Industry Insights COVID-19 Survey: Key Findings

BY Sarah Jilbert, Brian Loftus, & Tim Fisher
3/24/2020 - HVAC Market Intelligence , COVID-19

We partnered with Industry Insights to get a feel for the current state of wholesale distribution during the uncertainty of the Coronavirus pandemic. Thank you to our members who participated and provided key insights last week into how this virus has affected them and their business. We combed through the data to pull out findings that pertain directly to the HVACR industry to help you proceed through this time. View Industry Insights' Executive Summary, and read on for details on how HVACR businesses have been affected, the financial impact of the virus, and best practices from peers.

How Businesses are Affected

Most HARDI members responding to the survey are feeling the pinch from COVID-19, whether due to employee absenteeism, supply shortages, or a decline in sales. Respondents indicate that employee absenteeism is being driven by a combination of factors including school closures forcing employees to stay home with their children, and precautionary measures taken to slow the growth of COVID-19 infections. Unless a position is such that an employee can perform their responsibilities remotely, survey respondents indicate that employee absenteeism has led to a reduction in normal business activity, where ordinary business functions – like sales calls – have been indefinitely suspended. Likewise, many businesses have reduced their normal operating hours and anticipate the need for payroll reductions if things worsen.

Outside of the staffing-related issues created by COVID-19, respondents broadly indicated that if their sales numbers have not been affected yet, they do anticipate disruption within the next 45 – 60 days. 53% of distributor respondents reported they have already experienced a negative financial impact from the virus. Of those respondents who have seen a decline in business activity, they indicate that the drop-off is being driven largely by lighter walk-in traffic and a dip in demand for service contractors. Nationally, homeowners are wary of letting contractors enter their homes which has led to a reduction in both system installs and service calls. Delays in new construction projects – whether due to government mandate or private decision-making – are having a similar effect on contractor business. The decline in contractor business and loss of service projects, as one respondent writes, “directly correlates to our reduction in sales.” 

On the product-supply front, several respondents indicated that they’re facing major delays in getting products from Asia, with another commenting that their order of ductless products has been delayed by 4-6 weeks. This trend does not seem to hold for all HARDI members, with several reporting that their supply chains are currently in a strong position. Nevertheless, enough respondents remarked on experiencing supply disruptions that it would be worth HARDI members watching their supply lines very closely over the coming weeks (and potentially months).

Cash Flow

One of the critical issues identified by Industry Insights in their COVID-19 Impact and Implementation survey is the concern by members about their cash flow. 

More than 50% of HARDI distributor participants disclosed a negative financial impact on the survey.  More than 40 percent of the participants were mildly concerned about the impact of the virus on the long-term viability of their company, and almost 12 percent were moderately concerned.  5 percent of participants had major concerns about the impact this could have on their long-term viability.  One of the oft-mentioned concerns was customers being slow to pay their bills.  The following are some sample comments:

  • I think that the biggest impact distributors will see is in in Accounts Receivables. As the smaller contractors’ cash flow gets tight, they're going to opt to pay their employees first. In a few weeks or a month, I expect to see the flow of incoming cash to be affected.
  • We are experiencing major problems with A/R. Customers pay only if they really have to.
  • Will customers pay their bill?

Even before the COVID-19 crisis we were concerned about customer financial stresses.  Our monthly sales survey TRENDS had identified meaningful increases in the Days Sales Outstanding (DSO) ratio in December and January.  This ratio has an annual seasonal pattern, so it is best to evaluate on a month-to-month basis.  The month-to-month comparisons have been flat-to-down during this expansion until 2019 when the DSO tide turned.  Then December was up by 3.6 days to 49.6 days and January by 2.2 days to 50.7 days.  As a frame of reference, a big monthly change would be 1.5 days which would generally be offset over the next couple of months.  These back-to-back months were already indicating some financial stress.  We were very curious about what DSO would be with the February report.  The only curiosity about the March DSO is how much higher it will be than March of 2019.   

Technology Differentiator

It’s common knowledge by now that the CDC recommends a social distance of 6ft between people to prevent the spread of COVID-19. Some distributors are taking special precautions to go above and beyond the 6ft guideline and limit face to face interactions altogether. One survey respondent stated, “All outside face to face contact has been shut down in all locations. Business is open and running, but counter experiences are carried to dock for pick up.” Several distributors are shutting down their counters and only allowing curb side pick-up and delivery. Another respondent said, “customers call when onsite for will call orders to be brought to their trucks.” Ordering also has been moved to electronic only in many cases as one distributor mentioned “you can place an order via text, e-commerce, phone and email. The order will be staged at the will call dock for pick up.” The same respondent also mentioned that they are doing all technical advice via facetime. Another mentioned they were able to set up call forwarding and remote connection to work computers so some of their counter team could work from home. 

Now that so many distributors have moved to fully embracing technology during this pandemic it will be interesting to see how some of these practices evolve into normal operating procedures and if they will become a competitive advantage.

Practice Sharing

Below are some practices being followed by members that may spark some ideas at your company.

  • Reducing hours of operation and staggering shifts.
  • Switching to curbside service for will call and delivery. Some requiring customers to take the pen they sign with and some no longer requiring signature for deliveries.
  • Split shift dividing employee base into two teams. Counter calls are forwarded to cell phones by extensions and ability to access work computer at home through remote connections.
  • Minimizing access to showrooms and warehouses to personnel only. Shutting down showroom or only allowing one rep in a showroom at a time.
  • Reinforcing hygiene practices from CDC constantly- signs, constant communication, hand washing requirements upon entering and exiting building.
  • Working from home, if possible.
  • Sending out messages about featured products having to do with indoor air quality.
  • Checking in on contractor customers to fully understand their policies and see how they are doing.
  • Putting tables in front of counter to provide additional distance between customer and counter staff.
  • No customers in building.
  • Company policy around travel i.e. if anyone has traveled by airplane, they must work remotely for 14 days. Some have completely restricted travel.
  • No sales visits with customers, no training events, no open houses and no in person meetings.
  • Clean and sanitize every hour.
  • Require drivers to wear gloves.

Please reach out to Tim Fisher, Brian Loftus, or Sarah Jilbert with any questions or concerns, and be sure to visit our COVID-19 resource page for more support on navigating COVID-19.