Facing Competition From All Sides

In the HVAC business, it is tough enough dealing with all the normal day-to-day things, such as weather, lack of good help, high cost of doing business, advertising, and many other things we all know about. However, there are two things we would not need to deal with if all of us in the business would get together and take a stand. The things I speak of are wholesalers straddling the fence between wholesale and retail sales and the manufacturers selling off their excess inventory for surplus.

How do we spot these types of businesses? Listen and watch when you are at the wholesaler. Does the counter person screen his calls by asking who is calling and what company they are with? I’m sure most of us have run across customers who seem to know our cost for a part we are trying to sell. How do you think they got that information? They simply called your wholesaler and asked. It’s that simple.

How many times have you been waiting at the parts counter, seen someone come in that was obviously not a service tech, pay cash plus sales tax, and walk out the door with his order? Did the counter person bother to ask who this person was, or with what company?

Regarding the manufacturers, how many times have you seen ads advertising brand-name furnaces and a/c equipment at prices equal or below what you are paying for the same equipment? If you would investigate these ads, you will find that the merchandise is surplus — equipment that is no longer produced by the manufacturer because they are now producing a newer model.

When a wholesaler sells to both businesses and end users, they become our competitor. When we continue to buy from this wholesaler, then we simply continue to fill their coffers, which allows them to continue to compete with us.

There is nothing wrong with competition, but let’s keep it on a level playing field. When a wholesaler competes with us, there is no level playing field. When a manufacturer sells their outdated equipment on the surplus market for 10 cents on the dollar, they are competing with us and taking away from us our potential customers.

Had the wholesaler and the manufacturer not participated in this behavior, they still would have made the sale. The end user and the surplus buyer would have to come to us to make the purchase and both the wholesaler and the manufacturer would have still made the sale and we would have made a little profit.

To stop this behavior, a wholesaler needs to post a “Wholesale Only” sign and make it policy that each customer is scrutinized to the extent they are proven to be a legitimate business.

I would think, at the very least, the wholesalers would want to protect themselves by making sure their customers are properly insured. If a wholesaler’s customer makes a catastrophic mistake and a huge lawsuit is brought, the wholesaler is in line to be sued as well. After all, they sold the parts, and an argument could be made that they should have had the wherewithal to determine if the person was competent or, at the very least, a legitimate business.

I cannot understand why a manufacturer would want to sell its excess inventory on the surplus market. Why not use the distribution chain that is in place and give a discount to the wholesaler, who in turn could pass that on to their customers, and we could pass it on to our customers? A win-win situation for all. Or, send some of that excess inventory to various schools to be used in training new HVAC techs. This could result in a nice tax write-off for the manufacturer. In no case should a manufacturer attempt to compete with their loyal customers.

What can we do? If you suspect your wholesaler is selling to the end user, you should confront the management about it. Tell them you don’t appreciate it and suggest they screen their customers. If that fails, you may want to take time to advise other businesses, like yours, of the wholesaler’s obstinacy. After all, they are hurting everyone, not just you. If all else fails and the wholesaler proves to be indifferent to its day-to-day customers and is only concerned with its bottom line, then the only solution is to find another wholesaler who does care about its customers.

Granted, it may be inconvenient to go to another wholesaler, you may pay a little more for the same parts, and you may have to change brands, but you must take into consideration what it is costing you not to do so. If greed is the wholesaler’s main motivator, then once they start losing customers that spend thousands of dollars a month, maybe they will wake up and rethink their policy.

I suspect the manufacturers will be more difficult to reach with our message. Losing only a few dealers would not create a very big dip in their balance sheets. Perhaps by writing letters to both our distributors and the manufacturer, this can alert them to what their behavior is doing to their dealers. Showing up at shareholder meetings and voicing our concern may help. If all else fails, all that is left to do is start shopping for a new brand and take the time to do some research and ask the question, “What do you do with your surplus inventory?”

Daniel L. Kohlman, Owner, Discount Heating and Cooling, Indianapolis, IN

Publication date: 06/10/2002