Heating Help

In spite of this recession, one thing we can count on is that it will get cold next winter. I say this as I watch just about everyone in the traditional chain of distribution cut back on what they’re willing to carry in inventory. They’re all expecting the next link up the chain to have the stock when we need it most. Why should I take the risk? Why should I lay out the money? Let the other guy do it. Hey, he’s the wholesaler, or he’s the rep, or he’s the manufacturer. It’s his job. And besides, that’s worked in the past.

            It’s not working this year. 

            Winter will arrive soon and things will break down, as they always have in the past because Mother Nature doesn’t observe recessions. She doesn’t care that people don’t have the money to do preventative maintenance. She will break things, and then we will enter a new sort of market, one that most of us have never before seen. It’s going to be a market where people will be without heat for extended periods of time because there won’t be enough inventory to go around. It’s going to be a market where contractors won’t be able to honor their service contracts because you won’t have the parts that they need. There will be lawsuits over this. Watch.

            We’ll enter a market this winter that we haven’t seen since the days of World War II. During those years, the metal was going to armaments rather than to pipe, valves, fittings and boilers. The heating manufacturers shifted their production to the war effort and that saved most of them. Contractors and wholesalers suffered because the wagons were empty, but central heating was still relatively new in those days, and customers didn't expect the sort of instant service they've come to expect today. This winter is going to bury a lot of companies. Watch.

            And it’s not just the heating industry that will suffer through these days ahead. A carpenter friend told me, “I do a fair amount of finish carpentry. Local yards aren't stocking nearly what they were stocking two years ago. Things like flooring, stair treads, and railing systems that they would have had on hand, they no longer stock. In a couple of instances, even the wholesalers didn't have the stuff, so it's coming straight out of the factory. And some of the delays getting stuff can set a job back several days, even weeks.”

            Finish carpentry can usually wait, but there’s a great urgency to heating when it’s cold outside.

            This is from an installer who works for a large oil company on Long Island. “I’ve been having a hard time locating some equipment on the day of an installation. A lot of our work comes in the day before, or first thing in the morning. It’s all emergency work.  Last year, I could do one-stop shopping at the closest supply house. Now I have to drive as far as 50 miles to get a specific boiler or water heater. And relatively speaking, Long Island has a glut of supply houses. I can only imagine how it is for contractors in more rural areas.

            “They laid off quite a few workers from our company due to the slowdown, but for the most part, they have what we need each day. But just walking around outside, I can see that the pipe racks are only a quarter-full. Inside, the boilers are now stacked two high, where they were always stacked four-high. It’s going to be a fun winter.”

            A contractor in Michigan told me, “There’s a reason I purchased six, wall-hung, gas-fired, unvented heaters last winter. I come across folks with an old furnace. There are no parts available anywhere, or the parts are backordered for weeks. I give them a CO detector and install the heater temporarily to keep them from freezing until we can get it fixed. The customers are very grateful. We saved a few houses from freezing up that way.”

            But what if the CO detector doesn’t work?

            Watch as we move backwards this coming winter.

            I asked a wholesaler buddy for his thoughts on all of this, and he said, “As a major heating-only supply house, we are still maintaining significant inventory amounts in spite of the economy. We are selling a ton of modulating-condensing boilers at the expense of the cast-iron market. It is our receivables that scare us a bit right now.  Current receivables now equal monies over 90 days. It does make paying for truckloads of equipment a bit difficult.”

            Watch as one thing feeds off another. No inventory means no sales. No sale means no money to pay the bills.         

            A friend at a big American boiler manufacturer recently said to me that they're building far less this year because wholesalers are stocking far less. They no longer want to play the game where every link in the chain pushes the responsibility back to them. I asked him about what was going to happen when it gets cold this winter. "It’s going to be a shock to a lot of people,” he said. “The wholesalers and contractors have no idea what’s involved in producing boilers. They think we can just pull this stuff out of our butts. They're wrong."

            For the past six months or so, I’m watching manufacturers slip into four-day weeks, or weeks-long furloughs. I’m watching them lay off good people, some temporarily, and others permanently. They’re following traditional business models that tell them to stay liquid and to not build inventory when demand is low. That might make sense for people supplying lumber to finish carpenters, but this is the heating business. It’s going to get cold next winter, no matter what we do, and things will keep breaking down, even though new construction is off.     This is from a contractor in Northern Alaska, where people’s lives are at stake when the heating breaks down. “I am making choices about what to stock on my truck for the coming winter season, and have decided that I cannot stock everything for everybody. Gonna have to go with my strong suite.”

            But some will see the opportunity in this, and those are companies – contractors, wholesalers, and manufacturers - that will thrive and grow stronger in the days to come. Watch as company- and brand-loyalties shift this winter. Watch as contractors begin to buy whatever is available to them. Just watch.

            I was chatting with Taco’s John White and I mentioned what my friend at the boiler manufacturer had said to me. Taco sells circulators to that boiler manufacturer.  John said, “What I have been telling people is that, in all my years in business, there has always been a ‘Guru,’ so to speak - someone such as Jack Welch or Tom Peters, someone that so many people relied on to tell them how to run their businesses.  I never paid much attention to any of them. In this environment, there is no one who knows more about how to run my business than I do. There’s too much uncertainty in the world, and things are changing.  And this is the same for everyone, so old tricks like inventory manipulation, with the intent of pushing the burden back on the manufacturers, is really a self-centered approach, and not a solution that is healthy for anyone.” And then John added, “Our friend in the boiler business is pretty much right on (about not being able to instantly pull products out of butts). I just don't want to prove him too right while my competitors take my market share.  That's why we're beginning to build some inventory.”

            That’s smart business. It’s folly not to see that. Company- and brand-loyalties are going to shift this year to those who have the inventory. You’ll see it happening in the coming weeks. It’s going to get cold. That happens every winter, and there’s a great urgency to heating. Your customers won’t wait for you. They’ll go to the people who have the product, and they’ll stay there.  

            You can’t sell from an empty wagon.