Opinion- Watsco continues to progress as a digitally enabled B2B distributor positioned to take share and grow


WATSCO announced their 2023 year-end results and highlighted their continued commitment to digital enablement at their March Investor Conference.

In the world of distribution with so many private or PE companies that do not report results – Watsco, Inc. announced record operating results for 2022 and provided commentary on trends, growth opportunities, technology innovation and financial strength at their March investor conference.

The WATSCO report Highlights

  • 16% increase in sales to a record $7.27 billion (14% increase on a same-store basis) – $6.3B in FY 2022
  • 22% increase in gross profit to a record $2.03 billion (130 basis-point increase in gross margin to a record 27.9%) – $1.7B in 2021
  • 15% increase in SG&A expenses (13% increase on a same-store basis)
  • 10 basis-point decline in SG&A as a percentage of sales
  • 32% increase in operating income to a record $832 million (33% increase to $835 million on an adjusted basis)
  • 140 basis-point increase in operating margin to a record 11.4% (11.5% on an adjusted basis) – 10% in 2021

In my opinion the storyline is – Better SG&A and expense control, 130 bps increase in GM% that drove operating margin over 11%. Some stellar results from the team in Miami.

Some WATSCO Digital highlights

Watsco’s PIM database contains approximately 1.3 million SKUs accessed by more than 350,000 contractors and technicians annually.

HVACR Pro+ Mobile AppsWatsco’s authenticated user community (mobile app users linked to an e-commerce account) grew 20% year-to-date to more than 51,000 users. – This is a growth of approximately 6,000 users from their 3rd quarter 2022 announced results.

E-Commerce Sales grew 17% in 2022, outpacing organic sales growth rates, to more than $2.3 billion during 2022. These results were comparable to the reported 3rd quarter 2022 results.

OnCallAir®, Watsco’s digital sales platform and CreditForComfort® its consumer financing platform experienced significant growth. During 2022, OnCall Air® presented quotes to approximately 225,000 households, a 37% increase over last year, and generated $939 million in gross merchandise value, a 49% increase over the same period last year. – Interesting to talk about activity – number of quotes to 225,000 households. The US Census Bureau reports that there are 131.6 Million households, so this is obviously an emerging offering for Watsco.

I was anxiously awaiting the publication of the March 17 Investor conference release before publishing this article and Watsco shared a couple of other key digital items in their release– (2022 Statistics)

  • 11% Higher ecommerce line items per order versus traditional orders – In 2021 Watsco reported this as 17% higher. As overall ecommerce orders grow there should be a regression to the mean, but it is still clear that lines per order on online orders are still above the Watsco average.
  • 63% Less attrition for ecommerce users versus traditional customers – In 2021 Watsco reported this as 70% less attrition. How attrition is measured can be arbitrary, but since digital is a key barrier to exit for customer why aren’t more distributors getting the message?

The storyline they report continues to be simple to see. The more digitally engaged Watsco customers are the more their sales grow, and they also don’t lose ecommerce customers at the same rate as they do traditional customers.

I think any distributor and manufacturer can see that more lines per order and happier customers are two very positive outcomes from a digital strategy. Digital is obviously a very big moat around the end customer for Watsco.

If you are a manufacturer what does this mean to you –

If you are a Watsco supplier, you have to more involved with their digital efforts. How do you fit in and where can you add value?

If you are not a Watsco supplier, you need to continue to yourself which distributors you can partner with that can deliver similar digital solutions (or have a plan to become more digital). If your channel partners are not as digitally enabled as you need, what can you develop that helps your channel close that gap?

If you are a competing distributor you need to continue to evaluate what digital strategy you can execute, and which manufacturer partners are advanced digitally that can help in your journey.

Your market position and resources require a solution that fits your business. This is not a you need to be Watsco or sell the business warning, but it is a call to action to do something digitally. I recommend that you start where you can, even with simple digital outreach campaigns.

As always, we would love to get your feedback, so please feel free to comment below or reach out to me directly at john.gunderson@dorngroup.com



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1 thought on “Opinion- Watsco continues to progress as a digitally enabled B2B distributor positioned to take share and grow”

  1. Great overview John. Watsco’s hitting on key cylinders. It also shows that having many SKUs on a site makes a difference.

    HVAC distributors need to be online. As Watsco shows, even the ability to share information and provide quotes is important. The transacting may be secondary. The recent Trimble / Distributor Data Solutions collaboration can help HVACR distributors get HVAC and other vertical market SKUs (i.e. plumbing and electrical) from one source so more quality content can be put online.

    And there are cost-effective platforms that distributors can use and be online relatively quickly (and that integrate with the DDS / Trimble content!) … reach out and I can advise … no project engagement required.

    The key is getting adoption. With tools such as Bluon, Supplier Xchange, Kojo and more, the “better” contractors are beginning to migrate to more effective processes (but not necessarily to “hunt and peck” ordering).

    Watsco grew because of the market but their cost-management enabled them to put the $ to the bottom line. Congrats to Watsco … more of this will be needed in 2023 to meet profitability goals for many.

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