Distributors Weather Changing Times

March 23, 2009
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The past five years in the HVACR industry have proven to run the gamut. From record highs to a recently identified recession, distributors have studied their environment and adapted to the times facing each of them. Economics aside, HCFC regulations have brought significant challenges as well. Both the economic situation and the refrigerant changes have been faced carefully. As 2009 begins, and the unknown future hangs in the balance, distributors find themselves employing new tactics to continue operating at peak performance levels.



CUSTOMER SERVICE AND SALES

The traditional distributor is currently facing two sides of a spinning coin when it comes to compensating for the changes in the economy - customer service and selling. The goal of many is to decrease operating costs without affecting customer service or sales.

David Williams, executive vice president of Gateway Supply based in South Carolina, has started decreasing business cost by reducing his hard and soft expenses.

“In order to survive this slump, we have and are currently taking measures to minimize internal cost as much as possible,” he said. “We are asking employees to take on multiple responsibilities, and we may be forced to look at salary reductions and/or furloughs in order to cut even more cost. Our goal in all this is to cut operating cost without the customer seeing any difference in their level of service.”

Williams considers the economic crisis to be the top issue in his business. “It is causing less business to be done, and with the fierce competition, we are getting less for it; what a terrible combination.”

The sales side of distribution is also facing cuts and new trends. Decreasing inventory is one of the major components of cost control being exercised.

“I believe that most all distributors are ‘skinning up’ their inventory primarily due to a drop in sales,” noted Kevin Morris, parts director for cfm Distributors Inc. based in Kansas City, Mo., and member of The NEWS’ Distributor Panel.

According to Morris, not only are equipment sales dropping, but with the significant decrease in the new residential housing market, the demand for construction specialties, such as linesets, disconnects, etc., has decreased as well.

Compensating for these financial hardships, fuel surcharges have been implemented in many cases. Morris cautioned that with these surcharges comes responsibility.

“Distributors need to adjust their fuel surcharges as the price of gasoline changes,” he advised. “They also need to make sure that their vendors are also adjusting these charges down as fuel costs drop. There are only so many sales available, therefore you must make your transactions as inexpensive as possible.”

John Staples, president of USAirconditioning Distributors based in City of Industry, Calif., is cutting expenses, carrying less inventory, and is now using natural gas trucks to save on fuel costs. With less inventory available, Staples considers lead time to be critical in remaining competitive. Despite the fact that “people are afraid to spend money,” said Staples, “I think that these economic stimulus package tax credits along with utility rebates will cause more people to replace rather than repair.”

In essence, he is leading his sales force into Leadership in Energy and Environmental Design (LEED) certification and moving towards the sales of strictly R-410A products to meet the demand he expects to be created by the economic stimulus package.



SHIFTING REFRIGERANTS

The move to R-410A has started in the distribution arena, but it is the phaseout of R-22 that is presenting multiple issues.

“The recent shot fired across the industry’s bow by the U.S. EPA [Environmental Protection Agency] when it introduced two proposed rules that essentially could have prohibited the service and sale of existing systems and equipment, has certainly accelerated the move to HFC refrigerants,” said Donald Frendberg, executive vice president and COO of Heating, Airconditioning & Refrigeration Distributors International (HARDI).

“This regulatory uncertainty has created the possibility of major liabilities for unsold R-22 equipment at the end of the year so many HARDI distributors are taking more aggressive measures to phaseout R-22 equipment and have ramped up training and awareness campaigns for their customers.”

Williams agrees that the option to install an R-22 unit in most regions is not the optimal choice.

“We have stressed to our dealer base that by putting an R-22 unit on a changeout today is really doing a disservice to their customers,” he said. “The equipment lines that distributors are offering better be R-410A complete, if not, you are in a compromising position.”

Williams did note that Gateway Supply made an exception to this suggestion in coastal regions where, according to him, “air handlers may last the life of three condensing units.”

“For this reason, we will stock more R-22 units in this region, but for the other regions we will continue the R-410A push.”



EYES ON THE HORIZON

Looking at issues that will continue to confront distributors, HARDI advised them to watch for three major issues in the future - small business regulation and taxation, consumer and contractor credit crunch, and non-traditional HVACR systems.

“Small business regulation and taxation over the next five years could severely impact employment and succession planning,” said Frendberg.

“The unprecedented wave of regulatory and legislative change facing distributors has created unprecedented uncertainty. Equipment standards and refrigerant policy all seem to be in the air in 2009, and major business issues such as tax policy, labor and human resources regulation, and the stability of the credit markets is making it nearly impossible to plan any strategy beyond a few months at a time.”

Along with the legislation and economic issues, the green movement continues to inspire non-traditional HVACR systems. For the industry and the environment, most find this to be an agreeable concept. The distributor, however, must remember that with new equipment comes new training and knowledge requirements along with the need for broader product offerings. In a lean wholesaler environment, this could be difficult to overcome.

Publication Date: 03/23/2009
 

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