Internet and the HVAC Distribution Channel

January 22, 2007
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eBay item: “Brand X high efficiency single stage 100,000 BTU gas furnace. We have purchased a LARGE LOT of these BRAND NEW OVERSTOCK units direct from the manufacturer and want to pass the savings on to you!! Our freight cost is a flat rate to anywhere in the lower 48 states of the USA. The $165 rate will get the shipment to your driveway or a dock. Most drivers are more than happy to assist with unloading as long as you have help. They are NOT required to help!”

These units are not light! If you have 2-3 people willing to help you unload it off the back of a tractor trailer, you may wish to try. The warranty on the unit is sold with the unit! ANY qualified and certified technician or company can process warranty claims for you. Starting bid is $849. Buy it now price is $979.”

This was an eBay online auction item in January 2006, one of hundreds of furnaces for sale via the Internet. Does this type of selling have an impact on the traditional HVAC distribution channel? It’s bound to have some type of ripple effect, but is it enough to change how an HVAC distributor goes to market and retains a profitable business model?

“My concern is state law and regulations,” said David Williams of Gateway Supply Co., Columbia, S.C. “I know in our state of South Carolina you must be licensed to install HVAC equipment. There are provisions for installing your own system, but how could that be controlled if units are being sold to whomever asks? How can a noncertified individual adjust the refrigerant charge properly? Does buying through the Internet help circumvent the laws in a state that requires licensing? There seems to be no way to police these sales.

“There seems to be an ever increasing need to be in the e-business, and we are participating, but there is a real issue with units being purchased through the Internet and these are some of the concerns that I have heard around our state.”

With that in mind, some distributors are choosing to be proactive rather than reactive, using the Internet to boost sales and open up a new way for customers to browse and shop for products.

“Internet sales are an integral part of our company’s business plan,” said Mike Michel of R.E. Michel Co. Inc., Baltimore. “We have seen sales grow more than 700 percent over the last five years, and we estimate that revenue will exceed $12 million for the 2006 calendar year.”

Williams said his company is starting to venture into e-business, citing it as a “real and viable market.” He noted that the Internet is a great way of marketing to people who would otherwise not know his company at all; and it is also a great way to help reduce slow moving inventory.

“Just recently we have started putting HVAC parts on our available list and we have been successful moving these as well our plumbing parts,” he said. “With equipment changing by the hour, it is also a great way of moving obsolete parts that you seem to always get stuck with. As long as it makes sense, we will continue with this project and grow it as large as it allows, but we will refrain from moving new equipment because of many personal concerns.”

Michel said that distributors should start with the basics, i.e., an attractive, easy-to-navigate Website, uncluttered to facilitate, fast downloading, with content to include company information and contacts. “It should also have programs like ours: consumer financing, our travel incentive, and e-sizzle which is our Internet-based customer rewards offering,” he said. “We also feature a Tech Tips section (installation & service) and training that is available to our customers.”

The key phrase here may be “our customers.” The real questions may be, “Who is buying the equipment and why?”

DIRECT SALES, ECONOMY PLAY KEY ROLES

Besides controlling to whom HVAC equipment is sold, Williams’ concerns include:

1. Do manufacturers know these products are being sold and if they do, are warranties part of the equation?

2. The Environmental Protection Agency (EPA) is not directly involved in the sell of HVAC parts and equipment, but should they be?

“I know our agreement with our equipment manufacturer requires us to sell to properly trained and qualified individuals and/or companies and not to sell for resell,” Williams said.

“But how are manufacturers allowing their products to be sold through the Internet if others have the same requirement as us?

“The only answer I can imagine is there must not be a warranty associated with these units. If this is true, then why would someone be willing to spend major dollars on something that carries no warranties? If units are being sold via the Internet and they do not carry warranties, this poses another danger for the unsuspecting consumer. It appears to me that someone with less than stellar morals could dupe consumers.

“Secondly, most split systems require some adjustments on the refrigerant charge based on the varying line set lengths. How are individuals able to achieve this when they cannot purchase refrigerant? Plus, when refrigerant needs to be reclaimed the Internet purchaser surely is unable to perform this either. As much as I hate further regulation, should EPA intervene on systems being sold via the Internet?”

One distributor’s concerns don’t lie in selling via the Internet as much as the current economy. Doug Young of the Behler-Young Co., Grand Rapids, Mich., believes in fixing the economy first, then exploring the Internet.

“We currently do not have plans for much involvement in the Internet,” he said. “With the economic disaster in Michigan and the horrible weather, we are focusing short term. I see us being more involved with the Internet in the future, but I am not sure what that looks like. We will likely take advantage of whatever is available from our main business software provider.”

Publication date: 01/22/2007

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