson discussed customer care, “We get very upset if any of our competitors outserve us with a customer. It’s a personal affront if anyone else serves them better. We have three ground rules for customer service: (1) we will be the provider of innovation to our customers; (2) always provide the customer with an innovative solution; (3) always be their first choice.”

Taking Advantage of Technology

In 1995, the company introduced a new way for their customers to flip through their catalog—on CD-Rom. The CD-Rom was offered to Electrocomponents customers for free, and the drive that the customers would need to run it was sold below cost to encourage customers to make use of the new offering. The CD-Rom catalog was expensive to design and build, but once Electrocomponents’ customers caught on, the company was sure that both they and their customer would uncover benefits. The CD-Rom catalog allowed customers access to all of the same products that the paper catalogue offered, but with more ease. Customers could perform searches, access more photos, and even order their products online if their computers were hooked up to a modem.

In 1998, Electrocomponents jumped onto the Internet bandwagon and published an RS Components Web site and catalogue. The catalogue offered 100,000 products, and cost more than $1 million to produce. Electrocomponents hoped and expected that the Internet catalogues would eventually make both their CD-Rom and paper catalogues obsolete. The RS Components Web site contains at least 10,000 documents, most of which are technical manuals that customers can use for reference. If customers cannot find an answer to their question in the documents provided, they are given the opportunity to ask technical questions while online. In 2001, the company reported, “The site is well appreciated by customers and came in second only to Dell in the Forrester awards for European business-to-business Web sites. E-Purchasing is an innovative development to help our customers trade over the Web in a controlled manner and to save transaction costs … on an £80 order!”

A Major Deal

In 1999, Electrocomponents gained its first successful foothold in the United States and Canada with the $380 million purchase of Allied Electronics from one of Electrocomponents’ major competitors, Avnet Corporation. Allied had been a catalogue business very similar to RS Components, but Allied operated primarily in the United States and Canada. Lawson said that Avnet and Electrocomponents had been discussing various alliances for years, “But to make it work, the Allied business had to be outside the Avnet group. Allied became a threat to us [Electrocomponents] because we would be sharing trade secrets with Avnet, and they had a potential competitor in their back pocket.” In addition to the purchase of Allied, the two companies agreed to ally themselves in a variety of ways. Through their allegiance, Avnet gained electronic access to point-of-sale data on Electrocomponents’ worldwide customers, and Electrocomponents would rely on Avnet to help them fill volume orders that the company would not have been able to fill without aid. In addition, Avnet became Electrocomponents’ primary supplier of electronic components.

In 2000, soon after Electrocomponents’ purchase of Allied, the company was valued at £3,000 million and joined the FTSE 100 index of the United Kingdom’s largest companies.

Making the Most of Technology

In 2002, keeping with their practice of embracing technology and developing with it, Electrocomponents launched a free e-procurement service called PurchasingManager. The service was designed to allow an unlimited number of employees to place low-value orders on the RS Components Web site from their Internet-capable computers. Purchasing managers at the individual company level were enabled to set allowable spending levels for employees and received e-mail notification if an employee exceeded his or her spending limit. The service was designed to be customizable and Electrocomponents hoped that it would free purchasing managers’ time to work on more strategic tasks.

Principal Subsidiaries

RS Components (operating in 24 countries); Allied Electronics (United States and Canada); Radiospares (France); Radionics (Ireland); RS Amidata (Spain); RS Chile; RS Japan.

Principal Competitors

Avnet Corporation; Arrow Electronics, Inc.; Pioneer-Standard Electronics, Inc.; Future Electronics Catalog Sales Corp.

Key Dates:

1937:: J.H. Waring and P.M. Sebestyen found Radiospares in London.
1954:: Radiospares expands product offerings beyond radio and TV parts.
1967:: Radiospares debuts on the London Stock Exchange as Electrocomponents PLC
1971:: Radiospares changes name to RS Components.
1999:: Electrocomponents purchases Allied Electronics from Avnet Corporation.
2000:: Electrocomponents PLC joins the FTSE 100 index of the United Kingdom’s largest companies.
2001:: Electronics Weekly awards RS Components “Best Industry Service” award.