Cold Weather, Hot Sales

A rise in residential new construction helped boost sales in the summer and is expected to continue into the heating season, says HARDI senior economist Connor Lokar. Housing starts in the 12 months through July were up 8.5 percent compared with the same period last year.

“Residential activity is a leading indicator for the U.S. economy,” Lokar says. “The fact that these trends are gaining momentum bodes well for the economy looking into 2017.”

Loftus said sales predictions are right on track so far. “If you just look at the longer-term Air-Conditioning, Heating, and Refrigeration Institute (AHRI) shipment reports, then the baseline forecast would be in the 4 percent range,” he says. “News would be some reason to vary from that; there isn’t. The last couple years’ growth has been between 3 and 5 percent.”

The warm 2015 winter may depress sales from suppliers, he adds, but not necessarily from distributors. “The TRENDS inventory numbers seem to indicate that inventories are under control in many of these important regions,” Loftus says.

“We’re anticipating a definite increase over last year just because of what our economist has been telling us and because of the uptick we’ve seen throughout the year already,” says Lauren Roberts, vice president of cfm Distributors Inc., Kansas City, Missouri. “We’re at about 7 percent over last year as of now, and we plan for that to continue. We’ve heard it’ll be a colder winter in our area, so that should help. Consumer confidence and pent-up demand are in play, as well.”

Be Prepared

Distributors are taking several steps to prepare for the heating season, including stocking up on furnaces, heat pumps and other heating equipment.

“We’re ramping up our inventory for furnaces and heat pumps to get ready for this season, more so than in past years because of manufacturer shortages that have happened in the past six months or so,” Roberts says. “We’re trying to work with our manufacturer partners to help take inventory out earlier this year so they can move on and ramp up production of other, newer products and products for the next season sooner than they would’ve been able to before. That’s a new strategy we’re working on, but we’re also stocking up to make sure we don’t face any major shortages in the heating season like we had industry-wide in the cooling season because the forecast was just blown out of the water for everyone.”

Dale Norton, director of sales, Meier Supply Co. Inc., Conklin, New York, says building up inventory has been a big part of preparing for the heating season. “Last winter was one of the mildest winters we’ve ever had, which isn’t conducive to equipment sales or service calls,” he says. “This year, we’re hoping it’ll be a bit more robust. And the most critical part is that you have to have the product available. It’s just like the first hot summer day — you never know when that first cold blast will hit, and it could be in October or maybe November, so your inventory has to be in place way before both of those. And there are different styles of furnaces and trends that are shifting from some of the older furnaces to the newer style, mostly driven by the higher-efficiency models, at least in the Northeast.”

Training Is Key

To help prepare the entire supply chain for the heating season, many distributors are increasing their training and marketing efforts.

“At Meier Supply, one of our primary value-added features is training,” Norton says. “It plays an important role in helping build our customers’ confidence. We have a full slate of heating-related training programs put in place, so we’re promoting them and talking to customers about them, whether they’re specific to our brand or something along the lines of some generic heating controls. It’s not all proprietary. Another thing that helps drive that all is the fact that the technology is increasingly complex. So, it’s important for us to provide the training and even more important that they embrace and participate in it.”

Roberts says they are concentrating on training as well as marketing.

“We’re ramping up and scheduling a lot of customer-appreciation events, getting them into our stores — just having free lunches, open houses and that sort of thing to get their buying habits established and make sure they’re feeling love at the same time that they’re coming into our locations to see what we have to offer,” she says. “We also are increasing our marketing efforts to support our customers as they get ready for fall tune-ups and heating season.

“For training, we do product-based on the technical side — troubleshooting, installation training on products — and then we do that on our new products,” Roberts continued. “We’ll do some technical-based training on refrigeration products, and then we do some business training, too. So we’ll do a job-costing class at some point this winter, and we’ll do a load-calculation duct-design training class that is more on the application side of things. We are in the midst of doing a business consulting training for our customers, as well — accounting, financials, sales, and that kind of thing.”

She adds that they also offer a turnkey direct-mail service for their customers. “We’re building our brand and advertising on TV in our major markets, and online digital advertising on major websites and news outlets as well as major markets, so we can direct traffic to our dealers.”

Variables in Play

Of all the things that can affect furnace sales for distributors, perhaps the most unpredictable is the weather, though fuel costs play a role, too.

“A variable that would drive sales is higher fuel costs,” Loftus says. “This stuff is like buying a car; there are more pickup truck sales when gasoline is $2 per gallon and more Prius sales when gas is $4 per gallon. Modest energy costs are not inspiring a drive to higher efficiency.”

Roberts agrees that the current lower fuel prices may put a damper on high-efficiency furnace sales, at least temporarily. “There’s not as much of a push toward the higher-efficiency purchases because fuel prices are low, and we’re seeing a lot of that, too, just having a lot of baseline-efficiency sales — 80 percent AFUE furnaces and 13 SEER A/C units.”

However, Norton begs to differ and believes that low fuel costs do not necessarily dissuade people from installing high-efficiency furnaces.

“When people get burned once or twice, they’re not going to let it happen again,” he says. “I get that fuel prices are down, but I don’t know if that affects the long-term thought that it’s going up. And heating your house is expensive.

“Dealers need to know how to sell the return on investment to the homeowner so they realize and understand what they’re going to get back by making an investment in a higher-efficiency furnace,” Norton continues. “Our ratio of 80-plus AFUE furnaces to high-efficiency furnaces has changed and turned around completely in the past 10 years, and a lot of that is driven by the fact that a condensing furnace is no longer that much more expensive to be installed compared with an 80 percent AFUE furnace. They’re much more affordable than they used to be, and even with the fuel prices, people are much more aware of what they’re investing in.”