Inside HARDI’s “State of the Channel” report with Tim Fisher

HARDI, the industry association representing distributors, earlier this year published its 2023-24 State of the Channel report, which includes HVAC industry trends, market and supply chain outlooks, contractor survey results, and more.

• We got a peek at the highlights, and asked Tim Fisher, HARDI’s Director of Market Intelligence, some questions.

The report noted that 66% of equipment sales in 2023 were through independent distributors. Will that mix change as e-commerce and other online channels grow?

• In our Voice of the Contractor survey, we asked contractors where they buy products and what’s changed in the last few years, and we haven’t seen an overwhelming increase in the amount of those reporting purchasing from online marketplaces. 

• That skews a bit if you start looking at younger contractors between ages 25 and 40. It’s not overwhelming, but it’s a concern. There’s an increase, and we’re talking about it.

How do you think about the direct-to-consumer landscape?

• I don’t think OEMs will move away from independent distribution. If a distributor has been performing, there’s no incentive to, but I think they’re beginning to explore other ways of getting their products to market. 

• I think direct-to-consumer is more of a startup model. Companies are doing it — there’s Quilt, which appears directly to the consumer, and then fulfillment is through dealers. 

• I suspect that major manufacturers will certainly watch that model, and, if any companies see success, replicate it in some way. Maybe they buy it or do it in-house. But at this point, it’s sort of a wait-and-see. 

Will consolidation have a meaningful impact on the contractor-supplier relationship?

• Some distributors have said that it’s going to be bad for their business because there’s a greater degree of price shopping that’s pushing down margins. But there’s also a benefit. We hear from other distributors that the contractor who wasn’t as professional in the past is now a better customer.

• In the longer run, it’s probably more of a net negative for distributors, unless I’m missing something. With fewer contractors to do business with, bargaining power shifts more in their direction. But does it dramatically hurt distributors? I don’t think so. There’s distributor consolidation, too. 

The report mentions a correlation between existing home sales and AC shipments. Why is that?

• The National Association of Home Builders (NAHB) published a study that showed people who purchased a home were more likely, at the time, to spend $5k in excess on investment in that property. I believe there’s something around the point of sale [timing] that explains why we’d see some relationship there. 

• Also, that’s in a market where there’s a larger base — the majority of homes in America have an air conditioner. If you look at Mexico, maybe 15% of homes have an AC unit. So you might not see the same relationship there. 

What are your thoughts on the economy, looking ahead, as it relates to the industry? 

• For economic growth, it’s important that there’s stability and clear rules of the game. In this industry, the lack of predictability of regulations in the last couple of years isn’t great. There are downstream effects there. But the U.S., in relative terms, is doing well. Now, can there be improvements? Yes, totally. 

• I don’t think the focus on decarbonization [in the industry] goes away, nor should it. There is clearly a real effort around optimizing what’s installed in buildings around the country to lessen the load on the grid — and that’s good for the industry. The amount of money being dumped on incentives to get people to upgrade means more sales.

Any thoughts on the election’s impact on the Inflation Reduction Act (IRA)?

• I wouldn’t anticipate industry groups cheering on the rollback of HVAC regulations, especially if there’s a risk of the opposite party taking power 4 years from now and undoing that rollback. 

• Stability and predictability matters. If Trump wins and you get four years of Republican governance, and they repeal, and then you have a Democrat in office after, they might say, “We lost four years. We need to accelerate again.” 

• That’s no good. In the interest of preserving some stability, I’d suspect that maybe there’s a middle ground there. 

When thinking about the rest of 2024, what’s one thing contractors should know about the refrigerant transition?

• My advice to contractors would be to lean into A2L products, even if comparable 410A products are still available. A2L products are the future, and while they’re more expensive than 410A, few homeowners will reject them based on cost alone if they understand the fact that 410A products will be in limited supply in the future.