There is a rising murmur that can be heard at HVACR industry events regarding the threat online retail sales pose to wholesale distribution, and there is some validity to that growing concern. U.S. online retail sales will surpass $1 trillion by 2027 compared to $445 billion this year, according to a forecast by business advisory firm FTI Consulting Inc. The study also noted online purchases accounted for 12 percent of total U.S. sales and 50 percent of total sales growth in the past year. However, many distributors are taking action now to combat the rising threat.

DISRUPTING THE CHANNEL

“Online sales are absolutely a threat to the HVACR distribution industry,” said Dale Norton, vice president and director of sales, Meier Supply Co., Conklin, New York. “However, if you are a value-added distributor with goods and services that make it much more difficult for the online market to penetrate your business, then you can continue to thrive. That being said, the pressures are there from online sales, which will continue to nip away at the edges from all distributors. Your business model will dictate how much of your business will suffer.”

Meier Supply continues to invest resources in providing tools to customers, making it easier for them to do business with the distribution company, Norton noted.

“Our customers having the ability to easily order from their computer, iPad, and mobile devices has been a significant initiative for us,” he said. “Some of our initiatives include providing a website with extensive data that the contractor may need for troubleshooting and installation concerns. We have cell phone apps that provide the technician with equipment data, equipment sizing, and troubleshooting for various types of equipment. We also have a mobile solution that will automatically replenish inventory for service truck stock or customer stockrooms.”

David Kesterton, president, Mingledorff’s Inc., Norcross, Georgia, also thinks online sales pose a threat to the industry.

“People in the wholesale business have to be prepared and should be heading in that direction with a very robust website and be able to execute online sales not only with a secure website but maybe an open website with more of what I would call commodity-type products,” he said. “The proprietary-type products and things like that have restrictions on them. And you know we’re all happy to play by those rules, so to speak, right now. But I think that on the commodity side of the business, that’s going to be kind of an open game for the industry.”

HVACR equipment sold online is something to be concerned about, Kesterton added.

“There are a lot of different things to deal with when you’re talking about equipment because you want the equipment to be sold to the proper people who can install it,” he said. “From Mingledorff’s standpoint, we sell to licensed contractors who are knowledgeable about our equipment — people we’ve trained and are able to install the product in the proper way, and we will never vary from that position. There is equipment available over the internet that a homeowner can buy and then try to find a subcontractor to do the installation. I’m not as concerned about that because I think it’s complicated for the homeowner, and the more complicated a transaction is for the homeowner, the more they tend to want to move back to a professional and get a professional to install it.

“So I feel like from our perspective, we have to be good at transactional business through the internet,” Kesterton continued. “We have to have a website that is data-enriched, so our contractors can answer any question they want online, which takes a lot of work.”

Scott Larson, president, Gustave A. Larson Co., Pewaukee, Wisconsin, said online sales are a threat to many industries, not just HVACR.

“Not only is it a threat to sales but also a threat to brand integrity of our supplier partners as well as safety,” he said. “Improper installation of HVACR items sold online can cause significant safety risks to the end user. Online sellers also have a leg up as they do not have to charge sales tax. We believe we win through relationship selling and adding value in the local market. As we continue to see the online retailer [e-tailer] and direct-to-consumer market grow within all industries, we need to be strategic in our approach of adding value to the channel and continue to partner with the best suppliers and customers. We align ourselves with suppliers that believe in and support the distribution channel.”

JUST ANOTHER COMPETITOR

Lauren Roberts, executive vice president, cfm Distributors Inc., Kansas City, Missouri, doesn’t consider online sales a threat to distribution.

“Online sales are just another competitive force we need to be aware of in HVAC distribution,” she said. “We have brick and mortar competition popping up left and right in our region, and online sales channels are just like them, but they are easier to launch and operation is usually cheaper in the short term. What this means for HVACR distributors, like us, is we just need to be more agile and be able to adapt, change, and embrace new technology quicker than ever before. We have a unique value proposition compared to that of the online sales channels, and we just need to think of ways to constantly adapt that value to be delivered in new ways to stay ahead of the online competition.”

According to Roberts, cfm is rolling out a new digital strategy.

“This [strategy] includes several proprietary facets but is essentially giving us new channels where we can deliver our unique value-added support and service tools to help deliver success to our customers in an ever-changing business climate,” she said. “Industry-wide, I think it’s important to rethink how we deliver the value to our customers that encapsulates the things that have made us unique in brick and mortar and convert that to be delivered through new channels. The new online sales competitors have the same products to sell and have a decent price to sell them at, but they don’t have the unique value to bring to the table that wholesale distributors have. Keeping that value involved in everything we do will continue to set us apart from online sellers.”

OPPORTUNITY KNOCKING

Troy Meachum, president, ACR Supply Co., Durham, North Carolina, sees online sales as both a threat and an opportunity for HVACR distributors.

“We all understand the threat — you read article after article about how the Amazon dragon is coming,” Meachum said. “Online sales through Amazon and other online venues are a real threat to distribution. And I would tend to agree with that to some extent. The only thing I would add is what we do as distributors in the HVACR world — we cover what they call ‘the last mile’ — that last bit of transactional time that happens when a guy gets on the phone in his truck, and he’s bringing half of a model number off of an old compressor that was built in 1984, and he’s got a picture of it, but he can’t really figure out for himself what it is that he needs. But he gives us the information, and we can tell him what he needs. It’s called the last mile, and as long as we can continue to own the last mile as distributors, I think we will always have a place in distribution, whether it be online or traditional counter sales.

“What is happening already, and will continue to happen more, is we’re losing business as we speak on commodity-type items — those that don’t require much technology or information,” he continued. “And we will continue to lose more of that as the millennial generation enters the workforce. They will continue to buy more and more of those types of things online. And that’s where we’ve focused ourselves — on creating an e-commerce platform that is really good for commodity item sales. We’re trying to work around or head off a lot of that loss. Our customers who we already know and who have great relationships with us, we’re giving them another way to do business with ACR Supply. Which, by the way, helps drive down the cost to serve them. Our current customer base includes some millennials, and they want to be able to place orders online and get confirmation without human interaction. I think it’s an opportunity. If that’s what they’re looking for, then we need to give it to them. It’s an opportunity to drive down your cost to serve but also keep that customer instead of losing them to some online platform.”

TAKING ACTION

Larson believes all wholesalers need to get better at their digital marketing strategies.

“Most do not have one,” he noted. “Their strategy should consist of: 1. Defining the value proposition; 2. Developing a coordinated website and social media presence;. 3. Building a robust e-commerce platform; and 4. Aligning with strategic partners that understand this strategy.”

Industry-wide, most distributors feel online sales are inevitable — they’re here to stay.

“The objective is to provide a comprehensive solution for our customers that is better than what the online threats can provide; it’s our job to not give them a reason to go elsewhere,” Norton said. “While our current business model has not changed, we’ve added other electronic platforms for customers that prefer these types of transactions. Our website is a great resource for our customers, and we do not allow access to homeowners or end users. Lastly, we make it a point to not promote or support manufacturers that will skip the two-step distribution model by selling direct online.”

“I think this [online sales] train has already left the station to a certain extent,” Kesterton added. “From a wholesale distributor standpoint, we have to add value, and that’s going to take on many different forms. At Mingledorff’s, we have a culture of adding value in the chain. And we will continue to do that — we’re never going to be a company that is just going to have the product out there in price only. The whole industry has to look at it that way and build value around what they’re offering. And again, that’s going to bring the customers to your website, and it’s going to keep them there. It’s not all about price, and, quite frankly, we’re competitive with internet prices. But, it’s going to take more to keep your customers in this next generation that wants to operate over the internet.

“We’re in transition right now,” he continued. “A lot of people are baby boomers in our industry, and they continue to do business the old way, which is either walk up to our counters and/or call on the phone. But we have a big group coming through the internet now — about a third of our business is online. What’s going to make them come back is the value-added services we’re able to put together to have them continue to be loyal to us.”

When asked what the industry needs to do to combat online sales, Meachum just laughed. “That’s the billion dollar question,” he said. “I do think it’s going to require a lot of visionary thought. I’m not sure that my generation will be able to solve that — I’m 56 years old. There are probably people a lot younger than us who will be able to combat it, but I think online is going to be the new normal. It is going to be part of the way commerce works in the U.S. and around the world. We just need to learn to deal with that and fight for our piece of it.”  

SOME MANUFACTURERS FAVOR TWO-STEP DISTRIBUTION

Several HVACR manufacturers are taking stands against online sales and consumer-purchased equipment. Navien Inc. recently announced its support of wholesale distribution.

“Navien is committed to preserving the authenticity and integrity of the trade by ensuring all Navien products are only available to and installed by professionals, which ensures better served installations and, thus, satisfied consumers,” said Eric Moffroid, vice president of sales and marketing, Navien, in a news release. “Sales of Navien products over the internet do not afford the authenticity and protection that Navien expects. Navien has issued and will continue to issue stop notices to violating vendors and e-commerce channels and is prepared to pursue its remedies at law.”

Robertshaw Climate is another manufacturer taking a stance against consumer-purchased equipment. The company does not sell to end users, contractors, big box stores, or online retailers.

“We sell through the channel, not around the channel,” said John Brower, general manager, Robertshaw Climate. “Our commitment is to sell through the distribution channel. We believe the best, most qualified person to install a HVAC part is the professional technician. The best place the professional technician can get the parts and equipment is through a distributor.

“Two-step distribution provides a knowledge base that would not be widely available for the benefit of the end user,” he continued. “Manufacturers provide products and knowledge about those products to the wholesaler who can then disseminate that to the professional HVAC technician. With so many choices in the market today, the wholesale distributor helps by providing a knowledge base to assist contractors in making good selections for their customers. The thermostat market alone is besieged by a variety of manufacturers and models. Which one best fits the needs of the end user’s particular application? The knowledge provided by the distributor to the professional, whether at the counter or in a training session, is invaluable to the entire channel and cannot be replaced by a YouTube video.”

Publication date: 12/11/2017

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