• The Big Box Supply Saga

    June 1, 2007
    A wholesale distributor said to me the other day, You know, it's all about relationships in this business. How true that is, and it caused me to reflect

    A wholesale distributor said to me the other day, “You know, it's all about relationships in this business.” How true that is, and it caused me to reflect on how that simple philosophy has had an effect in our industry.

    Once again, a big box company has decided to get out of the “low-margin distribution business” and focus on the “more-profitable” retail side. There's nothing wrong with that, but I have to wonder what management was thinking when they originally believed they were going to adapt the wholesale distribution/contractor end of the business to a successful “retail model.” From my perspective, this scenario would be better described as just a part of the “continuing saga of HVACR industry agitation,” following on the heels of the Pameco and contractors' consolidation market turmoil. Is there something about our industry that prompts the great investment minds to ignore the fact that this industry is about relationships?

    I wonder if anyone else out there had an “I-could-have-told-you-so” feeling about those situations. If you take away the 200-ton elephant in the current scenario and just focus on wholesale distribution, it seems to me that we once again have people getting involved in a business they know nothing about but who believe “How hard can it be? It's just inventory, and the customers don't know anything.” Of course, those who know the business know better.

    I feel badly for people who get hurt by these industry changes, but in spite of discomfort or pain, I see a pattern.

    I always had the concern when the contractor consolidation was in full force that somewhere along the way a lot of people had dismissed the relationship between the contractor and the customer as unimportant, and believed that, by consolidation and applying “economies of scale,” everything would work out. Unfortunately, as it turned out, too many dual-income families who dominated the consumer base did care who was working on their HVACR unit while they were at work. Not big company “A” that advertised a lot but nobody knew the people, but Joe's Heating and Cooling that they knew from their civic involvement and the local diner, and who had been doing their work for years. I find it interesting how many of the contractors who took the “Wall Street money” (and who wouldn't?) and exited, ended up coming back and starting up again doing the same things for the same customers.

    Then there was the problem Pameco faced toward the end with the executive office doors spinning as management entered and exited trying to turn around a company and a business they did not understand. It's funny to me that others in wholesale distribution knew what the problem was; the suppliers knew, the sales and counterpeople knew, the warehouse people and the drivers knew, and, more importantly, their customers knew. Somehow, the message never got to the top. It's about relationships. As my father always said, “You have to earn respect, you can't demand it,” and it seems that applies to this situation as well. You may want the business but you have to earn it, and it takes a long time.

    Perhaps that applies to the big-box saga — a good company and great employees, but they never seemed to be able to move the customer base away from the traditional wholesalers and into their stable. I suspect it was probably a combination of things, but the relationships between customers and their wholesalers, built on years and years of earning respect, problem-solving, education, incentive trips, church and school involvement, and just plain “good friends,” highly influenced the reluctance to change.

    I trust I am not oversimplifying the issues because these are certainly complicated businesses and markets; but, in the end, it's still all about relationships.

    Don Frendberg,
    Executive vice president / COO