TEXAS TWO-STEP

“HARDI’s mission is to make wholesale distribution the channel of choice for HVACR manufacturers and contractors,” Gee said. “If we’re not doing that, we’re eroding our own value, and we don’t have much reason to be getting together every year.”

To meet these needs, Gee challenged the entire industry to ensure two-step distribution remains the HVAC supply channel of choice.

“For the suppliers in the room, you have a new directive,” Gee said. “You have an obligation to tell us when wholesale distribution is not serving your needs. This is not a request; it’s an obligation.”

While each link in the supply chain may not agree 100 percent on the explanation or rationale behind every decision, Gee insisted wholesale distribution must be alerted if and when it’s failing to meet the industry’s demands.

“How can we make this channel the only one you want to go through?” he asked. “We don’t want most of the channel; we want it all. What do we need to do to be able to accomplish that? If you’re considering going in another direction, tell us why. Tell us what we need to do better. That is our mission, and will remain the cornerstone of our organization going forward.”

2019 ECONOMIC OUTLOOK

Alan Beaulieu, president, ITR Economics, provided an economic forecast for attendees on the conference’s third day.

The moral to his presentation: Distributors should not expect a repeat of 2018 in 2019.

“Consumers are going to be price conscious in 2019,” he said. “Housing starts will continue to slow, and existing home sales are expected to plummet. That means there will be fewer remodeling opportunities, and consumers may be less likely to spend serious money with you [in 2019] than they were in 2018.”

Beaulieu said 2019 is shaping up to be a good year for HVAC owners to work on their businesses rather than in their businesses.

“Interest rates will continue to climb, and inflation is always a concern, so I suggest you borrow as much as you can now to invest in your company,” he said. “If you want a new CRM, do it in 2019. If you need to upgrade your website, do it in 2019. If you want to add some more marketing, do it in 2019. Use your time to prepare for the fallout that looms in the 2020s. Figure out what you need and who you need to be busier than you are today, and spend the money to make it happen.”

Beaulieu said this additional spending will better prepare distributors for a looming recession, which he anticipates taking place in 2022.

“GDP is flattening out,” he said. “As it flattens, this will have an impact on businesses, consumers, and commodity prices. In 2021, the rate of growth will slow down considerably. This will lead to a significant recession by 2022. This downturn will be significant, though it won’t be as significant as 2008-2009 was.”

While President Donald Trump’s Tax Cut and Jobs Act provided a short-term boost in 2018, Beaulieu believes the tax legislation will not have a lasting effect.

“The tax change will not provide a boost in the economy for any length of time,” he said. “I like many of the changes in the tax code, such as the reduction in categories, and some people are seeing lower rates. Honestly, it’s helped some people and hurt others; it just depends on the tax bracket you’re in. Regardless if it’s a personal win or loss, in the end, it will all balance out.”

For those considering selling an HVACR distribution business, Beaulieu suggests waiting six or seven years.

“With all this talk of a recession and a Great Depression in 2030, the best time to sell a business would be somewhere around 2025,” he said. “Make sure you pull the trigger before 2029, as there’s typically a three-year earn out, and you don’t want to have your earn out during that 2030 Great Depression. And, I’d suggest you sell it to someone you don’t like, as it’s going to be worth much less in the 2030s than it was in 2025. Then, aim to buy it back in 2033, when its price has hit the floor. Make the most in your sale, buy it back cheap, and then enjoy the economic recovery of the late 2030s.”

THE ONLINE WORLD

As you would expect in a gathering of distributors, the session on Amazon and the future of distribution was very well-attended. Ian Heller, president of Modern Distribution Management, talked about how Amazon was disrupting the industry. He stated there are three things to infer about how Amazon does business, which should better help the distributors to prepare for the competition:

• Amazon is going to do something that helps it leverage other people’s money. The company is innovative and has built ways to use money from its business partners. This goes back to the very first transaction on Amazon in 1995, when a science book was ordered. Amazon did not have this product, so it went out, bought the book, and shipped it to the customer.
• Amazon is going to scale with technology, not with people. It tends to focus investments around things that provide it a long-term cost advantage and don’t require a head count to leverage. It wants to do things without getting people involved.
• Amazon is going to choose strategies that avoid antitrust risks. This is a huge issue for Amazon now. The only entity in the world large enough to stop Amazon is the U.S. government.

“You need to plan your strategy around what Amazon business strategy is going to be,” Heller said. “Amazon is a very disciplined, strategic planning organization. It is more about what you decide not to do instead of what you decide to do.”

AWARDS

At the conference, HARDI also presented the 2018 awards to select members for its advocacy, benchmarking, and talent pillars. Recipients were chosen based on engagement with the HARDI organization in the respective areas and were presented the awards on stage during a general session.

The recipients of the Advocacy Pillar Award were Doug Wight, Refrigeration Sales Corp.; Kevin Parsley, ACR Supply Co.; and Brian Blaushild, Famous Supply Co.

The recipient of the Benchmarking Pillar Award was Don Wile, Johnson Supply. Morsco won the Talent Pillar Award.

Publication date: 1/14/2019

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