The COVID-19 pandemic has created a historic shortage of HVAC equipment. Yes, that is a bizarre, but true statement. At Ingram’s Water & Air, we know, because we’re experiencing it. Here’s how it all happened.
Retail commerce is divided between online and physical shopping, but not equally. Despite reliable growth in the e-commerce segment for the past twenty years, brick and mortar stores still control the lionshare of the retail market. According to IBM’s U.S. Retail Index, the COVID-19 pandemic jolted this disparity. In-person shopping dropped by 25% in Q1 and 75% in Q2. but online shopping surged. It is currently estimated that e-commerce jumped forward 5 years. In other words, current online shopping is experiencing levels of activity no one expected to see until 2025.
That’s not all that changed. Consumer spending tanked in the second quarter, and what was left shifted. In a typical recession you might expect to see a relatively even reduction in consumer activity across multiple market segments. In 2020, we saw spending collapse in the physical service industry. People simply stopped going to bars, restaurants, and public entertainment. Spending on motor vehicles and cars is down, because people are driving less. Spending on clothing and shoes is down, because people are going out to socialize less. Spending on gas is down. Spending on luxury goods like jewelry, watches, and luggage are all down.
Of course, consumers didn’t stop spending completely. Spending on furnishings and home equipment is up, because folks are at home more. That includes tools, equipment for home repairs, and appliances like HVAC systems.
For decades, HVAC manufacturing has been a stable market. We have not had huge swings in market volatility in which demand either surged and collapsed dramatically. Generally, the demand for HVAC products has grown steadily, with a few minor hiccups here and there, since the end of World War 2. Manufacturer equipment stockpiles were designed to accommodate steady growth. They were not built to meet unprecedented surges in demand.
There has definitely been a massive 2020 surge in HVAC equipment demand. Twenty years ago, before the rise of HVAC online retail, this surge might have been weathered relatively effectively. Local HVAC installation and service companies would have acted as a natural bottleneck. In 1995, if demand jumped 75% in a given metropolitan area, the local distributors were not going to run out of equipment, because the local installation services could staff up to deal with that kind of business increase in such a short period of time. Consumer demand would simply have to wait until an overworked local technician could get to their property, and the manufacturers would have plenty of time to produce their way out of any potential shortage.
Remember when we talked about the 5-year boost to e-commerce activity? For years, HVAC appliances have been one of the fastest growing products online. There are dozens of companies that cut out the middleman and sell HVAC products directly to homeowners. You can buy furnaces and air conditioners on Ebay or Amazon. There is no bottleneck.
This unexpected confluence of access and demand is further complicated by the nature of the COVID-19 pandemic itself. More than one manufacturing facility around the world has been forced to close for significant periods of time. The Chinese giants, Midea and Gree, closed for weeks. Goodman’s massive facility outside Houston was shut down. Even facilities that remained open saw reduced productivity due to employees missing work and new, unfamiliar protocols. Right when manufacturing needed to ramp up, many companies literally couldn’t.
Which brings us to where we are today. At Ingram’s Water & Air, we sell HVAC products online direct to home and business owners. We’ve never seen shortages like this before. Some entire product lines have been deactivated, and, frankly, no one knows when they will be turned back on. Thankfully, the summer surge is over, so what air conditioner and heat pump stocks remain will likely endure for the time being. The pre-winter furnace buying season has not started yet, so there are still significant furnace inventories available.
We do not expect the current lull to endure. We are 100% planning for a run on furnaces just like we saw a run on cooling equipment in June and July. Basically, if you plan to buy a furnace, buy a furnace now. Seriously, do it right now. Everyone is going to sell out this year. If you wait until you need a furnace, you might not find one.