What's More Important, Sell-In or Sell-Through?

This is how JP Morgan Equity Research distinguishes between AHRI Unitary Shipment reports and HARDI's Monthly Sales TRENDS Reports. Shipments are "sell-in," while HARDI member sales are "sell-through." I believe rightfully so, we've found JP Morgan devotes more attention and analysis to "sell-through" than most of their consultant and analyst counterparts. However, right now, we have to consider a vast array of factors if we hope to come anywhere close to understanding what's actually happening in terms of residential and light-commercial unitary equipment sales. Repair vs. replace, inventory levels, new construction forecasts and, once again, refrigerant type considerations must all be carefully evaluated when trying to determine why, for example, AHRI unitary shipments dropped a percent while HARDI member sales grew 15 percent. Undoubtedly, this additional layer of analysis, finally taking into account distributor activity, has bolstered industry forecasting by members and manufacturers who realize the value of such data and what it could ultimately mean to their businesses. That being said, it's still not clear enough what is actually happening month in and month out with unitary equipment sales … at least not yet.

There are few correlations with much of anything to use heating equipment sales as a leading indicator of industry or distributor growth. They are smaller ticket, relatively less-discretionary products with less variance in options, features and other characteristics when compared to split-system cooling equipment. Do not, however, interpret this as diminishing the value of furnace and boiler sales, but cooling equipment is a better leading indicator, providing our distributors with grounds for more fact-based or knowledgeable purchasing and sales strategies. AHRI's Unitary Shipment report provides a national aggregate of cooling equipment shipments broken down only between central air conditioners and heat pumps, and by capacity. This gives no insights into mix shifts in sales by efficiency level or the equipment's design by refrigerant type. In 2011, these two factors will have the most direct impact on equipment distributors' profitability, yet to date in our industry there has been no aggregated tracking of such information that all HVACR distributors could see. I am proud to announce that this is about to change.

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HARDI's new monthly Unitary Distributor Sales Report is the industry's first to provide a unitary sales breakdown for cooling equipment by efficiency level and refrigerant type segmented between ducted and ductless systems. Further, this new, regionalized report allows HARDI distributors to truly benchmark unitary sales performance. Just imagine how powerful this information would have been with an historical baseline in place before the massive expansion of the 25C residential tax credit in 2009, or at the beginning of the regulatory phaseout of R-22, or better yet before the 2006 shift to 13 SEER minimum standards. Admittedly, HARDI and many of our members should have been tracking this kind of information for the last decade, but since we can't go back in time, let's focus on creating a new reporting standard and distributor tracking processes that will serve us well into the future. If any distributor member who sells unitary equipment (which would be about three quarters of the HARDI distributor membership) does not have his or her mind racing at this point with potential uses for this kind of data within his or her business, I urge you to call me directly at 614/345-4328 ×24. Obviously I'm having a tough time checking my enthusiasm for this new report.

For the rest of you, of course, I welcome your calls as well, but let me provide a few thoughts on exactly how valuable this information could be to your company and address some of the challenges you may find when you begin reporting this information. I see immediate values of this new report aligning with the four major questions for 2011's equipment market:

• Mix Slide: 2010 was bolstered by an historic percentage of high-efficiency system sales. This year, 2011, won't be about if that percentage will slide, but by how much. No other aggregated data will tell you this but ours.

• R-22 “Dry-Shipped” Impact: Again, the question isn't whether there will be an impact, but rather how big will it be? There is no uniform forecast for this market's size in 2011 (though HARDI will be presenting one in mid-February), and while AHRI will include these units in their shipment reports this year, it certainly won't be regionalized and may not segment the information at all.

• Repair vs. Replace: Granted, we aren't ready to collect and track distributor compressor sales yet, but by capturing distributor unitary sales, we will have a more reliable aggregated data baseline from which to work. This ties back to No. 2, because a huge question for 2011 will be what percent of replacement compressor sales are converted to dry-shipped condensing unit sales.

• Regionalization: While government and efficiency advocates think only in terms of regulating and mandating unwise and unnecessary regionalized standards for unitary equipment, there's a dearth of aggregated regionalized sales data available to most distributors. For example, most of the country experienced record heat in 2010, while the West and Northwest suffered through unseasonably cool temperatures. What many perceived as a potential boom year for cooling equipment sales in early 2010 masked a brutal year for much of the West. Understanding to what degree those regions lagged would have been powerful information.