20th Century ended on high note, say News contractor-subscribers

May 1, 2000
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You really have to work to find a contractor who’s a pessimist about business in 2000. And why not? Last year’s unitary shipments of 6.5 million were another record year, while heating equipment shipments were also at an all-time high. New housing was excellent, and the hvac replacement market has never been stronger.

So the results of our contractor survey are not surprising. Only seven in 100 think business will be down, while the other 93 see an “up” year, or at least a steady one.

Even when asked to compare 1999 with how they thought it would turn out, only 12% said it was worse, while nearly 60% said it was better than anticipated.

Put another way, 73% of respondents charted a sales increase, and 15% said business was flat; 12% had a down year.

“I’m seriously considering exiting this trade,” said one respondent — a distinctly minority opinion.

All of this optimism is in stark contrast to the crazy changes that have been occurring to the dealer-contractor sector.

For example, two of the four publicly traded, nationally consolidated contractors (American Residential Services and Service Experts) have been absorbed by ServiceMaster and Lennox, respectively. Between them, these two consolidators had rolled up more than 500 dealers.

Only Comfort Systems USA and GroupMac remain, and they’re both in the multi-billion dollar sales category. Make no mistake, consolidation has made itself felt. Six percent of respondents have sold their business to a consolidator. The holdouts are likely to remain just that, with 93% saying no thanks.

Competing directly

Just over 40% of respondents say they must compete directly with the big guys. However, only 7% say that the contractor who joined a consolidator has made him a tougher competitor.

Just over one-third of the respondents say they have been contacted to throw in with the consolidators — an approach that has had an unsettling influence on them. More than half (54%) think the consolidation trend is not positive, and only 17% see it the other way around.

Other events have helped reshape the dealer sector.

Consider the “Lennox effect,” in which the manufacturer has become the largest ($1 billion) dealer in the world. Also consider the implications of the Sears-Trane linkup where the giant retailer sells the marquee brand in its stores and competes with the manufacturer’s independent dealers. Then there’s the continued incursion of utilities onto contractors’ turf.

But other marketing changes are affecting dealers, definitely for the better. Already, 53% of respondents have an Internet Web site, and among holdouts, half said they will create a Web site in 2000. Interestingly, the Web site is used more for informational than sales messages, although where one ends and the other begins is sometimes hard to determine.

Perennial problems

Despite living in the new century, contractors find many problems are perennial. Heading the list — as it always does — is finding qualified people (64%), followed by competition (10%), the local economy (7%), and price cutting (3%).

Only 1% identified moonlighting as their biggest problem — testimony, perhaps, to stronger enforcement of licensing rules. Despite this finding, 40% of respondents say moonlighters are hurting their business.

Several “agree/disagree” questions reflect a general (albeit subtle) optimism, with 52% of the respondents saying they would encourage their sons or daughters to enter the business.

Another key finding: 40% say they have smaller accounts receivable balances than last year.

Also significant: 13% of respondents have hanged their number-one equipment supplier.

Respondents realize they must sharpen their business and marketing skills or fall prey to the big guys. Quality still counts over price, according to 39% of respondents.

“I want to take more time with customers to educate their purchase decisions,” says one contractor.

“We’re getting into flat-rate pricing to increase billable hours,” says another.

“I’m going to diversify into mechanical contracting or fuel oil delivery and sales,” says a third.

Contractors stress that volume is not as important as profit, and pledge to “bid for a greater profit margin and select jobs with better margins.”

The word “diversify” crops up time after time. “I want to diversify into residential equipment replacement sales,” says one. “I plan to diversify our service operation,” says another.

Improvements can be made in all facets of the operation — inventory control, accounts payable, warranty administration, marketing, overhead, employee benefits.

“More training for my employees, keeping a closer eye on my direct costs, and sticking to my budget,” says one contractor in his New Year’s Resolution.

“Provide superior service with local hands-on management — the consolidators can’t match that,” says a colleague.

“Just continue to be responsive to customer needs and wants, and provide what they need at a reasonable price,” says a third contractor. And this statement tells it all.

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