The 2020 HARDI Summit, taking place Dec. 7-9 and entirely virtually this year, will feature a compact combination of keynotes, updates on a variety of recent events and perennial connections, and of course, hard data for distributors to pore over and absorb.
A quick preview of some of the data from HARDI’s market intelligence team led to a few questions for Talbot Gee, the HARDI CEO who is approaching 19 years with the association. Not attempting to plumb the same depths that the full report and the Summit itself will explore, these observations and questions served as more of a complementary warm-up conversation for the data side of the agenda for the virtual main event.
An Unusually Unsticky Year
One striking data point from HARDI’s data: About 26% of contractors reported switching from their primary distributor channel this year. Asked for a reason, contractors unsurprisingly offered product availability as the most common reason.
Gee referenced “myths and misperceptions” research from around 2010 that found 9% of the market is in play under typical circumstances.
“The contractor/distributor relationship is generally pretty sticky,” he said. “It really takes what we call a critical selling event to break that relationship — often, the distributor just messed up and another distributor was savvy enough to swoop in and solve the problem” and win that contractor’s business.
A situation where roughly triple the amount of contractor clients may be “up for grabs” to some extent highlights the unusual year (and opportunities).
“This is going to be the golden question for a ton of distributors: How effective can I be at trying to retain some of these new customers I acquired largely due to my just having a product that my competitors didn’t?”
Gee said that much of this year’s Summit will talk specifically about this situation and the exceptional difference that maximizing that kind of opportunity could have for distributors moving forward. For distributors who picked up that sort of customer, the challenge will come when their previous distributor gets that key part back in stock. What happens then, and how can a distributor shape that outcome?
Added layers of complexity: More and more contractors are hedging against reliance on a sole distributor, and meanwhile, many distributors may be picking up new customers, but they are customers who are not local or who cannot be called on and developed in the traditional ways for the time being.
Speaking Up and Sticking With It
Talking about more contractors switching distributors in these times raises a different question: If product availability is an issue all over, then is it really logical for contractors to jump ship to another partner that may be experiencing the same problems?
Gee pointed out that individual circumstances are often more complicated. The quality of the relationship up to that point matters; a current availability issue may be a last straw for some. On the other side of the counter, long-term relationships and loyalty can matter for distributors struggling to serve many masters.
“When there are those shortages or disruptions, you simply cannot treat every business you do business with exactly the same.”
In that sense, the contractors and distributors who were already prioritizing the value of longer-term relationships may have found themselves better protected against a rift. Contractors more naturally inclined to “bouncing around for the best deal,” as Gee put it, may ironically find themselves even more tempted to switch relationships when more established customers are given priority in a pinch.
One key, Gee advised, is a contractor’s ability to communicate proactively with a distributor. This can help the distributor avoid getting caught flat-footed and the contractor becoming unhappy with the service.
Gee sees a trend of contractors trying to have “that really tight relationship with maybe two really strong distributors.” Perhaps that grows out of dealing with pandemic-related shortages, or perhaps different sources for residential and commercial work makes sense. Maybe both factors play a role.
Such a relationship requires effort, especially in today’s environment, but Gee said the payoff is there.
“Those are the guys I would guarantee you are experiencing the greatest share gains this year all along the channel — manufacturer, distributor, and contractor.”
One other caveat as companies look toward a post-pandemic world: Not every new customer turns out to be a great catch. With such a large shift this year, some distributors will get into 2021 and consider that maybe they would rather not keep some of those new customers.
Gee says distributors have advanced in the science of evaluating customers over the last decade. Still, it may take some time next year to figure out the realities of a shuffled customer list.
“Where I’m curious,” Gee explained, “is how many distributors have been chasing that ‘white whale’ for ten years, and maybe just got them, and could now realize that it wasn’t as great of a gift as they thought it was going to be. We’ll have to see how that plays out.”
Commercial’s Five-Percent Hit
A preview of HARDI’s data points to the pandemic inflicting a 5% hit to the nonresidential side of HVAC distribution. This raises two questions: Can that sector catch up and make up some or all of that drop, and how will the commercial market in general look different coming out of COVID?
“If I’m in large urban centers, I’m rethinking my strategy,” Gee said with regard to types of applications. As many have speculated, traditional office space concepts will likely be altered, as will the associated projects. However, Gee mentions contacts in the Northeast and sees reconfiguration in some of that existing office stock as an opportunity as well.
“I do think there’s going to be plenty of service work for a lot of those mechanical contractors in the near term. It’s probably not the perfect work they’d love to be having all the time, but at least it’s something to keep the gears turning.”
Gee added that HARDI does see commercial retail space as having a chance at increased growth.
As for equipment that stands to benefit, Gee notes that IAQ was already a topic commercially “but now is going to go on steroids — we’ve seen it residentially, and we’re going to see it even more so commercially because there a higher liability, frankly, on the commercial side.”
What may be less apparent at first glance is the dovetail Gee sees between the much-discussed IAQ spike and a boost in the commercial controls market.
“Take things like more stringent fresh air and IAQ requirements that some commercial buildings are likely to have, and it’s going to up the technology required to manage all of that,” Gee said.
This dynamic and its benefits compound when it reaches ownership groups with multiple holdings and distributed portfolios. For them, the trend toward remote monitoring and maintenance as much as possible pays off even more.
As a result, Gee sees a commercial market that was already growing pre-COVID only accelerating more swiftly as a result of the pandemic’s influence.
“The only thing that will hold it up in the short term will be the building owners who are hesitant to release the capital investment” for it, Gee predicted.
In that sense, the trend’s specifics will vary and depend on geographic location for a particular distributor — or for a distributor who is considering expanding into the commercial and/or controls side.
That prospect will earn a significant discussion at the HARDI Summit, with a dedicated session exploring the commercial controls sector and how existing distributors might evaluate whether the time is right to enter that part of the business.
The effect of each area’s particulars led Gee to put in a word for the members services that HARDI offers to its distributors in the form of proprietary market analysis. That kind of intelligence, he said, can make a key difference for a distributor as it works to navigate and possible exploit pandemic-related market shifts.
That led the HARDI CEO to wrap up with some enthusiastic words about the insights and usefulness of the new State of the Channel report that will be discussed at the Summit and available for members to purchase.
“Instead of going off anecdote, or perception, you can actually use some hard data to say, ‘This is where we are. This is the target we need to hit, and if we do, this is where we should be in terms of share gains’ and things like that.”
Gee sees it as a critical resource on its own but also a prime jumping off point for individual members to pursue additional insights via HARDI consultation that are more tailored to an owner’s particular concerns and goals.
“That’s the really fun stuff,” Gee concluded. “I feel like we have such a better foundation for starting those conversations with distributors to make the most educated decisions possible for what can be very expensive calls that they’re going to have to make.”