New Year, New Business Climate

As we close another year and move into a new one, the HVAC industry has again proved to be resilient in challenging economic times. At the 2011 AHR Expo held in late January, the show attracted a record-number of attendees and helped instill a renewed sense of optimism throughout the industry. The momentum continued throughout the year, despite several factors that continued to impact the industry.

2011 brought us an uncertain economy, rising prices for commodities such as steel, copper and aluminum, and more government regulations. At the same time, the federal government eliminated a $1,500 tax credit for high efficiency systems at the end of 2010.

A challenging business climate is nothing new for the HVAC industry. In fact, most successful businesses in our industry are now skilled at adapting to changing economic dynamics in order to be competitive. We believe that Rheem's vantage point as a manufacturer of heating, cooling and water heating solutions provides us with some unique insights for distributors, contractors and consumers in 2012.

Inventory Management and Diversification: Key for Distributors

While today's economic environment has shown some signs of improvement, HVAC distributors will continue to face a tough business climate in 2012. The challenge always is to effectively manage inventory levels and product mix to maximize turns and avoid stock-outs. As working capital gets stretched, it is important that distributors and manufacturers communicate more effectively than ever. There must be a level of trust in the supply chain, which extends all the way back to the component and raw material suppliers. Transparency in manufacturer's supply and contractor's demand are the keys to minimizing cost in the total supply chain.

Another opportunity for distributors, especially in these tough economic conditions, is to consider selectively broadening their product offerings to grow their business. For instance, there have always been natural synergies between the plumbing and HVAC industries, and water heating products, such as tankless and heat pump water heaters, which align very well with an HVAC wholesaler's expertise. Heat pump technology — already familiar to HVAC contractors — enables water heaters to be more than twice as efficient as standard electric water heaters. And tankless water heaters use heating technology similar to what is found in a typical gas furnace; so it's relatively easy for HVAC contractors to learn how to install and service these innovative water heaters.

Contractors: Using Technology to Get Ahead

We all know that contractors are critical to the success of our industry. They are the link that connects manufacturers and distributors to homeowners. They have to balance the real-time demands of homeowners with the constant flow of new product information from distributors and manufacturers.

Going forward, it will be important to provide contractors with the right tools to educate homeowners on product features, attributes and benefits. That's because an increasing number of homeowners are preparing for major purchases by combing the Internet for information and doing comparison shopping before contacting local sales and service providers. Armed with information, consumers are likely to quickly dismiss contractors who they deem to be out of touch or uninformed in favor of those who demonstrate that they have the expertise that brings value and trust to the transaction.