This is shaping up to be a challenging year. A good relationship with your distributor will make it less challenging. Here are five reasons why.
1. Demand is StrongWhile few, outside of the Service Roundtable, expected 2020 to be a record year back in March, it turned into one. This shows the resiliency of the air conditioning industry. It is also a reflection of a peak year, 15 years earlier. Finally, we had a residential construction boom as people fled locked down, burning cities and apartments for suburbs and yards.
We expect 2021 to be nearly as good as 2020 in terms of replacements and a little better in terms of revenue. Residential new construction is projected to be even better.
You need a good partnership with your distributor to keep tabs on what is happening in your market, related to demand and to keep you well-stocked. If you have never before considered vendor managed inventory, this is the year to take a look.
2. Costs are RisingAcross the board, manufacturers have signaled a 5% price increase. Of course, that will be an average increase. Negotiate with your distributor to avoid the increase if you can. You can offer purchase growth, floor plans, more timely payments, and so on. If your distributor cannot or will not bite, consider offsets, such as greater co-op funds with fewer restrictions.
3. Shortages are ExpectedFeeding the cost increases is shortages across the board. Manufacturers are reporting supply chain issues at the commodity level and for key inputs, such as computer chips.
The shortage of semiconductors affects a range of industries, starting with the auto industry. Automakers have already experienced plant shutdowns and furloughs over chip shortages. HVAC manufacturers will be fighting with automakers for semiconductors.
A strong distributor relationship will help keep you supplied this summer. If your distributor needs to make allocation choices, you want to be at the front of the line.
4. We are Experiencing Regime UncertaintyRegime uncertainty occurs when people cannot be certain what the government will do. We have that in spades, starting with authoritarian governors who seem to revel in the control the virus has given them. It is no better in Washington where there are few checks and balances remaining and a president who seems willing to order the country around by executive order decree. Making it worse, this does not appear to be a business-friendly administration or congress.
It can be a challenge to keep up with the latest hair-brained schemes coming from a woke government. After all, you have a business to run, customers to satisfy, and employees to recruit. Yet, you need to know when something will affect your business. Your local trade association is one source of information. Your distributor should be another.
5. Next Year Will be More ChallengingTax hikes are expected to pass. Based on the president’s current plan, they will be brutal. Hopefully, they will not take effect until 2022. However, that makes 2022 more challenging. In addition, 15 years ago, the industry started a five-year slide where shipments fell 47% from their 2005 peak. Because of the coronavirus and lockdowns, enough replacements were deferred from 2020 to keep 2021 strong, but that will not last. Replacement market demand reductions are baked in for 2022.
Your distributor can help you make aggressive plans for next year so that you continue to grow while your competitors do not. To make it through the next few years, you must be aggressive. You market harder when it becomes more difficult to find a customer.
Along with a good distributor, you need a strong contractor group like the Service Roundtable. For only $50 a month you get unlimited downloads from the industry’s richest content library, support from the industry’s largest network of contractors, and savings from the industry’s biggest buying group. Learn more at www.ServiceRoundtable.com or call 877.262.3341 and ask for a tour.